Watch HowardCohodas Trade Index Options Credit Spreads

This is a discussion on Watch HowardCohodas Trade Index Options Credit Spreads within the Trading Journals forums, part of the Reception category; Originally Posted by spinola Question, maybe for the FAQ bit ? Why or what are the benefits of trading credit ...

Closed Thread
 
LinkBack Thread Tools Search this Thread
Old Nov 25, 2010, 11:21pm   #16
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by spinola View Post
Question, maybe for the FAQ bit ?

Why or what are the benefits of trading credit spreads, condors or greeks and what not, as opposed being taught how to trade directional out rights ?
Did I address your concerns? FAQ
HowardCohodas is offline Other (Please email T2W with details)  
Thanks! The following members like this post: spinola
Old Nov 26, 2010, 2:07am   #17
 
amit1986's Avatar
Joined May 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

Quote:
Originally Posted by arabianights View Post
I wouldn't mind attracting student, so long as they're under 21...
For your case, they'd also have to be over 19
__________________
Amit
amit1986 is offline  
Old Nov 26, 2010, 2:18am   #18
 
amit1986's Avatar
Joined May 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

Quote:
Originally Posted by spinola View Post
Question, maybe for the FAQ bit ?

Why or what are the benefits of trading credit spreads, condors or greeks and what not, as opposed being taught how to trade directional out rights ?
Risk. Howard mentioned in his previous post that as an ex-Software Engineer, he's used to always being in control. Directional trading is far from that...you're simply betting the market will go in your direction - not exactly being in complete control.

As I understand it, credit spread trading as Howard is doing, is not like directional trading. He is simply hoping to pocket the spread.

He has effectively covered the downside risk but at the expense of a limited upside potential.

Howard, out of curiousity, what models did you use compute the probabilities on your dashboard? Sorry if you already covered this, I may have missed it!

Great thread by the way!
__________________
Amit
amit1986 is offline  
Old Nov 26, 2010, 2:34am   #19
 
DionysusToast's Avatar
Joined Dec 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

Good luck with this Howard..

I have a few questions:

1 - You mentioned probability above. Can I confirm that you are using the option data to give you the probability of price hitting that point and not any additional analysis?

2 - What is the logic behind applying your strategy to 3 highly correlated markets?

I also have 1 request
1 - Could you add a few columns to the sheet - can you put in the fees - so we can see the total credit to the account after fees ? Could you also add in max risk ? I am guessing this comes from a spreadsheet & so the column should be easy to add. Whilst I don't think you need to be teaching people about spreads on here as per the A'rab - it would be nice if we didn't have to calculate risk & reward ourselves.

Cheers

DT
__________________
The proof of the pudding is whether there is actually any pudding in the first place.

Last edited by DionysusToast; Nov 26, 2010 at 2:54am.
DionysusToast is offline Software vendor  
Old Nov 26, 2010, 6:25am   #20
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by amit1986 View Post
Howard, out of curiousity, what models did you use compute the probabilities on your dashboard? Sorry if you already covered this, I may have missed it!
Now FAQ #3.

Last edited by HowardCohodas; Nov 26, 2010 at 6:52am. Reason: Refer to not FAQ
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 26, 2010, 6:45am   #21
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by DionysusToast View Post
1 - You mentioned probability above. Can I confirm that you are using the option data to give you the probability of price hitting that point and not any additional analysis?
See post on Probability of Touching - FAQ #3

Quote:
Originally Posted by DionysusToast View Post
2 - What is the logic behind applying your strategy to 3 highly correlated markets?
FAQ #1

Quote:
Originally Posted by DionysusToast View Post
I also have 1 request
1 - Could you add a few columns to the sheet - can you put in the fees - so we can see the total credit to the account after fees ? Could you also add in max risk ? I am guessing this comes from a spreadsheet & so the column should be easy to add. Whilst I don't think you need to be teaching people about spreads on here as per the A'rab - it would be nice if we didn't have to calculate risk & reward ourselves.
The spreadsheet data I provided comes from my Excel Dashboard. I do not have those columns. As much as I love you, I am not inclined to add them. However, the data is a pain to format for the forum, so I will likely write a simple application that spits out the data "forum ready." At that point I could be persuaded to add those columns.

Last edited by HowardCohodas; Nov 26, 2010 at 12:38pm.
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 26, 2010, 10:49pm   #22
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread Dashboard Updated - See link in signature.
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 26, 2010, 11:34pm   #23
 
Martinghoul's Avatar
Joined Feb 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

My question to you, Howard, is whether you have estimated how much you pay in commissions/bid-offer when doing these multi legged option strategies?
__________________
"Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness."
Martinghoul is offline  
Old Nov 26, 2010, 11:55pm   #24
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by Martinghoul View Post
My question to you, Howard, is whether you have estimated how much you pay in commissions/bid-offer when doing these multi legged option strategies?
I trade spreads as an entity with a specified limit on the credit I require. Bid/Ask is only an issue with respect to time to fill. If I don't get my price, I pass. The exception is when abandoning a spread which is done at market.

Commissions is a cost of doing business. It averages around 6.5% of the credit I receive. I could do better if I stuck to indexes with higher differences in strike prices. However, I trade several indexes for reasons discussed in the FAQ. Link in signature.
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 27, 2010, 2:54pm   #25
 
DionysusToast's Avatar
Joined Dec 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

Here's where I'd worry.

You are using a mathematical model to guide you as to the probability of a price range not being hit. It appears you have total faith in mathematical models.

Nobel prize winning mathematicians put forward a model that was adopted globally that was proven to be flawed. The flaw was in the assumptions fed into the model. The outcome was catastrophic.

Why is it that you believe in mathematical models so much? Do you believe that the probability in the TOS indicator you use will turn out to be valid at all times? How much does your system rely on life not throwing you a curveball?

Do you know something that Nobel price winning mathematicians do not ?

I have heard of people trading against options pricing models to take advantage of potential flaws but it appears you are trading with the models yet expecting to make a long term gain.
__________________
The proof of the pudding is whether there is actually any pudding in the first place.
DionysusToast is offline Software vendor  
Old Nov 27, 2010, 3:17pm   #26
Joined Jan 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

I've not gone into the strategy in too much detail yet, but are you computing probability using Black Scholes?

A one touch binary option will have a premium as percentage of payout, e.g. it might cost 25% to buy a 1mth 1.28 one touch in EUR/USD (I'm just guessing). This percentage does not represent the probability of anything, rather it reflects the anticipated cost of hedging (this is true for all option prices).
meanreversion is offline  
Old Nov 27, 2010, 3:22pm   #27
 
DionysusToast's Avatar
Joined Dec 2009
Re: Watch HowardCohodas Trade Index Options Credit Spreads

MR - My understanding is that the probability of touching does not come from any analysis. Rather from an indicator on a trading platform.

Quote:
Then I learned about TOS and became interested because of their deep experience in options and their feature-rich platform. As I was learning the platform, I discovered they had a probability of touching estimate as one of their built-in functions that could be added as a column in the option chain presentation. Their answer was close enough to mine that I abandoned mine and use theirs. In talks with TOS, I'm informed that the calculation is proprietary. And I have found no similar calculation in other platforms I have looked at.
__________________
The proof of the pudding is whether there is actually any pudding in the first place.
DionysusToast is offline Software vendor  
Old Nov 27, 2010, 4:30pm   #28
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by DionysusToast View Post
Here's where I'd worry.

You are using a mathematical model to guide you as to the probability of a price range not being hit. It appears you have total faith in mathematical models.
Not so much. I use the "Trust, but verify" approach.

Quote:
Originally Posted by HowardCohodas View Post
There are two key parts to a trading system; the strategy and the trader. Each must be a good performer to achieve trading success. And each must be continuously assessed to assure top performance. The journal is used for both of these tasks. The journal is all about quality assurance. Evaluating the strategy and the trader for any degradation in performance so that action can be taken before serious damage is done.
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 27, 2010, 4:34pm   #29
 
HowardCohodas's Avatar
Joined Sep 2010
Re: Watch HowardCohodas Trade Index Options Credit Spreads

HowardCohodas started this thread
Quote:
Originally Posted by meanreversion View Post
I've not gone into the strategy in too much detail yet, but are you computing probability using Black Scholes?

A one touch binary option will have a premium as percentage of payout, e.g. it might cost 25% to buy a 1mth 1.28 one touch in EUR/USD (I'm just guessing). This percentage does not represent the probability of anything, rather it reflects the anticipated cost of hedging (this is true for all option prices).
Full explanation of Probability of Touching as I derived it - FAQ #3. Link is signature.
HowardCohodas is offline Other (Please email T2W with details)  
Old Nov 28, 2010, 2:32pm   #30
 
HowardCohodas's Avatar
Joined Sep 2010
Iron Condor 14 Analysis

HowardCohodas started this thread Iron Condor 14 consisting of spreads 31 & 32, expired worthless for a return of 12.6%

IC 14 was a weekly series option. It was traded under preproduction constraints of only using small money. I'm still getting my sea legs with weeklies so I have not yet upgraded them to production status (serious money). I need to have a weekly trade cause me management concern to see if my rules handle it before moving to full production.

Code:
NDX   NOV4 10

Spread 
   31         CALL      6.8%
   32         PUT        5.0%

As an IC                12.6%

Last edited by HowardCohodas; Nov 28, 2010 at 6:11pm. Reason: Clarification & Calculation Error
HowardCohodas is offline Other (Please email T2W with details)  
Closed Thread

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
An interview with HowardCohodas arabianights General Trading Chat 55 Feb 19, 2011 5:01pm
Article: Debit Spreads Vs Credit Spreads T2W Bot Educational Resources 0 Oct 23, 2010 12:46am
ig index spreads are Bakez Spread Betting & CFDs 1 Oct 11, 2010 9:40pm
IG Index FX spreads fiftyfifty Spread Betting & CFDs 10 Jan 22, 2008 4:29pm

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)