Defensive Measures

[cutz]

Hi Costa,

I can't really say too much about one way credit spreads because I'm not an educator ( don't want to lead you astray ) and I haven't had much experience with them but in a nutshell when you lay on a credit spread, ( using your example a bull put ) you have an outlook on prevailing conditions ( you're bullish ) so you initiate a position consisting of x amount of delta.

If the trade moves against you you pick up delta so you find yourself in an uncomfortable position, you can either start praying or start shorting in order to get delta back to where it was.

 

[mazzatelli]

Is their a strategy that you prefer to credit spreads? if so can you please let me know what it is and maybe some defensive measures you take if sold strike threatened? Thanks in advance...

I recommend you grasp how ops are priced & risks measured before trading any further. All this talk of rolling out after adverse moves & max gamma/vol distro is analogous to a martingale.

Trading ops isn't restricted to defending price levels based on touch probability - there is much more usage. There's alot of discussion on this forum [condors, flies, calendars, covered calls], that you should have a look at.

Generally in the context of vanilla ops, I don't defend a bet that has gone against me. Adj's are only made to lock in profits.

 

[cutz]

Costa,

Forgot to mention in my last post that you will introduce some upside risk that you'll need to manage. Anyway there aren't any hard and fast rules for all situations, that's where practical experience kicks in, suggest dealing with smaller size when starting out and exploring mazza's suggested reading.

 

[Grinder]

Costa, your getting some invaluable info here from some old pros. As already mentioned straight directionals have their flaws as do all named strategies, best to work on understanding the make up of an option. The greeks will give you what you need when determining the best defensive moves.

 

[cutz]

Generally in the context of vanilla ops, I don't defend a bet that has gone against me. Adj's are only made to lock in profits.

Hi mazza,

Are you talking in the context of say the markets are constantly fluctuating (goes without saying ) so you'll close out the winning side then wait for a retracement before closing out the other side rather than constantly adjusting both sides and locking in both profits and losses, after all max risk is always defined.

 

[tuhin]

can someone please advise if this is a proper horizontal credit option trade with both short trade expected to be closed out before Feb expiry

XJO

B 20 Feb 4500 Put
S 20 Mar 4500 Put
Net credit $8k

B 20 Feb 5300 Call
S 20 Mar 5300 Call
Net credit $2k

 

[Grinder]

Hi mazza,

Are you talking in the context of say the markets are constantly fluctuating (goes without saying ) so you'll close out the winning side then wait for a retracement before closing out the other side rather than constantly adjusting both sides and locking in both profits and losses, after all max risk is always defined.

Im obviously not mazza but will throw in my nontheless, tend not to lock in losses. Would look for retracements to adjust each side seperately and morph into another position if the R/R looks attractive enough.