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2021.12.08 – SESSION 30 – GO ASK A TRADER

11 replies, 7 voices Last updated by Sherri Locke 1 month, 2 weeks ago
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    • #18282

      Sherri Locke
      Keymaster
      @KDAKSj4ux
      Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

      The recording of the GO Ask A Trader session from earlier today is ready to view. Enjoy!

    • #18275

      David Wagner
      Participant
      @hazelnutfoundry@gmail.com
      Points: 334
      Rank: Freshman

      Hi John,

      Could you provide some guidance specifically on vertical skew and examples of how you interpret the volatility charts in ONE to make tactical decisions in your trades?  I’m working on my subjective skills and am struggling to make sense of the nuances of the various shifts within the graphs.  I’ve been going back and comparing different time series to understand broadly how they look in different environments (e.g. is the skew flat, is it steep, etc)… that is relatively clear. What I’m struggling to make sense of are the more nuanced shifts that may happen over the course of a couple days.  For example, I was looking back over the late-October period in the SPX where we had rising vol with rising prices. I wanted to practice trying to recognize the shift in vertical skew so I could adapt my trades to that condition as it developed, but I’m struggling to make sense of any difference in the lines.

      Appreciate the guidance as always!

      David W.

    • #18274

      Rick Rinaldo
      Participant
      @rinaldo.rick@gmail.com
      Points: 375
      Rank: Freshman

      Hi John,

      I’m in the process of setting goals and objectives for my trading in 2022.  One change in direction I’m considering is to focus on just one index.  I currently trade the X4 series and the M3.4U, both subjectively.  I haven’t enjoyed having a handful of trades on when we get big downward market moves as I find it a challenge to effectively manage multiple positions at a time in that situation (thus I would look to trade one index twice the size of my current approach).  Additionally, I’m assuming I will see multiple benefits to focusing my time: including, learning current and past volatility structures, back testing of strategies and TA with one index vs. trying to do it with two.

      I guess I have two questions.  First, am I missing anything in how I’m thinking about this?  Second, I really like trading both the RUT and SPX – – is it a matter of just picking one or are there factors I should consider?  (My current lean is for the RUT)

      Thanks!

       

    • #18272

      Dave Nadeau
      Participant
      @dave.nadeau@live.com
      Points: 294
      Rank: Freshman

      Hi John,

      I have a question about Verticals and adjustments.  For many Butteryfly-type trades, adjustments are accomplished through the movement of the wings or the center strikes.  Generally, those work out to Verticals, and sometimes Condors of some sort.

      Many teach a fundamental concept of Sell Premium when IV is high, and Buy Premium when it is low.  I’ve heard this often over the years, and I’m not sure I completely agree (I buy BFlys when IV is high, which means they are cheap, and the Super Bull does great, of course), but generally speaking, and especially for Verticals, this has made sense to me.

      When I adjust an M3 or BWB, I tend to like to sell or buy Verticals depending on my market expectation for IV.  It makes sense to me, but really, am I splitting hairs?  Will either buying or selling Verticals to make an adjustment be equivalent, and just fine either way?  Or is this a nuance that might be helpful?

      Thanks for your thoughts, John!

      —  Dave Nadeau

      • #18273

        Dave Nadeau
        Participant
        @dave.nadeau@live.com
        Points: 294
        Rank: Freshman

        And, I realize that this can be viewed in the context of the overall combination for that trade.  It will increase negative Vega (more negative) when IV is high with the expectation that IV will drop, and in other situations, when IV is lower, buying Verticals will increase (lower the amount of negative Vega) the Vega in the combination and make the trade less susceptible to drawing down in an IV increase.

        But as above, is this a big thing, a nuance to consider, or not really that important?

        Thanks, John!

    • #18271

      Lee Powell
      Participant
      @LEEPOWELL96002@GMAIL.COM
      Points: 108
      Rank: Newbie

      John had presented a Short Term Calendar Spread strategy (15/18 DTE) back in March 2021.

      Would you avoid entering an SPX calendar trade given the current elevated IV (given the risk of IV decline would likely crush the position) even though the risk/reward ratio can be enticing?

      Also, would you avoid entering a calendar trade if/when ATM strike is showing negative horizontal skew (contango) versus positive skew (backwardation)?  Ideally we want the front cycle theta to decline at a faster rate than the back cycle.  I have seen some strategies that suggest to pick the least negative skew call/put option — but I am wondering if it would be wise to skip a trade if there were negative horizontal skew.

      I look forward to hearing your thoughts.

    • #18248

      Jesse Starosta
      Participant
      @starosta.jesse@gmail.com
      Points: 145
      Rank: Newbie

      With the large increase in asset prices through Covid, are the trades and specifically the M3.4U trade sized differently for current market environments?

      • #18261

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        Hi Jesse, This is actually a very short answer so I’ll address it here.

        No the wings are not sized differently than in the original program.

    • #18229

      Sherri Locke
      Keymaster
      @KDAKSj4ux
      Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

      How can I properly organize and track all of the trades? – Posted for Jesse

      • #18262

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        Jesse,

        Another simple response that can be addressed here.

        What is your stage? Based on the question I’m guessing Stage 1

        First, if you are in stages 1, 2, or 3 you should be dealing with an absolute maximum of 3 stage appropriate strategies at any given time.

        I would  suggest organizing and tracking those strategies separately in Option Net Explorer analytical software as demonstrated in the weekly Options Trading for Income sessions we have on Monday morning.

        Note that you brokerage software likely will not properly track P/L. If you have TD Ameritrade/TOS watch this video  to track proper P/L………………………. https://youtu.be/rtrCmZVaMGc

    • #18226

      Sherri Locke
      Keymaster
      @KDAKSj4ux
      Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

      What are the differences between the M3 and the M3.4u? – Posted for David

    • #18186

      Sherri Locke
      Keymaster
      @KDAKSj4ux
      Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

      We highly encourage PRO, GO, and Trading Performance members to post their questions and topics to be discussed in the REPLY TO text box below at least 48 hours in advance of this meeting.

      Click here if you would like to request a mini coaching session.

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