Trading Vehicle: options for SPX, RUT, NDX
Strategy:
- short puts and calls, combination short strangles.
- Better profits than Iron Condors but has unlimited risk in theory.
- Calls: 90% probability of success (10% ITM prob.) and above major resistance level
- Puts: 95% probability of success (5% ITM prob.), corresponds to about up to 12% SPX drop
- Usually sell more put contracts than call contracts
- Around 2 standard deviation Bollinger bands
Option cycle selection
- Start with 56 days (8 weeks) before expiration to get wider profit zone and open with 50%+ positions
- Also may adjust with options of same cycle as the starting position for average market conditions
Entry (Legged in)
- Sell calls when market rises
- Sell puts when market falls
Exit (It was not really clear to me at this point)
- Usually exit in a month
- Profit target is around 15% of positions
- Will let further OTM (1% ITM probability) options expire worthless
Adjustments: Use additional capital to keep profits and TOS analyzer tool
- Start adjustments when ITM probability reaches a certain number, like 30%.
- Normally, keep identical profits by rolling up/down/out and selling new contracts.
- Under extreme market sell-off conditions (1000 point drop in DOW JONES average), give up profits of a few month to roll out a couple of months and wait for market to settle down.
- No stop losses, No delta neutralization via call/put purchases.
Money Management
- Suggested usage of 50% of capital
- With adjustments on, use up to 70/80%
- Large use of capital justified by wide break-even points
- Watch net liquidation values (I'm not clear about it)
Psychology and Mindset
- Trading is a number's game
- Focus on the probability, not P&L.
- Manage trading process
- Losses are acceptable (No fear)
- Lower returns caused by lower market volatility are OK
- Keep rules simple and anything else are noises
Trading Time: Monitor markets during all trading days and hours
Trading Team: 5 traders of similar mind and 1 accountant
Thank you for posting this. I, like you, find it very interesting. I'm going to start paper trading this to see how I do. I'm new at this, but have a basic understand. I'd love to hear how you have done and what you've learned since Nov 2012. Thanks again.
ReplyDeleteDan
Thank you for encouraging comment, Dan. I'll share with you what I learned from Karen's strategy in my posts in the next couple of weeks. If you have a blog, please let me know. You can also contact me at smoothprofitoptions at hotmail dot com.
DeleteHi Charles,
DeleteNice blog, great learning.
I am using karen's strategy in India for last 3 months with Margin Portfolio account of 1M$. Request you to clarify few of my queries which have cropped up during my trade.
1. 15% profit refers to what? to the margin or to the premium received?
2. Karen was also referring to flipping the position 3-4 times. Can you please elaborate on this point.
3. As we do not have TOS platform, I am calculating ITM % using excel sheet. I would like to know which volatility to use for the calculation of ITM%. Whether respective strike's IV or VIX in general?
Hi Prakash,
DeleteGood questions.
1. In the initial tests by our Super Trader Karen Study group, we quickly realized that 15% cannot be based on premium received. It may be margin or some value related to the account, which is still under study.
2. I'm not sure on this for now. If I have more understanding of it, I'll post it and make another reply here.
3. It must be a lot of work to calculate ITM% in excel. I think there are some excel calculator for sale on the internet. I think the default vol in TOS software is the composite IV of SPX, RUT, ETC. The following article from TOS should give you some good hints about how they calculate probability: http://mediaserver.thinkorswim.com/transcripts/touching.pdf
Thanks
Charles
Thanks a lot for your effort to dig out the article on how to calculate the probability. The article is very useful and has increased my level of confidence. (for your information I have searched extensively for article like this, but in vain :) )
DeleteIs it possible to throw some light on on my second question (how to flip the position 3-4 times to increase profit)?
Thanks again
She is full of baloney. To sell 2 standard deviations away 2 month out maybe the premiums are a few hundred dollars. However the margin requirements are around $29,000 per SPX contract. In OCT 2008 I sold naked SPX puts two standard deviations away with a premium of $100 and I had to buy them back at $17,000. She unquestionably would have been wiped out in Aug 2011 when the market dropped 200 points. I think she is a liar.
DeleteHi Prakash,
DeleteGlad to know the info is useful for you. I'll post my thoughts on your remaining question when I'm ready.
If you are interested, please feel free to join the Super Trader Karen Study Group: http://groups.yahoo.com/neo/groups/supertraderkarenstudy/info, or contact me in email.
Thanks
Charles
Hi Prakash
DeleteI am from India too and i needed to discuss some issues with you. so it would be nice if you could provide your contact no...
Thank you
Hi Prakash
DeleteI am from India too and i needed to discuss some issues with you so it would be really nice if you could provide your contact no....
Thank you
Be sure you do the math on a Strangle vs. Iron Condor. ThinkOrSwim is my broker and on my margin (not IRA) account here are my numbers as of 1/12/13: SPX Strangle MAR 1560/1260 = ($495 - $3 commissions)/$20,651.50 = 2.38% max net profit; SPX Iron Condor MAR 1560/1570/1260/1250 = ($110 - $6 commissions)/$896 = 11.61% max net profit.
ReplyDeleteGood comment on ROM (Return on Margin)! Thanks a lot.
DeleteShe must be using portfolio margin and calculating her returns on that margin. Otherwise, I don't see how you can go that far out at still return 15% on anything. Unless I don't understand clearly what she is doing.
DeleteSuperTrader Karen said in one interview that portfolio margin is what makes her trading work.
DeleteInteresting post! I'm no option expert but wonder how super K is able to get such returns given max ROM of less than 3% for a 50-60 day period. Thx.
ReplyDeleteAndré
A good thought-provoking question. I hope someone can provide a better answer. It looks to me the specific marign requirements do have a significant impact on the actual account return rate. I remember the interview indicated the biggest loss occurred when TOS tightenned the margin requirement withouth any advanced notification. It was stated that at that time, they had to close many positions in one day. I believe it was also mentioned that the high amount of margin used by the super trader was one of the reasons that got TOS attention.
DeleteIt should be possible to use a free internet rate calculater to estimate the average return of account for each month roughly, given the starting & ending capital, and the duration of serval year span mentioned in the two interview videos.
CBOE has an interesting tool to calculate margin requirements:
Deletehttp://www.cboe.com/tradtool/mCalc/default.aspx
(you need to register I believe to be able to use it --> it's free!)
You are right! She must be highly leveraged and probably very lucky... so far! :)
André
Karen maybe getting outstanding returns because she does not wait until they expire. She my close out her positions when she has a nice profit which my occur after only a few weeks.
DeleteI write options on stocks, and you can generate a nice return by writing options with a few weeks left far out of the money after something occurs that significantly increases the premium.
Hey guys. Don't do naked strangles with equity, stick to indexes. This strategy is legit 95% of the time, however, we all know that those 5% Black Swans occur so be careful.
ReplyDeleteAll I know is if she has a $100 Million fund making 30% a year ($30,000,000 gain) she has to collect on average $82,000 of Theta Decay a day. That would equate to $82 a day of Theta on a $100,000 account. Seems plausible.
OptionsJedi
Unless I missed something, it wasn't clear to me from the video what the average annual return has been (given the significant infusion of cash from other investors). Is the 30% number you mention above an example for calculation purposes, or were you able to estimate this as her actual annualized growth rate from the video?
DeleteAlso I, too, would like to express my appreciation for a very thoughtful blog and respectful commentary.
...And in the spirit of full disclosure, I want to state that my questions and comments at this point are anonymous because I am a professional money manager and want to be careful about compliance and regulatory issues that might arise were my identity to be revealed without proper disclaimers, etc.
Thanks again.
Can someone explain what it means when she has "50% capital commited"? Is that the notional value of the contracts is equal to 50% of the fund assets? I have no idea can anyone clarify?
ReplyDeleteMy guess is the margins of the opened positions reaching 50% of account liquidation value before adjustment trades. It could reach 80% after adustments.
DeleteThank you for your response..but I am still trying to understand. Can we look at an example?
DeleteSuppose a $100,000 account trading SPY options. With SPY @ 152 Karen would look to write puts in April (55days) roughly 17% OTM - or at a strike of approx 127. April 127 have a delta of -.00257 which is a little lower than her usual -.005. To get delta of -.005 she would write the April 133 for about $.28 ($28/contract).
On the call side, she might write the April 160 (delta of .008) for $.14 ($14/contract).
My question, sir, is how many contracts would she write of each put & call in order to get her level of daily theta decay & remain within her margin requirements?
Just trying to understand this better and your blog entry is the best I've found on this topic.
Many thanks.
Based on my analysis today (see today's post), you need to sell about 20 SPY strangles to get $50K margin requirement.
DeleteI also saw Karen on Tastytrade and was very taken with the simplicity and elegance of the strategy. I am also very pleased to have found this blog where helpfulness, politeness and good manners are present unlike some trading forums.
ReplyDeleteMy congratulations to all, I will drop by again for more info on Karen.
Thanks a lot for your kind words. I'm glad this post is useful for readers. Let's share interesting info on Karen or option strategy of her style.
DeleteHi,
ReplyDeleteThanks for gr8 discusion.One point which got missed was to use trade vehicle of SPY,IWM and QQQ in case of less capital folks.
Anil
In order to make a worthwhile profit percentage on naked options you would need portfolio margin. I contacted thinkorswim about portfolio margin and they stated that you would need $125,000+ before my one taxable brokerage account would be eligible, IRA accounts not eligible. The portfolio margin amount depends on the underlying but the best they said I could get would 20% of underlying so if I sold 1 put contract at the 100 strike, they would hold back $2000, but as the market moved against me and the price of the option changes, they could hold more, all the way up to the full $10000 (100%) for me to fulfill my obligation to buy the underlying.
ReplyDeleteThanks a lot for sharing your insights.
DeleteFYI: I recently realized it and shared with everyone in a post on March 16, 2013: http://smoothprofit.blogspot.com/2013/03/super-trader-karens-portfolio-margin.html.
I would like to know who this "Karen the Super Trader" really is. Does she have a last name and a website? Does she mentor, teach and train people how to utilize her trading strategies to make money? What is her company name and website URL?
ReplyDeleteDoes anybody know the answer to any of these questions? Inquiring minds want to know.
Please and thank you.
SuperTrader WannaBe
Good questions. I wish I knew. Will appreciate the info if anyone can tell. You might have a chance if you email Tony of TastyTrade via his LinkedIn page. Try to copy and past the shortened URL to your browser: http://goo.gl/RkVLJ
ReplyDeleteHi there,
DeleteKaren's identify is now revealed: Karen Bruton. Check out the her foundation's link below about her.
http://www.justhopeinternational.org/About_JHI/Our_Team/
Hope this helps.
Charles
I agree...great discussion on the strategies Karen uses in her portfolio. Some have posted about mirroring the strategy with the SPY, IWM, etc. You get fairly close numbers as far as ROI, but they are going to be lower simply because of the commission structure. One thing to keep in mind is that adjustments are the most important thing she does as a manager of her portfolio. Also, even though she is using very high probability, she still monitors the markets every day they are open. That speaks to her tenacity to manage the accounts properly. Too many amateurs want to put the trades on and leave them. The big thing that separates her is that she knows exactly what to do when the trade goes against her as far as adjusting and taking advantage of other credit spreads to make up for the initial loss. That is why she mentions "when you give me your money, you don't get it back." She makes sure that the market does not get it back when she receives the credit.
ReplyDeleteVery well written comments with insights on adjustments.
DeleteThanka a lot.
Charles
Great post, thank you.
ReplyDeleteCould somebody please elaborate on the exit strategy a little? (in very basic terms :P )
I wish the exit strategy was disclosed with a little bit more details at the interview. I believe there are exit rules related to both time and value of the options.
DeleteAfter a certain time of entry, like one month, a position may be closed, for a profit (sure) or for a loss (not sure?).
As the value of the options decreases to generate a proft around 15%, the position may be closed. For options that do not face danger (continue to maintain a high probability of success), they will be allowed to expire worthless.
As the value of the options increases to preset potential loss, new options of further out of the money and/or out in time are sold to cover the losses. There are no stop loss schemes used in the system.
This is my understanding. Anyone who has more insights are welcome to commment.
Thanks
Charles
I think I understood a bit differently from the video (the following may contain many newbie statements, please excuse, and I'd appreciate any words of wisdom :)-
Delete1. her strategy is to make money from premium only by selling puts & calls (much more puts than calls), so not exactly classic short strangles
2. Exit strategy was implied when they discussed her objective - it is to let the options expire worthless, but they are starting to reconsider positions that get close to 30% ITM (rolling up\down\out)
playing a little with ThinkOrSwim paper money account proved almost impossible with a US$200K account, the premium is so low compared to the option buying power that is reduced...I presume that if your account has more than $50M you have more breathing room though, and 50-70% capital committed makes sense in terms of their rapid growth..I think this is authentic ;)
Hi Ohad,
DeleteI think your understanding are basically correct.
1. Yes, the strategy is not classic short strangles. I believe it can be referred to as combination strangles.
2. What you said is true. But they also mentioned other exit criteria as I remembered.
3. Did you read my post about Karen's portfolio margin? It will reduce margin requirement dramatically.
Thanks
Charles
Hi Charles,
DeleteThe Karen's portfolio margin had been deleted. Can you provide a valid link on that? Thanks a lots!!
Yr posts are really informative!!
The post about the portfolio margin is still available: http://smoothprofit.blogspot.com/2013/03/super-trader-karens-portfolio-margin.html.
DeleteLet me know if you have any comments about it.
Thanks
Charles
Sorry Charles, but at the link above i didn't find the post on portfolio margin. Can you tell me where is? Thanks. M.
DeleteI clicked on the link with Google Chrome. It brought me right to the page. You can find it on the popular post side column as well.
DeleteHi guys, I was thinking of selling call or put spreads using the 56 DTE strategy and exiting only if there is a 30% ITM risk. Otherwise I will allow it to expire worthless.
ReplyDeleteThe best Theta is between 30-50 DTE. So getting in at 56 DTE and exiting 30 DTE might not be such a bad idea.just wondering if she has a strategy to exit regardless when she makes 15% profit. Or does she allow them to expire worthless.
Doing so would mean more money committed and less to invest.
Nice comments. I think there were no details given on the exit strategy at the interviews and it left a lot of rooms for other imaginations on this topic.
DeleteIf I could use my average mind to attempt to think like the exceptional super-trader, I guess one of the exit rules can be the following.
We could define a set of rules to determine market outlook. If the outlook is bullish, we may leave the sold puts expire worthless and close the sold calls once 15% profit is reached before 30 DTE. On the other hand, if the outlook is bearish, we can do the opposite.
BYW, how do we know the best Theta is 30 to 50 Day-To-Expiration? I've been thinking about drawing a chart to display Theta over time to study the Theta decay. But I could not decide whether to use Theta or some other variable that is derived from Theta, since Theta itself is heavily influenced by the option prices.
during one of her interviews I am pretty sure she said that in the last 30 days she does not close positions, she lets them expire, during the first half of a trade she will look at closing the trade if she has made some significant percentage of the profits.
DeleteMany of the questions being asked are being answered in a course I am taking called OptionsMD by Doc Severson. It is very logical and you will be taught the right way to trade options. Check out his options pyramid.
ReplyDeleteGreat Recap, Thanks !
ReplyDeleteGreat Blog, a lot of helpful information here and obviously, thank you in your effort,keep posting .
ReplyDeleteIs anybody interested in working together to try to trade her system ?
ReplyDeleteI am willing to work together to trade her system.
DeleteHow can anonymous persons work together?
DeleteIf you're serious, please contact me at smoothprofitoptions AT Hotmail DOT com. I'll connect you if I receive your emails.
Good Luck!
Charles
Great blog! I'm currently starting to scale up my Roth IRA account to just do short theta options trading. However, I have just enough that can be withdrawn (without penalty) to convert to portfolio margin. Does anyone know of a resource where I could think through the pro's and con's of doing this?
ReplyDeletePersonally, I would not think about using real money without a decent understanding of the involved strategies. I think tastytrade and redoption provides some training for Theta trades.
DeleteI AM NOT FROM USA, BUT HAVE BEEN CURIOUS ABOUT INDEX OPTIONS RECENTLY. MY QUESTIONS ARE - A) WHY DOES SHE PRETEND THAT THE MARKET IS AT A LOWER LEVEL TO DECIDE ON WHICH OPTION TO SELL. B) WHEN SHE SELECTS OPTIONS TO SELL - 56 DTE, SHE LOOKS AT 2SD ON BB WITH RESISTANCE LEVEL FOR CALLS AND SUPPORT LEVEL FOR PUTS WHEN SHE SELL PUTS. SHE LOOKS AT DELTA 5% ITM PROB FOR PUTS AND 10% ITM PROB FOR CALLS. HOWEVER SHE MENTIONS THAT SHE SELLS CALLS WHEN MARKET GOES UP ( BUT THIS WILL MEAN ITM PROB WILL INCREASE BEYOND 10% ) AND SIMILARLY FOR THE PUTS WHEN THE MARKET FALLS. SO HOW CAN YOU SAY YOU ARE SELECTING WAY OUT OF THE MONEY CALLS AND PUTS FOR TRADING. CAN SOMEBODY PLEASE THROW LIGHT ON THIS ?
ReplyDeletePRADIP
Charles , there is theta decay chart in the following link. Could be helpful for every body. Roughly it shows that decay between say 55 days to 20 days is equivalent to last 20 days decays.:
ReplyDeletehttp://tylerstrading.blogspot.in/2009/03/theta.html
PRADIP
Hi Pradip,
DeleteThanks for sharing the info. It's very helpful. As you probably know, that theta decay chart is theoretical for an ATM option. It assumes the stock price does not change in the charted time frame, which never happen in real trading.
I have another time decay chart for a real option in my blog: http://smoothprofit.blogspot.com/2013/04/the-actual-time-decay-chart-of-otm.html. I'd like to make it more normalized in the future if I get a chance.
Thanks again for your comments.
Charles
how would such a strategy survive the flash crash of May 2010 or the wild swings of July - Sept in 2011???
ReplyDeleteWalt
The reaction to the flash crash of May 2010 was discussed in the video. My summary of the discussion is:
DeleteUnder extreme market sell-off conditions (1000 point drop in DOW JONES average), give up profits of a few month to roll out a couple of months and wait for market to settle down.
Sorry, but that is just not possible, in theory it will but in reality, the vix will go true the roof and the options will be crazy priced, all those far OTM options yielding small $$ will be priced A LOT in a blink, you will have to buy them back in a flash second with a huge loss, well, your broker will do it and set your account literally at $0. You will blow up. Simple as that. Thanks for this blog, great research.
DeleteGREAT article! I really enjoyed watching the video with Karen, Tom, and Tony. On thing I don't understand are Bollinger Bands. What are they and how does Karen use them? What does she mean by 2 standard deviations with the BB?
ReplyDeleteThanks!
BB is a common concept used in trading methods that involve applications of statistics. SD determines the upper and lower boundaries of the Bollinger bands if other factors are not changed. 2 SD gives about 95% of probability of ranging within the BB boundary for stock prices. Note this is theoretical only. You can google it for more details.
DeleteI believe Karen uses BB in option strike selections since she seeks high probability of success. If the strike price is located outside the BB with 2 SD, the probability reaches over 95%.
Hi Charles,
ReplyDeleteI'm very glad that I found your post and thank you so much for documenting this. Keep up the good work.
Regards,
Vin
Hi all,
ReplyDeleteThanks for your interests and comments in this post. If you are curious or skeptical about Karen's legitimacy, please read my post today: http://smoothprofit.blogspot.com/2013/11/skeptical-about-super-trader-karens.html
Thanks
Charles
Her name is Karen Bruton - she is the founder of Hope Investments LLC in Brentwood TN. I am curious how much she gives to Charity as she claims and if the Form 990's match up with the claims. It is truly impressive that she has never had a losing month. Is this possible?
ReplyDeleteI don't think it's possible to not have a losing month for this type of strategy.
DeleteBut I don't remember Karen made any statements about never losing in a month in the interviews. I'm impressed by her claim that her largest loss occurred when TOS changed margin requirements without notifying customers. This was the reason I included a statement about using additional capital for trade adjustments in the Adjustment section of this post. Traders have to meet the margin requirement in order to use additional capital for portfolio adjustments.
Not sure if this blog is still open but I've been doing Karens method now for several months with close to 100% success; where she goes 2 SD, i go much farther but do sell more contracts. My goal is to collect anywhere between 2K-4K a month in income. Right now with market in uptrend i've just been selling puts. And yes I do have a PM account. would love to be part of discussion/share ideas
ReplyDeleteIf you like discussions, please join the Super Trader Karen Study group: http://groups.yahoo.com/neo/groups/supertraderkarenstudy/info
DeleteI have been trying to uncover her strategy and maybe I don't fully understand it. I thought she was selling naked calls above the market and naked puts below the market. Legging in and out as the market fluctuates. Well, if you sell 1 SPX PUT at a delta of 0.10, you can bring in about $2.00 with 32 days before expiration. The buying power on the account is $13,000. Assuming you had an account size of $100,000 and you only exposed half of it to this strategy, it would take over 100 trades to double your money. She made money at a much faster rate than this, so I am not sure I have it correctly. Do you understand the strategy differently?
ReplyDeleteYou're not the first one to ask this type of questions. I have a couple of other posts that discussed the portfolio margin. As an example, you can read the following post: http://smoothprofit.blogspot.com/2013/03/super-trader-karens-portfolio-margin.html.
DeletePlease let me know if you have further questions on it.
Thanks for your good comments.
Charles
the part they left out in most of the interviews is that she is not doubling her money every year. she has two accounts and made 24% in one and I think 27% in the other. They talk about how she made $24 million, but she started with $100 million in her trading accounts.
DeleteVery interesting post and comments!
ReplyDeleteI have just noted that Karen will be on tastytrade again on Feb 11th, 2014 @ 7pm CT. Looking forward to seeing her and maybe filling some gaps in my understanding.
I tried to watch the first one, yet only got through first 11 min or so when the browser locked up. I, like a lot of others, think the one host talked way too much- They could have explained the whole thing in a third of the time had he just kept his mouth shut and allowed her to talk
DeleteHey Charles, gr8 initiative, good blog. I was wondering if i cud use ur blog as a platform to get in touch with any body in new Delhi, India trading the Karen strategy.
ReplyDeletei m a full time speculator and trade credit spreads, somehow feel shorting straddles is 1 black swan away from ruin.
Here are some of her SEC forms... http://www.formds.com/issuers/hope-investments-llc
ReplyDelete1.In the three products that she is trading, is there enough option volume to support the size of her trades?
ReplyDelete2. If she is trading only three products (in set strategies), why would you need six traders?
3. She says the buys/sells are part if a set "process." ...but I believe she also says that they are always discussing strategies. If you have process that's always working what strategies is she discussing?
4. I thought she said that she doesn't try to predict market direction, then why is she using bolinger bands.
5. HAs anyone seen audited financial statements by a reputable CPA firm?
She is employing a simple strategy that has a great probability to make money, but at the expense of being exposed to a black swan event. My guess is she's done everything she can to make this strategy survivable and accepted the fact that someday it can blow up.
Delete1. Spread your bets among as many products as you can that are correlated, and have great liquidity and volume so you have a chance to escape a black swan. (For example, your ability to get out of your SPY, RUT, and NDX positions will be 3 times a single SPY position because you only need to move 1/3 as many shares).
2. Establish a 50% cap, ensuring that only half your account is tied up in positions/margin in case of an emergency, and the other half is available.
3. Establish parameters for what % below that cap you want your existing positions to be under predefined conditions. I doubt very much she always has 50% tied up, that would be suicide with this strategy.
4. Set up some rules for amputating your limbs if the market begins to move against you.
5. Hire 6 guys you trust to watch the markets 24x7 and execute these rules.
6. Pray a flash crash doesn't happen out of the blue that can't be escaped, or that your rules have reduced your position so far before one hits that you survive.
Summary: Adopt a dangerous strategy that ensures a good steady cash flow and play as conservatively as you can to ensure you can milk it for as long as possible. My guess is she's got a first out the door plan and isn't afraid to give up profits to get out first.
Let's face it, most of the biggest winners in history made it big because they were both ballsy, AND lucky enough to employ the right strategy at the right time.
Smiddywesson
Guys,
ReplyDeleteI am posting this with the understanding that it will fall on deaf ears, but hopefully a few will listen. I was sitting in front of my computer during the flash crash and watched horrified as sold options went up 10-20x in an instant and not being able to close them even at market. There is no cutting and rolling in a black swan event! What if the market closes again for 5 days? This strategy works great until it doesn't. And unfortunately when it doesn't it can take you out forever. Listening to her interview, she stated that last year in a bull market she sold more short puts than short calls and the puts were longer dated. This means like it or not she was trading directionally (long delta short vega). Most of the delta neutral premium selling guys I know had a tough year last year. If you want to sell, then spend a little bit of what you earn and buy some cheap wings. Yes your portfolio will still take a 10-20% hit in a black swan event or you may never get anything out of the longs. But when an unthinkable event happens you will at least be still in the game
I buy the cheap wings, especially on the PUT side.I also scatter my positions. I don't put them on all at once. I know what I will lose and it isn't going to wipe me out. It will hurt a little, but better safe than sorry.
DeleteI usually sell option expiry of 70 to 80 days and buy options current to hedge
ReplyDeletesuppose I sell 6500 Call and 6500 Put of May, at 600. I will buy March 6200 Put and 6800 Call at around. 25 I will also keep on adjusting potion to bring it into neutral
Suppose 100 points rises. I will either cover all 6500 Put and Write 6600 Put and also cover 6200 put and buy 6300 put. Otherwise I will sell and add 1 or 2 lot of 6600
and buy 6400 Put.. I usually exit position after 30 to 40 days and write next month.
This way I am getting decent return. Adjusting Position to almost Delta Neutral as well need hedged all time at least Far Otm of Current month. If the straddle is of 600 poiints we can buy 300 points lowe strike r put and 300 points uper strike price.
There will be enough time for adjusting also it is hedged well by current months otm
This way this gives you a return of 15 % return on margin. But the return will come to 6 to 7 % if is calculated on entire capital as not more 50% of capital employed.
Charles:
ReplyDeleteYou missed her single most criteria before any of her traders does anything: they presume the market has crashed already. She's not dealing with the SPX value of any given day at its face. She takes the days SPX price, subtracts 100 from that, and then goes downward another 12% from that still. So she's basing everything on the fact the market has "already crashed", which gives her time to react if in fact it does go down sharply.
Nick,
DeleteThanks for the comment. Please see my new post for Karen's trading summary for 2013:
http://smoothprofit.blogspot.com/2014/02/a-summary-of-karen-super-traders-option.html
Charles
Does anyone have a ROI figure for accounts not benefiting from the portfolio margin?
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThanks for sharing this great trading options strategy. You know I entered in this business after seeking proper guidance from options trading course, it really help me a lot in understanding new terminologies related to stock industry. Your pictorial elaboration about option trading is indeed very helpful for people who want to cherish their dreams and want to reach at top of stock industry peak.
ReplyDeleteYou can work with binary options. They accepts such little amounts. I am the eye witness that hundreds of people won millions of rupees even with little investments. At the same time, I am also one of them. They really guides me better than others.
ReplyDeleteon Karin, why does she work with 2;1 put call ratio........ markets dont crash up !
ReplyDeleteanyone ?
For both short and long calls strategies there will risk but in iron condor less risks. One of my friend suggest me to go through the videos of ‘market taker mentoring’ for a better trading knowledge. I think to decrease the risk factors I should take the help of options education gurus.
ReplyDeleteI think Karen said in one of her interviews that she replaced the call option as needed. So I'll guess for a given put (60 day) period the call side may get replaced multiple times. It's like she is scalping the calls. Then separately scalping the puts. Doing this helps resolve the issue of a set-it-forget-it strangle variation not having a high enough ROC. It also helps explain why it takes six or seven people to watch the position. Because it isn't one position but dozens of them running concurrently. Multiple independent positions running concurrently is the clue as to why she watches the account net liq. It is the single point of accounting, all trades feed that number. It's like a running audit of the days activity.
ReplyDeleteA contrived example using recent SPX market data should show why it is setup as 2-to-1 with the options so far from the underlying price.
Assume low is 1904 on Aug 7, 2014 and high is 2020 on Sep 19.2014. Adjust down the put by her crash amount (100pt -12%) and place the call just above market.
Position: puts are in range of 1700 to 1750 and the calls are roughly 2020.
The TOS analysis tool shows what happens and sheds light on why she watches it.
The puts are protecting the call on the way up and conversely the call is sort of protecting the put on the way down.
If the market rises the puts gain more than the call and she takes off the entire position for a profit. [ I realize she didn't say she does this part, but then again she did leave some info out or this blog wouldn't exist] Then reestablishes it with a comparable put selection.
If the market falls she takes profit on the call and rolls it down.
Repeat as often as possible.
She made a comment that the fund paid huge amounts of commissions annually. That means a lot of churning in-and-out.
As for a crash...
The put starts at least 2sd away from current price, plus the revenue from the repeated call rolls pushes the downside breakeven even lower. Also some of the concurrent independent positions may not be on when the severe down move happens or can be taken off for minor losses. Then add to that in times of danger the put could be rolled out to next month for even lower breakeven; which is what she said in one of her interviews.
Alvin
Regardless of how hard we study, still 99 percent of all traders will lose. Why, because all those trading volumes are only numbers made up by market makers. They make it up and down every trading day. These are not money.... just numbers. The real money is the one the individual trader (you and me bring in to the picture). Then that's when you are slowly sucked up by the many trends of the market they are creating. How can we survive... if they can see every move we make and every trade we are involve in. We are the one that brings the real cash..while they are busy bouncing up and the down the numbers in their own favor. Tell me if I am right or wrong.
ReplyDeleteAnonymous Trader
I am calculating ITM % using excel sheet. I would like to know which volatility to use for the calculation of ITM%. Whether respective strike's IV or VIX in general?
ReplyDeletebinary options trading
You should use the respective strike's IV for its ITM%.
DeleteI was hoping for more activity on this blog.
ReplyDeleteAlso may adjust with options of same cycle as the starting position for average market conditions
ReplyDeleteoption trading
Great article ! Being a solo retired. I just do regret you didn't publish it 20 years ago, maybe it would have helped me to retire in better conditions than I did. Thanks anyway, for others...
ReplyDeleteWell this strategy that you have mention is quite useful for me and I do like this post very much. Moreover in few day I am too going to start a options trading so this post is a big deal for me.
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have read many blogs in the net but have never come across such a well written blog. Good work keep it up
ReplyDeletehow to make money with binary options
Charles and others reading here: When that Tom guy on Tasty Trade said something like, "This shows that ANYONE can do this!" I found that to be an insult to Karen AND simply not true all all. I'm not doing options now and I never have done them and may never do them. All that I am reading here and learning from disparate sources leads me to believe that winning in the options game, is NOT at all easy. Karen's story before she even started trading is one of hard work and dedication. And from her first tract onward, her story is highly compelling. Thank you for all you've provided here, Charles. A real class act.
ReplyDeleteKaren the Super Trader along with Tom and Tony at Tastytrade.com are my heroes. Because of them, I learned about options, and with approximately 18 trades in the entire 2015 year, trading only SPX Iron Condors, I generated a 32.22% net profit. In addition, I had my brother follow the same principles, and he has had a healthy return this year, far outpacing the SPX.
ReplyDeleteKaren the Super Trader along with Tom and Tony at Tastytrade.com are my heroes. Because of them, I learned about options, and with approximately 18 trades in the entire 2015 year, trading only SPX Iron Condors, I generated a 32.22% net profit. In addition, I had my brother follow the same principles, and he has had a healthy return this year, far outpacing the SPX.
ReplyDeleteKaren the Super Trader along with Tom and Tony at Tastytrade.com are my heroes. Because of them, I learned about options, and with approximately 18 trades in the entire 2015 year, trading only SPX Iron Condors, I generated a 32.22% net profit. In addition, I had my brother follow the same principles, and he has had a healthy return this year, far outpacing the SPX.
ReplyDeleteto rays63302
ReplyDeleteCongratulations on your 2015 returns.
I plan to start using Iron Condors myself this next year.
Please do be aware that 2015 was almost the perfect environment for neutral option strategies as the S&P 500 has been essentially flat for the entire year.
Hi all, what you need to consider is that unless you're sitting on really big ammounts of capital you can't replicate the strategy, for example when adjusting, and how your bp is going to be affected when market goees against you, i'm trying to find how to replicate this with wide spread ic and how to hedge part of portfolio with futures as she does
ReplyDeleteThanks for the post shared.
ReplyDeleteregards,
Richard D.
Free Download CPA Profit Strategy to Make $243.5 a Day!
Just FYI, the SEC has filed a complaint against Bruton in federal court alleging that she's been engaging in trades to hide the fact that she's been running up huge losses. Turns out "SuperTrader Karen" may actually be "SuperFraudster Karen."
ReplyDeletehttps://www.thestreet.com/story/13593247/1/karen-the-supertrader-s-winning-strategy-relied-on-fraud-sec-alleges.html
Thank you for your great post. It's really very informative and really helpful. Please Keep posting. Thanks again.
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Ironically Karen and I developed very similar trading strategies, independent of each other, along the same timeline. I watched every video and read every article that detailed her trading strategy because her returns were much higher and more consistant than mine. My conclusion was she was willing to accept a significantly higher level of delta risk than I as well as use more leverage. Delta almost seemed to be irrelevant to her. That strategy seems to carry the same risk as the Martingale betting strategy for blackjack...eventually there will be a run where you lose everything. The SEC complaint does not detail how she lost the millions she was supposedly trying to hide but i'd sure like to know how they were realized. I'd also like to know her Nov+Dec 2016 Trump-bump returns.
ReplyDeleteThe potential return on investment varies depending on the options one trades and the position he or she takes. Some trades allow investors to make up to a 500% profit; however, Binary Trading Options in most cases the potential profit margin is not quite as high.
ReplyDelete