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  • Victory spreads and volatility

    November 25, 2009 by  
    Filed under Double Calendars, Iron Condors, Options, Victory Spreads

    Q: So far so good on my first month of condors…..2 weeks in….still delta neutral. Haven’t had to adjust yet…..but ready to if threatened.

    I want to try the back-ratio type of trade to protect against a huge downstroke in January, but for the life of me I cannot get the analysis chart to look like it does in your video.

    I have 10 grand in cash in the account with 2 grand in margin already on.

    I made sure I am set for “1st triggers sequence”.

    I insured I am set to “single symbol” and double check that no other positions or options are checked.

    I check the dates……+1 at X, N/A, P/L open……etc…..I’m looking very closely and making certain my screen looks exactly like yours does in the video. I’m making sure I ‘buy’ the distant OTMs and ‘sell’ a single near month ITM. It just isn’t working.

    I’m playing around with the strikes and months…..but for the life of me I cannot get the graph to look like yours does in the video. It always shows that the risk amount is roughly half of the margin required……not the 50 bucks or so that you show in the video.

    I thought it might be possible that you have to have at least 25 grand in the account and satisfy the day-trading margin requirement and without that it won’t work right…..but I just don’t know.

    A little help here? What could I be doing wrong? Thanx in advance if you can help….

    A: The victory spreads only work
    when the volatility is high.

    The best strategy for a market in
    which we anticipate higher volatility
    is put calendar spreads for monthly
    income.

    Front month and back month in options trading

    October 8, 2009 by  
    Filed under Options, Training Videos, Victory Spreads

    Q: A couple of weeks ago I purchased the Trading Pro System and also subscribed to the Daily Market Advantage.

    You have provided an unbelievable resource and I am still working on paper trading and learning the adjustments on the iron condors and Calendar spreads. It is very interesting information.

    I have watched the video on the Victory spread strategy several times. In attempting to utilize the strategy in the video I am not currently finding trades that match the low downside risk demonstrated in the video.

    It seems currently many options front month I.V. is lower than further out months – I am not sure if this is affecting my analysis of the trade. I was also wondering if the relative close time until Oct expiration affects the outcome of this strategy? I did try numerous examples with selling either the Oct or November options.

    Do you have any current examples of the Victory Spread strategy that could help me understand what I am missing or do I need to wait until after Oct expiration and then retry my analysis.

    I greatly appreciate your expertise and enjoy listening to your market review each night. Keep up the great work.

    A: The front month (Oct) has only 8 days left- that is the reason you cannot find any trades. There’s no time premium left in the front month.

    The general rule is: Never use a front month with less than 30 days remaining.

    In addition, the Vol will give you different risk profiles that may not be favorable. You want the front month to be a slightly higher vol than the back month.

    A trick to finding those types of trades is to look for a stock that has sold off hard. For example – RIMM (on 9/25/09)

    It lost about 15+ points in one day skyrocketing the front month Vol while the back month had a lower Vol.

    The setup was very favorable at that time – it’s too late to do it now.

    So use the 30-40 day month options and find stocks that have that positive volatility skew.

    Question about Victory Spreads

    September 14, 2009 by  
    Filed under Options, Victory Spreads

    Q: In your demo video for this spread you say potential losses should be about $50 or so. You refer to favorable pricing. Would you please explain what you mean by favorable pricing? I have tried several scenarios with stocks that I think might be making a move up but in each case my potential losses were closer to $200. Today I reviewed AU (Anglogold Ashantilt) selling the oct 35 call and buying 3 Jan 50 calls. If the stock settled between 37 and 50 by Oct expiration I would lose money with the worse loss being $183. Not bad but more than $50. Am I missing something? Thank you. PS Am really enjoying the course.

    A: The amount of loss in a victory spread depends on:

    1) volatility at the time of the trade
    2) the number of contracts used
    3) time to expiration

    It sounds like you were using the same example I was as far as contracts go (sold 1, bought 3) so the only differences would be “volatility” and “time to expiration” which would explain the difference in potential loss.