SOME COOLNESS AND A BETTER EXIT STRATEGY

March 22, 2010 in Ideas & Strategies

2010 03 22 PositionStatement 300x177 SOME COOLNESS AND A BETTER EXIT STRATEGY

FIRST OFF THE ABOVE SCREEN IS A SAMPLING OF VIRTUAL STRANGLES AND JUST MAKES ME HAPPY.

SECOND. STOPS ARE UNDENIABLY IMPORTANT AND CAN KEEP BIG LOSSES FROM THREATENING YOU. BUT, HIGHLIGHTED IN THE ABOVE CHART IS AN EXAMPLE OF A MORE FAVORABLE EXIT TO WATCH FOR THAT CAN AT LEAST HELP MINIMIZE LOSSES EVEN FURTHER THAN SIMPLE STOPS AND IN THIS EXAMPLE HELP YOU EXIT A LOSING POSITION WITH A SMALL CHUNK OF PROFIT SO YOU CAN MOVE ON AND RECENTER YOUR STRIKES.

IN SHORT THE VALUE OF DELTA NEUTRAL STRATEGIES IS THAT YOU HAVE A BALANCE OF FORCES BETWEEN YOUR WINNING SIDE AND YOUR LOSING SIDE. YOU MAKE MONEY WITH THE PASSAGE OF TIME. BUT WITH PREMIUM COLLECTION STRATEGIES THIS IS BALANCE CAN ONLY BE MAINTAINED FOR AS LONG AS YOUR WINNING SIDE STILL HAS ROOM (AND OPEN INTEREST) TO KEEP WINNING. IN THE HIGHLIGHTED EXAMPLE ABOVE, FSLR IS FALLING SO THE CALLS I SOLD HAVE LOST VALUE AND THE PUTS I SOLD HAVE GAINED VALUE. YOU CAN SEE IN THE 4 OR 5 DAYS HAS COLLECTED ENOUGH THETA TO HAVE IT BE A PROFITABLY TRADE EVEN THOUGH THE UNDERLYING HAS MOVED SIGNIFICANTLY AGAINST ME (COMPLETE WITH A GAP DOWN THIS MORNING). RIGHT NOW MY CALL SELL IS THE WINNING POSITION COUNTERACTING THE LOSS ON THE PUT SIDE. BUT THE CALL SIDE IS RUNNING OUT OF ROOM TO CONTINUE WINNING. THE MOVE THAT IS APPROACHING IS TO TAKE THE PROFIT ON THE TABLE AND RECENTER ON BALANCED DELTAS BEFORE MY WINNING SIDE CAN’T KEEP PULLING IN MORE MONEY AND THE LOSS STARTS EATING INTO MY PROFITS.

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