That’s kind of the idea of the hedging video. I left a link to at the end of this video. It’s a little bit different play on it, it might enable you to get that hedge for free. I like the idea!
great video I learned alot. curious did your margin requirement for this 112 spike when the vix trippled on Monday 8/5? I heard many famous traders lost over 30%(Tom King) or even wiped out on that day. Did that happen because hey overleveraged(cant hold til expiration) or their brokers simply want to de-risk? thanks.
My required margin did go up, but not substantially. I closed some of my 112s because they hit exit lost trigger points not because of margin issues. If a trader is using too much margin/leverage, and their positions go against them, it just amplifies the problem. That’s what happened with a lot of traders. They had on way too many positions but didn’t feel the pain until the positions went against them. There’s an old saying that everyone’s a genius in a bull market. I’m not saying that about any particular trader, I’m just saying that all of us traders make mistakes and many times they don’t get exposed in a bull market, they get exposed when things go against us. I’ve been guilty of it also. It’s when things go bad that the true picture is revealed. I was once told a mistake is only a mistake if you don’t learn from it. If you learn from it, then it’s a lesson. I think some people learned valuable lessons last week. Hopefully, they don’t have to go through it again. And Warren Bufet once said: “You never know who's swimming naked until the tide goes out.” The tide went out two weeks ago. And it will go out again.
Thanks Randy! I've been looking into this strategy for some time now but have been hesitant due to the risks. You've done a great job illustrating the risks and rewards and the implementation of the strategy. Thanks as always and keep up the good work!
Another risk management tool is to keep the same (conservative) margin requirement rule, for example 30% of net liq, but to diversify and place these 112s in different, uncorrelated (or even inverse) underlyings. That can also allow you to increase pain threshold, say hard sell rule of 3-4x instead of 2x. Some traders reported that this not only saved them from liquidation of trades that would have ended up positive, but that these trades finished in the "trap", which boosted long-term profits. Just an idea.
I’m doing at least one a month. If the market were to xperience a sharp decline, I’d probably consider doing a second one. Yes, those 112 trades are shared with my patrons.
I trade a small position in ES and it traded fairly normal during the volatility spike two weeks ago. However, I heard from several traders that trade MES, and they said the bid asked spread (slippage) was terrible!
For me, it’s a different way to trade compared to buy and hold. This is more of an income strategy. So overall, although the returns for this period of time beat buying and holding SPY, there are tax considerations based on each individual situation that should also be considered. Or, a trader could use it, for example if they traded the strategy with SPY, to set themselves up to buy SPY at a nice discount for where it’s currently trading.
I'm glad you mentioned "it can wipe your account" out. I know of a youtube channel that had very heavy losses with this trade. Some followers got wiped out on the Monday. I never want to be in that position.
Did 2x stop loss work for you during Volmageddon last week? If the volatility spikes or the market gaps down, the loss would be more than 2x. Some people lost a lot of money last week
I don't watch my trades during whole trading day. I generally check them once or twice a day. However, I was watching them most of the morning and waited until things calmed down to close them out that afternoon. If I closed the losers out that morning, the losses would've been worse. But I waited until the market calmed down some before I closed them out, and it definitely helped. The bid ask spreads were just so wide in the morning because volatility had gone wild. We ended up closing out for 1 for around a 2X loss, another couple for around $8,000 to $12,000 losses. That's kind of to be expected especially on a wild volatility spike like last week. I don't expect to be able to get out exactly at a 2X loss. When volatility spikes, I expect that the 2x might end up being closed out at a 3X or maybe even 4X depending on the situation and if I'm watching my positions at the moment. On the other side of that though, I'll also miss closing out some positions that dip into losses for an hour or two. It just depends on when we're looking at the market. If it's close, I'll probably let it ride especially if the whole market doesn't seem to be breaking down and or I think we're around an area where it will probably find support or bounce, but when they're obviously beyond our stop loss, I'm just out.
@@StockandOptionMyLifeOfLearning I didn't have positions that need to be managed immediately so I waited until Tuesday to trade because the spreads got so wide in every thing. Even the bid-ask on shares got pretty high. I saw SBUX with nearly a .5% spread
@JUNOanimations Yes. What counts is how much you win when you win and how much you lose when you lose. There are plenty of option strategies that win 9 times out of 10.....and the 10th time you lose more that the 9 wins.
@@JUNOanimations Stops only guarantee the trade, not the price. I have had several stop loss orders where it blew past the stop and I got filled at a price far away from my limit.
Thank you for sharing your thoughts. Yep, it’s important to always be tweaking strategies. Things work until they don’t. I have a whole account set aside to experiment with new trades or tweaks to old trades so I can swat out old favorites if they stop working.
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Another awesome video, Randy. I totally love your approach of solving or satisfying the risk before trading. Thanks for posting.
Thank you 😊
You can also buy something like the 3k puts, which would be very cheap, to define your risk if you're uncomfortable with naked positions
That’s kind of the idea of the hedging video. I left a link to at the end of this video. It’s a little bit different play on it, it might enable you to get that hedge for free. I like the idea!
great video I learned alot. curious did your margin requirement for this 112 spike when the vix trippled on Monday 8/5? I heard many famous traders lost over 30%(Tom King) or even wiped out on that day. Did that happen because hey overleveraged(cant hold til expiration) or their brokers simply want to de-risk? thanks.
My required margin did go up, but not substantially. I closed some of my 112s because they hit exit lost trigger points not because of margin issues.
If a trader is using too much margin/leverage, and their positions go against them, it just amplifies the problem. That’s what happened with a lot of traders. They had on way too many positions but didn’t feel the pain until the positions went against them.
There’s an old saying that everyone’s a genius in a bull market. I’m not saying that about any particular trader, I’m just saying that all of us traders make mistakes and many times they don’t get exposed in a bull market, they get exposed when things go against us. I’ve been guilty of it also. It’s when things go bad that the true picture is revealed.
I was once told a mistake is only a mistake if you don’t learn from it. If you learn from it, then it’s a lesson. I think some people learned valuable lessons last week. Hopefully, they don’t have to go through it again.
And Warren Bufet once said:
“You never know who's swimming naked until the tide goes out.”
The tide went out two weeks ago. And it will go out again.
Thanks Randy! I've been looking into this strategy for some time now but have been hesitant due to the risks. You've done a great job illustrating the risks and rewards and the implementation of the strategy. Thanks as always and keep up the good work!
Very welcome!😊
Thanks Randy.
Another risk management tool is to keep the same (conservative) margin requirement rule, for example 30% of net liq, but to diversify and place these 112s in different, uncorrelated (or even inverse) underlyings. That can also allow you to increase pain threshold, say hard sell rule of 3-4x instead of 2x. Some traders reported that this not only saved them from liquidation of trades that would have ended up positive, but that these trades finished in the "trap", which boosted long-term profits.
Just an idea.
Thank you for sharing
A quick question, how frequently do you put 112 trades and do u share them with patreons?
I’m doing at least one a month. If the market were to xperience a sharp decline, I’d probably consider doing a second one. Yes, those 112 trades are shared with my patrons.
Wouldn’t it be best to enter this strategy on an underlying where the IV percentile is very high?
A higher IV is nice because it pumps up the premium, but IMO it needs to be in a relative stable asset. IMO IV shouldn't be the only consideration.
Do you ever trade this with ES or MES futures?
I trade a small position in ES and it traded fairly normal during the volatility spike two weeks ago.
However, I heard from several traders that trade MES, and they said the bid asked spread (slippage) was terrible!
how would compare to buy and hold?
For me, it’s a different way to trade compared to buy and hold. This is more of an income strategy. So overall, although the returns for this period of time beat buying and holding SPY, there are tax considerations based on each individual situation that should also be considered.
Or, a trader could use it, for example if they traded the strategy with SPY, to set themselves up to buy SPY at a nice discount for where it’s currently trading.
I'm glad you mentioned "it can wipe your account" out. I know of a youtube channel that had very heavy losses with this trade. Some followers got wiped out on the Monday. I never want to be in that position.
Thank you for sharing that
Volmageddon last week caused my capital requirements to triple.
It was a wild one for sure!
Did 2x stop loss work for you during Volmageddon last week? If the volatility spikes or the market gaps down, the loss would be more than 2x. Some people lost a lot of money last week
I don't watch my trades during whole trading day. I generally check them once or twice a day. However, I was watching them most of the morning and waited until things calmed down to close them out that afternoon. If I closed the losers out that morning, the losses would've been worse. But I waited until the market calmed down some before I closed them out, and it definitely helped. The bid ask spreads were just so wide in the morning because volatility had gone wild. We ended up closing out for 1 for around a 2X loss, another couple for around $8,000 to $12,000 losses. That's kind of to be expected especially on a wild volatility spike like last week. I don't expect to be able to get out exactly at a 2X loss. When volatility spikes, I expect that the 2x might end up being closed out at a 3X or maybe even 4X depending on the situation and if I'm watching my positions at the moment.
On the other side of that though, I'll also miss closing out some positions that dip into losses for an hour or two. It just depends on when we're looking at the market. If it's close, I'll probably let it ride especially if the whole market doesn't seem to be breaking down and or I think we're around an area where it will probably find support or bounce, but when they're obviously beyond our stop loss, I'm just out.
@@StockandOptionMyLifeOfLearning I didn't have positions that need to be managed immediately so I waited until Tuesday to trade because the spreads got so wide in every thing. Even the bid-ask on shares got pretty high. I saw SBUX with nearly a .5% spread
Win rate is a useless statistic, in options selling especially.
Thank you for your thoughts. Personally, I think it depends on the strategy and how that fits in with the average win/loss and risk/reward.
@JUNOanimations Yes. What counts is how much you win when you win and how much you lose when you lose. There are plenty of option strategies that win 9 times out of 10.....and the 10th time you lose more that the 9 wins.
@@Fred2-123 100%. So risk management is the key. So it's great that he includes a framework for that.
@@StockandOptionMyLifeOfLearning Yes so I commend you on including stops
@@JUNOanimations Stops only guarantee the trade, not the price. I have had several stop loss orders where it blew past the stop and I got filled at a price far away from my limit.
russian roulette..it works until it doesn’t.
Thank you for sharing your thoughts. Yep, it’s important to always be tweaking strategies. Things work until they don’t.
I have a whole account set aside to experiment with new trades or tweaks to old trades so I can swat out old favorites if they stop working.