AskTheRiskDoctorQandA 16 101512
ASK THE RISKDOCTOR LIVE Q&A OCTOBER 15TH , 2012
Rarely Answered Questions
Question: Hi Charles, I am a hedge fund manager but want to trade my own money with options instead of the types of trades I put on for the fund. I have been watching my colleagues, who do trade options, and I do not believe in what they do to make money. They basically do covered writes and naked short puts. I find that when you trade your own money you cannot be a cowboy like that. Michael Lewis just wrote an article for Bloomberg about advising kids how to ask for stuff from their hedge fund fathers: “… Always ask big. Your dad may be smart about money but he has no idea about size. When he makes money, he doesn’t make thousands, he makes millions. When he loses it, he doesn’t lose millions, he loses billions. His scale is totally off.“ I am usually right on my directional picks and even though verticals seem to be the most versatile trade, I am not excited about the whole idea. I have a swing trader style, trading off of moving averages (mostly the 200 Day) and my average trade lasts about 5 days. I know that butterflies and condors are some of the safest strategies but they do not seem to be conducive to my market forecasts. Is there some other strategy that you can suggest for matching my style and tolerance for risk?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer: I have something for you to consider as I am having good results from a rather new type of strategy (for me) that I have been positioning myself with in Gold and Silver. Full discloser: I am holding physical gold and silver and often hedge, at resistance levels (to take some profit before a retracement) or add to my position at support (after a retracement) using the ETFs, GLD and SLV.
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
©2011 Charles M Cottle
I am calling this strategy a: Expiry Date Changed to simulate 35 Days to go. “2ferTickle” derived from the concept that it is: ‘2 Verticals for 1 Vertical’ I currently am working legs of a ‘3ferTickle’ in GLD and a ‘1.333ferTickle’ in SLV. This example keeps the math simple with a 2 for 1. It is buying twice as many OTM Call Verticals than the OTM Put Verticals that I am selling short to finance the purchase to some degree. There are some advantages, such as risking the same $10,000 to make $20,000 with the 2ferTickle vs. making only $10K with the Vertical. One obvious disadvantage is that the 2fer will make little to nothing in a smaller favorable move while the Vertical can become profitable. Also the 2fer has twice the amount of commission in this case.
www.RiskDoctor.com
Answer
:
(continued)
Here is the 50 ATM (168/172) Verticals as compared to the (168/170/174/176) 2ferTickle:
They share the 50 (168/172) Bull Spreads but they differ by: Smaller size but closer Bull Spreads in the Vertical: 50 (170/172) vs. Larger size but further Bull Spreads in the 2ferTickle: 100 (174/176)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
The 2ferTicle offers some opportunities for harvesting: 50 Butterflies 168/169/170 100 Condors 169/170/173/174 100 Bull Verticals 173/176
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
Placing resting orders based on current options chain and shifting strikes to see the potential.
The order will be for the Yellow 163p/165p & 169c/171c But filled at similar pricing to the Green if soon.
©2012 Charles M Cottle
www.RiskDoctor.com
Rarely Answered Questions
Question: Hi Charles, I am a hedge fund manager but want to trade my own money with options instead of the types of trades I put on for the fund. I have been watching my colleagues, who do trade options, and I do not believe in what they do to make money. They basically do covered writes and naked short puts. I find that when you trade your own money you cannot be a cowboy like that. Michael Lewis just wrote an article for Bloomberg about advising kids how to ask for stuff from their hedge fund fathers: “… Always ask big. Your dad may be smart about money but he has no idea about size. When he makes money, he doesn’t make thousands, he makes millions. When he loses it, he doesn’t lose millions, he loses billions. His scale is totally off.“ I am usually right on my directional picks and even though verticals seem to be the most versatile trade, I am not excited about the whole idea. I have a swing trader style, trading off of moving averages (mostly the 200 Day) and my average trade lasts about 5 days. I know that butterflies and condors are some of the safest strategies but they do not seem to be conducive to my market forecasts. Is there some other strategy that you can suggest for matching my style and tolerance for risk?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer: I have something for you to consider as I am having good results from a rather new type of strategy (for me) that I have been positioning myself with in Gold and Silver. Full discloser: I am holding physical gold and silver and often hedge, at resistance levels (to take some profit before a retracement) or add to my position at support (after a retracement) using the ETFs, GLD and SLV.
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
©2011 Charles M Cottle
I am calling this strategy a: Expiry Date Changed to simulate 35 Days to go. “2ferTickle” derived from the concept that it is: ‘2 Verticals for 1 Vertical’ I currently am working legs of a ‘3ferTickle’ in GLD and a ‘1.333ferTickle’ in SLV. This example keeps the math simple with a 2 for 1. It is buying twice as many OTM Call Verticals than the OTM Put Verticals that I am selling short to finance the purchase to some degree. There are some advantages, such as risking the same $10,000 to make $20,000 with the 2ferTickle vs. making only $10K with the Vertical. One obvious disadvantage is that the 2fer will make little to nothing in a smaller favorable move while the Vertical can become profitable. Also the 2fer has twice the amount of commission in this case.
www.RiskDoctor.com
Answer
:
(continued)
Here is the 50 ATM (168/172) Verticals as compared to the (168/170/174/176) 2ferTickle:
They share the 50 (168/172) Bull Spreads but they differ by: Smaller size but closer Bull Spreads in the Vertical: 50 (170/172) vs. Larger size but further Bull Spreads in the 2ferTickle: 100 (174/176)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
The 2ferTicle offers some opportunities for harvesting: 50 Butterflies 168/169/170 100 Condors 169/170/173/174 100 Bull Verticals 173/176
©2012 Charles M Cottle
www.RiskDoctor.com
Answer
:
(continued)
Placing resting orders based on current options chain and shifting strikes to see the potential.
The order will be for the Yellow 163p/165p & 169c/171c But filled at similar pricing to the Green if soon.
©2012 Charles M Cottle
www.RiskDoctor.com
