Our Anchor Trades strategy went live almost five years ago, and it is a good time to analyze this trading strategy's performance. In my Seeking Alpha article I asked the readers Could This Strategy Be The Holy Grail Of Investing? It's time to revisit the concept and the results to see if a fully hedged strategy can still produce satisfactory returns.
This article covers some basic stuff related to options owners. What are your choices when you own an option? You have three choices: sell it, exercise it or allow it to expire worthless. And that’s true whether you own a call or a put. Each choice has its pros and cons. Each choice might lead to different profit outcome.
A few days ago a one of the Steady Condors members asked if the past performance of Steady Condors was in line with our expectations, and would we expect it to perform better over time. His concern was that our real results are worse than the backtesting. My response was:
Remember Canarsie Capital, the hedge fundrun bythe former head of risk management at Morgan Stanley and a 28-year-old former Galleon trader, which blew up in January, prompting Owen Li, the former Galleon trader, to tell investors that he was "truly sorry" for losing all their money? Well, Lipled guilty to securities fraud.
I'm asked many times if we can use unusual options activity to make some good profits. In my opinion, using unusual options activity as an indicator for impending price moves is difficult, subjective, and dangerous. Yet many "options guru" pretend to build a whole "secret system" around this phenomenon.
It is so tempting to begin trading options. Too many novices hear/read stories about earning 10% per month and, believing that nonsense, want their share of the ‘free money.’ They take a couple of lessons or read a chapter or two and believe they know what they are doing. A typical mindset is: ‘How difficult can it be if people are making 10% per month?’
Iron Condor is a very popular strategy used by many options traders. It can perform very well many months, but the real question is: how much will you lose when the market volatility explodes? Many condor traders give back all of their profits during the 2-3 losing months each year when the markets make large moves because they lack a detailed plan for risk management.
After seven years of strong bull market, many investors became complacent. They forgot how bad it was in 2008. However, many still would like to get some protection in case things go south again. We know that bull markets don't go on forever. But protection usually costs money. What if you could be protected AND get paid for it?
One of our members posted a link to an excellentpostfrom Mark Wolfinger. Mark responded to a question from one of his readers: "For the past 2 years, I've been selling naked options (mainly puts, a few calls) to generate monthly income. My position returns just over 1% per month on average on the total account value".
I came across the following question on Quora: "If an event happened that would sizably move a stock price (ex. poor earnings) from its original point, wouldn’t buying both a put/call option on that price be a guaranteed win? No matter which way the stock price moves, I would make a large return (even if I lost money on the other option)."
Few days ago I came across an excellent article by Dan from Theta Trend. The article is called Awareness and Taking Losses and discusses some of the aspects of trading psychology, especially how traders react to their losses. I respect Dan very much and I found out that we share a lot in terms of trading philosophy.