A calendar spread is a strategy involving buying longer term options and selling equal number of shorter term options of the same underlying stock or index with the same strike price. Calendar spread options can be done with calls or with puts, which are virtually equivalent if using same strikes and expirations.
For those not familiar with the long straddle option strategy, it is a neutral strategy in options trading that involves simultaneous buying of a put and a call on the same underlying, strike and expiration. The trade has a limited risk (the debit paid for the trade) and unlimited profit potential. If you buy different strikes, the trade is called a strangle.
Here is the inconvenient truth about successful trading. It’s work. Trading is more than just numbers — it is a three dimensional fight that rages primarily inside the traders themselves. Missing any crucial element can ruin a trader quickly. The trader must first develop a robust trading system that fits their own personality and risk tolerance. Then they must trade it with discipline and faith consistently through ups and downs.
The contemporary financial market is distinguished by a number of variable factors, not least its unique and constantly evolving range of product and derivatives. From carbon units to the contract-based options market, modern-day traders have the opportunity to create an optimised portfolio that suits their knowledge base, experience and individual skill-sets.
Selling naked put options is (mistakenly) considered to be a 'very risky‘ proposition. Stockbrokers who spread that message are doing their customers a major disservice, because they are steering them away from a prudent strategy. The only dangerous part of options trading is the risk-insensitive trader who buys and sells options with little or no understanding of just what can go wrong.
The stock market is going through rough times. The major indexes are down 5-7% in the last couple weeks. At the same time, SteadyOptions model portfolio is up more than 30%. We are not trying to predict where the market is going. Our latest earnings trades performed very well, including:
As many of our readers know, we have been playing earnings very successfully in the last 2 years using variety of strategies. We had some nice winners, but the trade I'm going to describe in this article is fairly unique. The reason is that it actually comes from one of our members.
2013 was a strong year for Steady Condors even while our preferred underlying, RUT (Russell 2000), managed to hit all-time highs on almost a daily basis to the tune of nearly 40% for the year. As most of you know Steady Condors is a market neutral, income generating, manage by the Greeks strategy. Our trades are primarily risk managed variations of iron condors. If you haven’t already, please see our introduction to the strategy here.
2013 marks our second year as a public service. Overall, we had an excellent year. We closed 186 trades in 2013 which produced 91.7% ROI, based on fixed $1,000 allocation per trade (non-compounded) and 6 trades open. The winning ratio was pretty consistent around 60%. We had only two losing months in 2013. Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance.
As the year comes to an end, many traders/investors like to take a hard look at what transpired in the 12 months past and set a course for the 12 month ahead of them. While many dream of catching the next TSLA or SCTY to do most of the heavy lifting in their portfolio, the truth is, to achieve consistent positive returns over a long period of time, your management of your Risk will likely play a larger roll than your stock picking.
It's been a while since I wrote just a pure column for members, and I think it is about time to update everyone on where my firm is, how the Anchor strategy is performing, and my general thoughts on the markets before the end of the year. Since most people care more about the markets, I'll give my general thoughts on those, and I'll save the professional updates to the end.