SteadyOptions Hall of Fame

[Kim 7,958]

SteadyOptions has a wealth of information, spread over tens of thousands of posts. Some of the posts can be very useful and inspiring, but they are lost in the big sea.

I would like to dedicate a separate topic to the most useful and inspiring quotes from our members. It could be related to overall trading philosophy, a specific strategy, or some "hot topic", like "why you should not fear assignment". I will be posting them "as is" without any changes or comments.

A trigger to this idea was a recent post by @rasarthat I would like to use as an opening post:
 

I have found this one piece of advice very relevant, and truly liberating. It was difficult, initially, to avoid comparing my performance against other members'. It was sometimes depressing to make "only" 5% on a trade, when others boasted of 15% and 20%. However, whenever I looked back on past trades, I couldn't remember anyone else's trades; I could only look at my own winners and losers. That same 5% suddenly looked really nice compared to another trade a day later, where I lost 30%. And finally, when computing my gains and losses for the year, it was the same thing. The only thing that mattered how much I made (or lost 😐), not any other member, nor even the SO official portfolio.

 

[Kim 7,958]

The point with paper trading is to understand the strategies, see how a trade evolves day by day, see how the adjustments impact the trades etc...  Some people also do very small tracking trades for the same purpose (although some trades can't be setup to use a small allocations).    IMO, focusing on paper trade fills vs live fills is missing the point of it.

by @Yowster

[Kim 7,958]

 

SO Monthly Fee - You can certainly replicate the research that SO does. But I am sure you can not do the research at anywhere near the cost of the SO subscriptions. I am aware that this takes an inordinate amount of hours to accomplish oneself. In my opinion, the real time research and resulting 'Discussion' topics are worth the price of admission alone.
 

Add to that that we get to follow 'Professional Full Time Traders' into and out of trades has proven invaluable to me.

Add to that the discourse of the discussion topic where an active exchange is taking place regarding a detailed trade.

Add to that the Strategy thought process and historical trades (and discussions).

This is some of the best money I spend every month!!

I think it often gets overlooked that you do not have to match Kim's prices to do very well. As is often mentioned when the 'How much more do I pay to get filled' question comes up. However much your comfortable paying. The guidance is given repeatedly to think in term of percentage of risk. A nickel is not a nickel without knowing the risk. 

by @NJ_KenRob

 

[Kim 7,958]

I advise everyone to completely research and become familiar with the exercise/assignment aspect of option trading. If you don't you can find your entire account blown out over a weekend.
 

MORAL OF THE STORY:

DON'T EVER LET YOURSELF BE ASSIGNED ON A SPREAD THATS NOT FAR IN THE MONEY ON BOTH LEGS.

Read the full story: Assignment Risks To Avoid

by @cwelsh

 

[Kim 7,958]

 

Don't look at the trade as "saving" the current trade or "extracting a bit more" from it.  If you've lost 10% on Trade A and you can make back half of that (maybe) by rolling, why would you do that if your average expected return of a new trade is 10%?

 

It's HARD to let go of losers, particularly when there's a chance they could turn if you make an adjustment.  But look at each trade you do as a new trade and make sure it fits the same parameters as initially.  In other words, if you wouldn't do that trade as a stand alone trade, you probably shouldn't be rolling.  If you would do it, then by all means, go forward.

by @cwelsh

 

[Kim 7,958]

Here is @cwelsh shares his experience of trading big volume in a fund:

 

Open interest and volume, almost completely, are completely irrelevant.  This has been the single biggest surprise.  I have traded hundreds of contracts where I was the ONLY volume with zero issues.  The bigger deal is the spread.  If there is a two cent spread, I typically can get my order easily filled.  If there's a $4.00 spread (e.g. PCLN), I get creamed.  The PCLN trade took HOURS to get filled, and was filled 1-2 contracts at a time, sometimes as many as 5.  Getting out was a nightmare and I had to leg out individually at bad prices.  By and large now I'm planning on avoiding the big spreads.  That's unfortunate because those spreads allow smaller traders (5 contracts or less) to snipe away and get great fills;

 

Option pricing systems are NOT efficient or fair.  There is no "queue."  In other words if I put an order in for 100 contracts of the $50 straddle on stock ABC at $1.00 and five minutes later you do the same thing at $1.00 you might get filled first.  There is no FIFO or LIFO system.  This means its also possible that I have an order for $1.00 and you do for $0.99 and the price moves and you get a fill but I don't -- even though I offered more.  This happens on HIGH volume options because there essentially is just a screen the market makers look at, and if my order is buried, they can miss it.  I have seen this happen when I had multiple orders in trying to push the price down.  E.g. I wanted a $1.00 fill for 900 contracts, so I put in orders at $1.00 at $0.99 and $0.98 -- for 900 contracts each (with a cancel order in for as soon as I get 100 contracts filled). 

My theory was to drive the price down, or make it look like there was demand to push the price down so I could get the strike I wanted. Imagine my surprise when the $0.99 got filled, but not the $1.00.  This also means it makes sense on higher volume stocks to "refresh" your order by resubmitting it.  There have been dozens of times I've had an order sitting for an hour, I cancel and replace and its instantly filled at the same price.  "Smart" routing is sometimes not that smart too.  This is because when I submit my $1.00 order, it might be routed to the CBOE because CBOE has the best price at $1.03 currently.  But over the next five minutes another exchange might become the best priced one -- my order won't necessarily be moved to the better exchange because it's already on one.  Another reason to resubmit.  Lastly, Smart routing, DESPITE what you've been told, does not cross exchange map.  In other words, if you have an order for $1.00 on a straddle and there is one exchange that has the put for $0.50 and the call for $0.51 and a separate exchange that has the put for $0.51 and the call for $0.50, the software will NOT split your order between the two exchanges so as to pick off the better priced option off each.  This is another reason you can have a straddle priced at the natural price, but not get a fill -- the natural price is not from one exchange, rather multiples.

 

[Kim 7,958]

This right here is the value of this community.  We aren’t really buying an alert service to use. We are buying a community that also has an alert service to show us a dozen examples a month of how to put it into action.  That is much more valuable to me — to empower me to be independent rather than ‘hook’ me on a service that keeps me continually dependent on someone else.  

@nrexpress

[Kim 7,958]

 

I have been with the community for last 6 months, and I have learned that instead of complaining about the existing SO process or methods, it is best to focus on various things to learn, and believe me, there is endless thing to learn here.. fun part is that it is never ending.

I suggest that you start small, pick few SO repeats, read every thread of past 3-4 cycles of that trades (calendar) of each,  create a date wise upcoming calendar for yourself and place these stocks on these dates, slowly you can start predicting what will come next in few days. It has started working out for me, and it looks like it is working out for a lot of people. To give  recent examples, I was able to open my positions before  SO’s alert on MU, TSM and FSD. Once you can predict successfully,  use SO alerts and community contributions as validations and further guidance. Also, entering into a position is only a very small item, the vast experience of SO will be at your help on deciding how to close, when to close, what worked , what did not work, how and when to roll etc. My advice might sound bitter and boring at first, I think that’s the right thing to do, there is no alternative to hardwork.

 

Paid or unpaid, no subscription can serve you gold plated ready made food.

@White_Oak

 

[Kim 7,958]

I would say that the big risk is entering at a price you already know is bad just for the sake of being in the trade. Not entering a trade carries absolutely zero risk. What it does carry is FOMO, or Fear Of Missing Out, and that, my friend, is an account destroyer. FOMO causes us to do dumb things because we’re afraid of not making the money we think we should, or afraid of not making back this month’s service charge. It’s insidious, and we have to be vigilant to keep it at bay, plan our trades, and trade our plan. 

 

@Peeyotch

[Kim 7,958]

 

Over the years, I've seen a few disgruntled members where they've posted similar comments, but they all seem to share the same trait - they expect fills at the same price as the official trades AND be able to enter right around the same time as the official.   It's the second part of that that is the real kicker and the reason we say to be patient with fills, especially with trades where T-0 is a few weeks away - and why we started tagging things with [BETTER PRICING] on both entry and exit to show how often that happens.   I like to use another stock analogy for this matching of official pricing - when an analyst issues a stock upgrade causing the stock price to rise, is everyone going to be able to react to the upgrade and buy the stock at the same price?   Of course not, and I don't think anyone would expect that to be the case, but with these option trades some people get very upset when the can't match prices.

 

I understand that the amount of time members can spend on trading and trade analysis varies greatly.   Many people have other jobs that require significant time away from trading (I was in that same boat for many years).   But if your goal is to treat SO purely as an alert service then there is a much greater chance that you may be disappointed.    As had been said many times by many members - those who get the most out of SO are those that learn the trades and make them their own by applying the techniques to their own personal trades.    
 

I thought it might be beneficial to say how I handle entry into official calendar trades.   As Kim has mentioned, although we talk about some trades in advance, for the majority of both our official trades we enter them without specifically notifying each other in advance - so with the calendar trades I am in the same boat as everyone else:

• I find that I rarely enter calendar trades on the same days as the official.   I do keep track of planned trades and target entry dates, so sometimes I'll already be in the trade prior to the official, but in most cases I enter later.
• Calendar entry is based on either RV well below average to enter early, or time based when the RV hits the inflection date for the slope of the RV rise starting to increase.   Ideally you can find trades with both, but especially in times when we are seeing some bigger market move days, my preference is to enter when the daily RV increase is greatest (so the trade can show gains quicker).   
• If I do enter early at RV well below average, I'm more prone to exit at an smaller gain and then look to re-enter if RV drops back down or when the RV chart is in the time period of bigger daily increase.

@Yowster

 

[Kim 7,958]

 

Our brains have evolved to be successful hunter gatherers, but terrible for trading, as our natural tendency of being loss averse and risk averse means that we tend to hold to losers and get rid of small winners. When I joined here I did an analysis of all the logged trades from the performance page to understand how each of the strategies behaved, typical drawdowns and profits, exceptional drawdowns and profits, etc. This gives my hunter gatherer brain the reassurance that there is an statistical edge, and in order not to ruin it, I need to be consistent in execution.

This means sizing, not giving up on a strategy when there is a period of draught, not joining only after a period of logged steady wins, and respect the win and loss conditions of each strategy. Otherwise I risk doing something that will lose the statistical edge. That makes me accept losers and give room to grow to small winners.

@Bullfighter

 

[Kim 7,958]

 

Gains are what ultimately drives profit, but keeping the losses at manageable levels is very important too.    Keeping those losses at the manageable levels really factors in 2 things:

1. The RV and historical performance analysis identifies trade candidates where larger losses are the exception - and it will take RV drops significantly higher than averages to cause the outsized loss (which unfortunately does happen from time to time).   
2. Risk vs Reward - the SO trades are structured so that they can easily make as much (or more) than they can lose, so its easier to recoup losses from losing trades.   Trade structures where you risk $5 to make a max of $1 are those than can kill you when the stocks do the wrong thing and get you closer to that max loss level, so you need multiple winning trades to recover from one loser.

@Yowster

 

[Kim 7,958]

I woke up on Friday with no internet connection - turned out to be a massive Canada wide outage that affected millions of Canadians. A complete network failure - no Wi-Fi, mobile network or phones. Which means that I could not close the QQQ combo position on Friday.

If I was assigned the short options, it would be not that bad - I would be short 200 shares of QQQ and long 4 calls. In terms of delta, it would be not too directional, and I would just close the shares and the calls at the same time.

However, IB algorithm is different from other brokers. This is how it works:

"Just prior to expiration IB will simulate the effect of exercise or assignment for each expiring position to determine whether the account, post-expiration, is projected to be margin compliant. IB may liquidate positions in the account to resolve the projected margin deficiency for Accounts which do not have sufficient equity on hand prior to exercise."

This is exactly what happened. Around 15:30, the algorithm determined that assignment of the short calls with cause margin deficiency, and according to their policy, they liquidate most of the short calls (just enough to prevent margin deficiency). The rest of the short calls were assigned, so I was left short QQQ shares and long significant amount of calls. 

According to Murphy's laws, the markets gapped down today, and I was forced to close the calls for a significant loss.

This is why position sizing is so important. No matter how safe and low risk the trade looks, unexpected can always happen. If you keep your position sizing under control, you can still recover.

[Kim 7,958]

 

Losses are part and parcel of the game. I know that they may feel like a little knife in the ribs at times, but rest assured, that in this case, it wasn't cos you did anything wrong.(I'm sure in the future, at some point you will screw up  a trade  just like the rest of us!). Just think of it as a tax you need to pay on the winning trades which can, and will, come later on.

 

I think this is where position sizing is paramount - the failure of one trade shouldn't make a big dent on our equity curve, and like likewise, the success of any other trade shouldn't have us ordering a lambo. In fact, I hate to say it. but really, for me trading works best when I make it almost mechanical and non-emotional. (That reminds me of one of my previous relationships, but that's another story.)

Happy trading.

@zxcv64

 

[Kim 7,958]

Luck is not only a perfectly acceptable path to successful trading, it can easily be described in such a fashion that others get the mistaken impression that it was intentional.

@Ringandpinion

[Kim 7,958]

Don’t know how many times the point that SO isn’t an alert service has to be repeated. Yet I enter official trades at or better than official frequently, sometimes days after the official, and yes sometimes better pricing continues to get ‘better’, I know when to cut losses. Very often I will enter my own variant, sometimes works out better, sometimes not. For me the crux is that I’ve learnt more about how to trade independently without blowing the account here than anywhere else, with strategies that are intrinsically safe especially in difficult markets when my long positions suffer.. Most of us mere mortals have to start small, I appreciate that SO continues to use 1k trades as the starting trade size, doesn’t stop anyone from scaling. But it’s especially what I’ve learnt here that makes the service so valuable to me. SO is the most transparent service out there, hands down and it’s perpetually innovating strategies too. really I couldn’t ask for more. I hope everyone is enjoying their holidays, here’s to a new year with more understanding and less conflict.

@t'pee

[Kim 7,958]

I don't know who said it, but I like this saying: "drawdowns are the price you pay to keep your edge alive". If a strategy only made money and never lost, eventually everybody would be doing it and the edge would be gone. Also, and this is applicable to any strategy, if the drawdown you are experiencing is too much for you, you are trading too large. You could make trades half the size as the official ones and put the other half in BOXX or JAAA ETFs, for instance. You would still have incredible returns and half the drawdown.

@Bullfighter