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Blog dedicated to ETF and Index option trading strategies using credit spread and money management.
Welcome
- Gustavo's Trades
- Welcome to my trading blog. My goal with this blog is to document my trading, as well as share strategies and methodologies I learned and use.
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DISCLAIMER
All content on this site is provided for informational and entertainment purposes only. It is not intended as advice to buy or sell any securities. Nothing should be considered or construed as personalized investment advice. Stocks are difficult to trade; options are even harder. Please do your own homework and accept full responsibility for any investment decisions you make. Although I may answer your general questions or comments, I am not licensed under securities laws to address your particular investment situation.
ps: Thanks to my Lawyer friend and avid reader Chad for the disclaimer!
ps: Thanks to my Lawyer friend and avid reader Chad for the disclaimer!
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Blog Archive
- ► 2010 (462)
6 comments:
Hi Gustavo,
Why do you add on the risk profiles a simulated trade e.g. IBM Calendar vertical 115 PUT? what effect does this have? Do you plan on buying this to add to your position?
Hi there,
I always have a simulated trade to account for trading costs such as commissions, previous closed positions, etc.
In this example, you'll see that the spread is buying and selling the exact same contract (SEP 115 P), and I keep adjusting the debit or credit cost of that simulated trade to reflect commission costs or the P&L of any previous trade I did as adjustment.
Because I'm doing a simulation buying and selling the same contract and strike, it won't affect my greeks, it simply adjusts my P&L to be as accurate as possible.
TOS doesn't include commissions nor previous transactions in the current risk profile, so I do this to make the lines as accurate as possible. Without doing this, you get a risk profile that can be VERY unrealistic (i.e. showing $1000 profits when you are actually down $150 bucks.)
Gustavo
That's a great question By the way! I had the blog for months now and you're the first one to ask about it :)
Hi Gustavo,
You say that TOS doesn't account for commissions in the risk profile - if you look at the top of the sheet next to plot lines they recently added the function so you can change the P&L to include or exclude commissions.
Hope that helps (good to give something back!) - or have I not fully understood your explanation?
Yes, you're correct, they added that function, however, TOS profile does not consider previous adjustments or trades you have closed. So, here is an example:
Say you buy OCT 490 P, as an adjustment, then you sell it back because you don't need it anymore. Sell OCT 490 P, the TOS software will simply remove it from the profile, and will not include any P/L you had on this trade in your current P/L, that can lead to distortions in the profile itself.
Hope that helps! Thanks!
Gustavo
Hi Gustavo!
That's very clever and will help me out lots!!
Many Thanks for all your insights and advice - its very appreciated!
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