Adding to a trade and scaling out in the same trade

DanPickUp

Well-Known Member
#1
Hi

Here a real small live example of scaling in and out. What I miss is the tone. Any way, it is a live example from a trader, witch trades Crude Oil.

http://www.screencast.com/users/sim...lt/media/eb5b9b00-cd1d-4e42-a946-58767550e4cf

Would you trade like that ?
What would be your rules to trade like that ?
Would you first back test such trades ?
Would you first make a journal about your last trades for analyses and then trade like that ?
Can he double his money with that strategy ?
Should he only add and not scaling out ?

I leave it up to you to post what ever you find proper.

Tc

DanPickUp
 

DanPickUp

Well-Known Member
#2
Hi

Some brain work :

The following links are only for those, which do not mind to read and make some research by them selfs. It is related to the question of doubling the money. Here is a PDF about money management gambling :

http://www.bjmath.com/bjmath/thorp/tog4.pdf

This link will show you an other way of gambling theory :

http://en.wikipedia.org/wiki/St._Petersburg_paradox

Most what you read in this articles do not include the fact, that humans have feelings and that markets some times are also moved by that fact.

Good reading and studying

DanPickUp
 

DanPickUp

Well-Known Member
#3
An other way of scaling in and out is to it with options. As I recently had a discussion with a friend about it ( Munde ), I will post here a copy of that :

Hi Munde

Hope you do not mind as I really confronted and provoked you with not usual questions and comments. Tried to bring your knowledge at his limit. Most do not ask such questions. Most implement Broken Wing Butterfly's as it is explained all over. You will not find many books or sources, which will show you how to implement a BWB in that way, that it is over the zero line.

To come to the point : If I trade a BWB, I leg in. There are different ways to do that. The main target is to bring the BWB over the zero line. The BWB was not made in the S&P 500. It was made in the Euro ( I posted that wrong in the other post )

http://i55.tinypic.com/11rrfx3.png

http://i53.tinypic.com/1610rpd.png

- If you compare our risk pictures, you see, that I am over the zero line and that I can leave my BWB and start an other trade. I am 100 % out of any risk and if I now want, I can wait until expiration with just doing nothing. If market closes over 1.4569, I make money and if it closes under 1.4569, I make money. We made USD 180, as market closed higher as we expected. If market would have closed around 1.4400, we would get up to USD 2'000.-- per position.

- On the other hand, your picture shows, that you have to watch your BWB, as you have your break evens on both sides ( 5300 and 5950 ), which when past, brings you in danger. As you say right, you then have to adjust according to the market and as you say by your self, you do that professionally. As you also say, you make money with that strategy in that way and it seems for me logical, as you have a huge range of 650 point, at least in that example. The way you implement your BWB is build on other thought, than my one is. Both ways are fair strategies and both ways have an outcome. So never mind about it. You are a pro in your home market and you know how to handle your market in a perfect way. Just to clear that.

Me on the other hand, I just feel more comfortable, when a BWB is over the zero line. It is not always possible, but when you have a few of them and you have to watch them all, because they are not over the zero line, I hate that.

Now, how to bring them over the zero line is the question ?

What I post now is probably not possible in Indian market, as the Indian market, when it comes to options, is not very developed. There are a few ways to bring a BWB over the zero line. I will explain here just one way :

First, have an idea in what range a market trades in a certain time frame. It is important, that those swings are completed in that time frame, other wise we not can finish the BWB and we have to trade other strategies. That is why I prefer to leg in the market, when it comes to complexer strategies. I am more flexible and I can adjust my idea to what the market is doing. If I implement the whole strategy at once, I am stuck with that strategy. Some times I also implement more legs than one, but never a full finished strategy. You will see.

If you see the range, make your math first before you implement or place any orders !! Very, very important !

To do your math, you need to check the option prices. Munde, you ask about from where I got the picture. It is from Opvue and Opvue also shows me all the strike levels in any commodity at the CME. That is the way it looks :

http://i51.tinypic.com/kbyhpi.png

You see all the strike levels and other relevant details like Market price, MIV, Delta, Volume and so on. There are many more hidden possibilities. As we know the range we want to trade, we now check the option prices on those levels and the ones between. We create a small trading plan for that specific trade.

In that example we trade the US Treasury Bond. The range is 115 to 118. and the market is in an up move. That is why we choose the calls in that specific example. We now quickly calculate how much money we have to pay for the long calls. Now we have a sum X. That is the money, which we have to pay and which is on risk. But we want to take the risk out of the trade by bringing it over the zero line. As we do BWB, we do not choose the strike in the middle of the range. We place it in that way, that we are more open to the upper side and so in this example we choose the 117 call, which we will sell.

As it is a Broken Wing Butterfly, we need at least four options to complete the strategy. Here we choosed one 115 call, two 117 calls and one 118 call. 115 call and 118 call cost us the sum X which we need to bring back to us with the sell of two 117 calls. That is pure math and not very difficult. But now we need the idea !!

What we do is, we buy the 115 call and the 118 call and sell just one 117 call. After we got the filed for that, we clearly see, how much money is left on the risk floor. The sum X from the long calls minus the sum from the one 117 call is that risk money and that is the money we need to bring us over the zero line.

So we place an order by the broker, which is a sell limit order for the second 117 call. The limit price for that 117 call must be at least the money we need to take the risk away from the floor. ** At the moment we are filled, we finished this beautiful BWB and can move on.

Notice : ** Be careful and realistic here. If you start to get greedy and place a limit price, which is not adequate to the possible move in the market, you do not get filled and you have to find ways to get out of your not finished implemented strategy. But this is an other chapter.

Probably not makable in your market, but you see what you can do in other markets.

Have a nice day

DanPickUp
 
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veluri1967

Well-Known Member
#4
Hello Dan,

Just going through the stuff at this weekend. can comment only after reading the stuff........but they look interesting.

Would you please post some more good stuff on Scaling in and Scaling Out techniques and their effects of profitability.

Regards,
veluri
 
#5
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#6
An other way of scaling in and out is to it with options. As I recently had a discussion with a friend about it ( Munde ), I will post here a copy of that :

Hi Munde

Hope you do not mind as I really confronted and provoked you with not usual questions and comments. Tried to bring your knowledge at his limit. Most do not ask such questions. Most implement Broken Wing Butterfly's as it is explained all over. You will not find many books or sources, which will show you how to implement a BWB in that way, that it is over the zero line.

To come to the point : If I trade a BWB, I leg in. There are different ways to do that. The main target is to bring the BWB over the zero line. The BWB was not made in the S&P 500. It was made in the Euro ( I posted that wrong in the other post )

http://i55.tinypic.com/11rrfx3.png

http://i53.tinypic.com/1610rpd.png

- If you compare our risk pictures, you see, that I am over the zero line and that I can leave my BWB and start an other trade. I am 100 % out of any risk and if I now want, I can wait until expiration with just doing nothing. If market closes over 1.4569, I make money and if it closes under 1.4569, I make money. We made USD 180, as market closed higher as we expected. If market would have closed around 1.4400, we would get up to USD 2'000.-- per position.

- On the other hand, your picture shows, that you have to watch your BWB, as you have your break evens on both sides ( 5300 and 5950 ), which when past, brings you in danger. As you say right, you then have to adjust according to the market and as you say by your self, you do that professionally. As you also say, you make money with that strategy in that way and it seems for me logical, as you have a huge range of 650 point, at least in that example. The way you implement your BWB is build on other thought, than my one is. Both ways are fair strategies and both ways have an outcome. So never mind about it. You are a pro in your home market and you know how to handle your market in a perfect way. Just to clear that.

Me on the other hand, I just feel more comfortable, when a BWB is over the zero line. It is not always possible, but when you have a few of them and you have to watch them all, because they are not over the zero line, I hate that.

Now, how to bring them over the zero line is the question ?

What I post now is probably not possible in Indian market, as the Indian market, when it comes to options, is not very developed. There are a few ways to bring a BWB over the zero line. I will explain here just one way :

First, have an idea in what range a market trades in a certain time frame. It is important, that those swings are completed in that time frame, other wise we not can finish the BWB and we have to trade other strategies. That is why I prefer to leg in the market, when it comes to complexer strategies. I am more flexible and I can adjust my idea to what the market is doing. If I implement the whole strategy at once, I am stuck with that strategy. Some times I also implement more legs than one, but never a full finished strategy. You will see.

If you see the range, make your math first before you implement or place any orders !! Very, very important !

To do your math, you need to check the option prices. Munde, you ask about from where I got the picture. It is from Opvue and Opvue also shows me all the strike levels in any commodity at the CME. That is the way it looks :

http://i51.tinypic.com/kbyhpi.png

You see all the strike levels and other relevant details like Market price, MIV, Delta, Volume and so on. There are many more hidden possibilities. As we know the range we want to trade, we now check the option prices on those levels and the ones between. We create a small trading plan for that specific trade.

In that example we trade the US Treasury Bond. The range is 115 to 118. and the market is in an up move. That is why we choose the calls in that specific example. We now quickly calculate how much money we have to pay for the long calls. Now we have a sum X. That is the money, which we have to pay and which is on risk. But we want to take the risk out of the trade by bringing it over the zero line. As we do BWB, we do not choose the strike in the middle of the range. We place it in that way, that we are more open to the upper side and so in this example we choose the 117 call, which we will sell.

As it is a Broken Wing Butterfly, we need at least four options to complete the strategy. Here we choosed one 115 call, two 117 calls and one 118 call. 115 call and 118 call cost us the sum X which we need to bring back to us with the sell of two 117 calls. That is pure math and not very difficult. But now we need the idea !!

What we do is, we buy the 115 call and the 118 call and sell just one 117 call. After we got the filed for that, we clearly see, how much money is left on the risk floor. The sum X from the long calls minus the sum from the one 117 call is that risk money and that is the money we need to bring us over the zero line.

So we place an order by the broker, which is a sell limit order for the second 117 call. The limit price for that 117 call must be at least the money we need to take the risk away from the floor. ** At the moment we are filled, we finished this beautiful BWB and can move on.

Notice : ** Be careful and realistic here. If you start to get greedy and place a limit price, which is not adequate to the possible move in the market, you do not get filled and you have to find ways to get out of your not finished implemented strategy. But this is an other chapter.

Probably not makable in your market, but you see what you can do in other markets.

Have a nice day

DanPickUp
Dan, I agree with you that you
just feel more comfortable, when a BWB is over the zero line which is not always possible. But I am also comfortable with my strategy as I know how to bend,
twist, adjust position size and strike prices if market makes large move on either side. We can use arbitrage also for guaranteed returns. My aim is how to make maximum profit with minimum risk. I trade options as well as I want to buy some shares for long term. The nifty was 6300/6200 some months back. If I write 5400 pe at 100 my cost of the index will be 5300 . I am comfortable with it for holding it for long term. Even if market goes down I will keep on writing slightly OTM ce to bring down my average cost. My view is to make maximum profit in this strategy and also hold some shares for long term if market goes down. Every one has different comfortable level. just like trading in cash and futures market. Some feel comfortable in trading in cash market only. Some feef comfortable in trading in futres because they know the risk and reward ratio and properly manage risk and money management.
If market goes down, I can adjust in many ways, selling lower strike ce, selling OTM ce Buying ITM pe or buying 1000 ce of 5300 and selling 2000 ce of 5400 or 5500 ce. There are manys to adjust and repair the wrong trade in options. Thats the power of option. Everyone has his own mind set. Strategies differ from trader to trader and also the comfort level. After you make some profit for 2/3 years, your confidence will develop. Two things we have to keep in mind , We should be confident and not overconfident. We should not be aggresive . MOST IMPORTANT ASPECT OF TRADING IS MONEY MANAGEMNT.We have to keep in mind anything can happen at anytime in stocks, commodities market. Keeping this scenario We have to be well prepared . Hope for the best , Prepare for the worst.
Now coming to your strategy, that type of chance occurs rarely as you said.
I like your strategy and agree with you but I am more comfortable my strategy which I came to know by years of experience. I always try to refine my own strategy. Ok.DAn. Thanks
 
#7
Could you please show this strategy in option oracle to get more clarity .
How many legs you are holding.

buy 115 ce 1 lot and sell 117 ce 1 lot and buy 118 ce or
buy 115ce 1 lot and sell 117 ce 2 lot and buy 118 ce.
what does this mean ( short 1 ec mar , long 1 145.5 jan long 1jan 143 put short 2 jan puts
In which month this strike prices expires.

profit and loss by change in ec in march futures
Your picture shows strikes prices of ce of 145.5, , 143 and pe of 144 instead of ce 115, 117 and 118 mentioned by you
I think you have shorted 1 future lot of march, long in jan call 145.5 and 143 and shorted 2jan 144 puts, Right

This one is old date strategy of jan 2008, Could you post latest one
Please clarify your holding positon in this BWB strategy.

Or give one or two examples more like this so that we can get clear picture
 
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DanPickUp

Well-Known Member
#9
Could you please show this strategy in option oracle to get more clarity .
How many legs you are holding.

buy 115 ce 1 lot and sell 117 ce 1 lot and buy 118 ce or
buy 115ce 1 lot and sell 117 ce 2 lot and buy 118 ce.
what does this mean ( short 1 ec mar , long 1 145.5 jan long 1jan 143 put short 2 jan puts
In which month this strike prices expires.

profit and loss by change in ec in march futures
Your picture shows strikes prices of ce of 145.5, , 143 and pe of 144 instead of ce 115, 117 and 118 mentioned by you
I think you have shorted 1 future lot of march, long in jan call 145.5 and 143 and shorted 2jan 144 puts, Right

This one is old date strategy of jan 2008, Could you post latest one
Please clarify your holding positon in this BWB strategy.

Or give one or two examples more like this so that we can get clear picture
Hi Munde

Here are all pictures :

http://www.traderji.com/equities/54528-my-option-trading-strategy-feedback-needed-6.html#post553138

As I wrote, the example only with the options is from the US Treasury bond. If now 2008 or 2011, it is the same strategy. I gave all the details, what you have to look at ! Have a look at the end of the post and you will see the risk picture from the explained trade with all the strikes mentioned.

The other trade was in the Euro. It is implemented in a completely other way, even mixed with options and futures, but the result is the same. As I wrote, there are many ways to implement a BWB and I also wrote, that I will show just ONE way. And I have shown one way. Ok.

Tc

DanPickUp
 
#10
These types of chance occur rarely. 2008 and 2011 is not same. Then Please post strategies of 2011 like this. How many times these types of strategy occur in a year , pls post with pics , tc
 
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