Update Schwalbe trade

Suckow

New member
I opened a Schwalbe Trade in SPX yesterday, through TOS.
It was done in three orders:
The -8x15x-7 was for a credit of $7.85
The 3x-6x3 for a debit of $0.40
UEL @ $665
LEL @ -$835
PM margin (according to TOS analyze tab): $2'261
(Image below is today. ONE does not let me go back to yesterday yet.).
1574753614941.png
 

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Bryan Doyle

New member
Igi, thanks for the good presentation yesterday and your updated trading rules.

A couple of questions:

If the market drops 1%, 2%, 3% from the starting price then you sell a PCS. What if this drop is also at the 15 day low? Do you also buy the small PDS? Do you still sell the PCS?

It then example you showed for Dec 2018 it seems like we would have hit this situation: selling PCS and buying PDS?

Can you explain more?
 

Ignatz

Member
hi Bryan. i only buy a small PDS when the close is near or above entry price and there is no 1% drop possible. And in Dec 18 there was no more trade because it stopped in Oct. 18. The trade starting in Dec 18 there was no selling of a PCS
 

Bryan Doyle

New member
Ok, so buying a PDS would occur when the market has been trending up and you are above your initial starting price and then we hit a 15 day low?

In other words you wouldn't buy a PDS when between the V and A? In that range you are selling PCS at 1% increments?

Or do I still not understand?
 

Ignatz

Member
the reason for this is: a PDS gets very expensive when it is below starting price, but also depends on DTE. and the close can be far below the 15 day low which makes it also more expensive. the expected result already happened and an "insurance" doesn´t make sense
 

Suckow

New member
Ignatz,

I tried backtesting this trade in SPX. Start date is 19 March 2018: 1574791330583.png

1574791479687.png

If we sell PCS, this trades get's hurt. What are the non subjective criterias for adjusting this trade ?
 

status1

Active member
This is just my opinion about this strategy
It seems to me that this trade is more for protection than something to make money with
Sure it makes some money but at what cost ?
Without adjustments this has a negative theta because of the upside down butterfly so you have to hold it into expiration to get the most out of this trade for 3 months It's too slow for my taste and it's not making a lot of money after waiting that long
This is not something that you put and leave it alone like the BWB where at least you have positive theta if you are near the tent so you could get out with a small profit at any time
It has to be constantly adjusted to remove the sea of death
I am sure Igi does a good job with the adjustments but I don't think I would be able do the adjustments by myself
I will stick with my PCS that works very well for me
 

Michael B

Member
Limiting risk is actually a big plus. I'm totally OK with making small profits. After getting used to the adjustments my hope is to eventually open one every month while still keeping each for 3 months.
 

Suckow

New member
This is just my opinion about this strategy
It seems to me that this trade is more for protection than something to make money with
Sure it makes some money but at what cost ?
Without adjustments this has a negative theta because of the upside down butterfly so you have to hold it into expiration to get the most out of this trade for 3 months It's too slow for my taste and it's not making a lot of money after waiting that long
This is not something that you put and leave it alone like the BWB where at least you have positive theta if you are near the tent so you could get out with a small profit at any time
It has to be constantly adjusted to remove the sea of death
I am sure Igi does a good job with the adjustments but I don't think I would be able do the adjustments by myself
I will stick with my PCS that works very well for me
The equity curve of this trade must be compared to the margin used (SPAN/Margin).

A trade with nearly a 1/1 risk reward, a high win rate and no tail risk is very interesting.

The difficult question is can the adjustments be non discretionary and allow the same results.

I hope Igi will have a chance to reply to my question above regarding a March 2018 trade that does terrible if we sell the PCS.
 

status1

Active member
Limiting risk is actually a big plus. I'm totally OK with making small profits. After getting used to the adjustments my hope is to eventually open one every month while still keeping each for 3 months.
Well that is one way to get around the small profits
I hope you get used to the adjustments as you may have to do up to 3 adjustments one for each trade if you have all 3 at the same time Good luck
 

status1

Active member
I have not made any adjustments in months but I keep my trades simple so I don't need to
Of course my trades do have risk on the downside but as the bull market keeps going up I don't have to worry too much about the down side and if it does than all I have to do is roll it down and out
In the meantime I keep collecting profits a lot more times in the span of 3 months
It's very simple and I know what to do I don't have to wait for someone to tell me when and how to make the adjustments
 

Chuck Moore

New member
status1, please keep in mind that people have different objectives and levels of experience in options. One of the main tenants of The Schwalbe Trade is limited Fat Tail Risk which is very attractive to someone such as myself. Over the years trading Put Credit Spreads, Condors and Broken Wing Butterfly's (all with significant Fat Tail Risk) I have had serious corrections wipe out months of gains, many times. Lesson learned is you never know when the corrections will occur so I gladly take the trade off of lower returns in exchange for much less risk. Likewise, there are plenty of people that are relatively new to options and learn from following along in a service such as Igi's. I learned a lot over the years by following along; in some cases what NOT to do. Finally, your comment about having to adjust 3 trades at a time if you do 1 a month....Remember that each trade will probably have different strikes and while some may need adjustments, others may not. I have several on right now, 1 every week for the last month as a real time test and I have not yet had any trade require the same or similar adjustments at the same time. Happy Thanksgiving Everybody
 

Ignatz

Member
@ Suckow: in the next meeting i will show the exact rules and also show, what i did in this special case. I will show all trades from Dec 2014 and explain every step and the fix rules for it.
@status1 : the argument about negative theta: do i look for the time when the trade begins or when it will expire ? How big is the probability of a trade being at the same level after 3 Months ? looks like zero.
and if you roll a PCS: Do you have to add some money for this adjustment ?
everybody has to decide, which style fits for himself.
i only say: always think of: what if..... it´s all about risk.
It´s not funny to give back a lot or all or even more after months of good trades..... and start at the same level as before or even lower.... i know what i am talking about. :cool:
 

status1

Active member
Thanks Chuck
I understand what you are saying about people having different objectives
I just stated my opinion about this strategy
I understand that you may not have to adjust all of them at the same time but we are in a bull market at the moment so you have not been tested yet I hope you know what to do when the market goes down 50 points or more
 
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