Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: ccportfolio who wrote (167)	6/24/1998 11:17:00 PM
From: Jim Snyder	Read Replies (3) of 2317

Greetings All! I just found this thread and just finished Schiller's book (even talked to Jon a few times via e-mail to clarify a few points...Maybe I'm the slow one!). Anyway, your analysis of the loss if the spread goes against you is correct. I think the more relevant question of maximum drawdown is how many times in a row can this strategy go bad? Well, from the book it seems he had three losers in a row last year. That would be substantial given the losses are about 4 times the gains. His corrective action seems like a good strategy to minimize the losses. He did do some changes to the strategy that were not in the book. Here is an excerpt from an e-mail I received... "I did 2 things in the early 95 period to compensate for the Call 2 sigma being too low, to keep from getting Short Calls too low: (1) I added a bias of 6 to the 13 month 2 sigmas, (2) I computed 6 month 2 sigmas instead of 13 month 2 sigmas. The Feb 95 13 mo 2 sigma was 12.54, the biased 2 sigma was 18.54 and the 6 mo 2 sigma was 16.48 and the Mx was 16.70. Of course the other trick was to open Put side only (i.e. Bull CvSS)." I'm also testing his "2 sigma" idea with individual stocks. I'm using the data provided by www.coveredcalls.com and running them through a quotes-plus scan to calculate the 2 sigmas (do any of you use quotes-plus?). ZEI looked like a good pick last Monday to do a bear spread; the upstrike call was more than 2 sigma from the current price and the net credit was a little more than 1/2. If anyone is interested in the scan or results from what I've been doing, let me know. Good Luck! Jim

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