Would MCTO ever open credit spreads or iron condors on stocks?
No. All of our option trades are credit spreads & iron condors on the S&P 500 index (SPX) or Russell 2000 Small Cap Index (RUT), which eliminates company specific risk. We personally spent a year following a newsletter that traded credit spreads on stocks and decided that we did not like this strategy because our trades were at the mercy of company specific news. For example, the CEO steps down unannounced, the CFO is suddenly accused of cooking the books, an executive at the company unexpectedly makes a remark to the press that revenues are slowing down, or an analyst downgrades a different company but one in same industry. Any one of these events can quickly move the stock price turning the trade into a losing trade. The strike prices also need to be set very tight around the underlying stock to bring in a reasonable level of premium, making it a rather stressful strategy. It seemed that just about every other day one of our credit spreads was on the dreaded “watch list”. After this experience, we decided that the credit spread strategy is best done on broad-based indexes that comprise hundreds if not thousands of stocks, eliminating company specific risk.
Would MCTO ever open credit spreads or iron condors on stocks?
No. All of our option trades are credit spreads & iron condors on the S&P 500 index (SPX) or Russell 2000 Small Cap Index (RUT), which eliminates company specific risk. We personally spent a year following a newsletter that traded credit spreads on stocks and decided that we did not like this strategy because our trades were at the mercy of company specific news. For example, the CEO steps down unannounced, the CFO is suddenly accused of cooking the books, an executive at the company unexpectedly makes a remark to the press that revenues are slowing down, or an analyst downgrades a different company but one in same industry. Any one of these events can quickly move the stock price turning the trade into a losing trade. The strike prices also need to be set very tight around the underlying stock to bring in a reasonable level of premium, making it a rather stressful strategy. It seemed that just about every other day one of our credit spreads was on the dreaded “watch list”. After this experience, we decided that the credit spread strategy is best done on broad-based indexes that comprise hundreds if not thousands of stocks, eliminating company specific risk.