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At time of writing 9:11am EPT, NG market is down 6.5c but has already had over a 50c range TODAY. Trading as high as $6.40 (+25.1c) in the middle of the night (4am) and as low as $5.892 (-25.7c) this morning.
For the ES traders. I found this interesting. ES put options in further out months with the same premium have lower IM requirements and lower deltas. They also react better during adverse movements.
I used 1/22 to 2/3 for the study. ES futures dropped 106 in 8 trading days. All 3 contracts were 1.95 on 1/22/14. This chart shows the change to your buying power (balance-IM) over that movement. Starting balance was $100,000.
On 2/3/14 the Feb option account had $25k buying power left. Mar $14k. April $36k.
The April option account weathered the storm better than the Febs or Marchs.
The attached spreadsheet has details and another group of 3 that started at 0.80.
Couple of comments:
- Have you considered a strangle in Sugar, maybe a put around 15 cents? If the dryness in Brazil continues, Sugar should have found its bottom.
- Within a strike or two, I'm in the same trades on beans and meal, although I sold them a month or two ago. While they might continue to be relatively firm, watch the inverses closely, because Brazil will soon be the source for new export business.
- Do you have a typo in the Silver strangle? A 23C by itself is about a 35 delta option.
Thanks Ron for the ES study. As someone who has some experience selling ES options for many years, I do not find your results surprising at all. It makes perfect sense that strikes in the farther months have lower IM requirements and lower deltas simply because they would be farther OTM than if you traded closer strikes using a closer month. The only difference is the longer amount of time it would take to make the same potential profit but like your study showed, you would be able to whether a sell off better by selecting the farther out months/strikes.
I see that you started your study/enter a trade on 1/22/2014. Was there a particular reason why you choose that date? Or was it purely random?
Because with a bit of market timing, you could have waited until around February 3rd or 4th to sell some deep out of the money puts after the 106 point sell off. Of course, no one can predict if ES would've sold off further or bounced back but with put premiums going higher after a significant sell off, wouldn't that be a better time to get in?
On Feb 3rd ESH14 traded as low as 1732 and ESM14 traded as low as 1725
ESH41150P closed at 0.80
ESK41050P closed at 0.75
ESM4975P closed at 0.90
Of course, I did not calculate the ROI of these but they would be very safe distance OTM.
