I am young trader who has been selling options over the past 6 months. While I have had no loosing trades so far, I believe I should be constantly learning. Several of your posts on the "Selling Options on Futures?" forum have really resonated with my trading style. So I just wanted to reach out to you and as a few simple questions:
1. What ETFs do you follow most heavily? Which futures do you follow most heavily? I too am a concentrationist, and understand the value of only following a few underlyings, and not spreading your eggs too far apart.
2. I just want to clarify, do you place your stop order to buy back your naked positions when the loss is equal to 3 times the credit you initially received?
3. I currently use similar methodologies as you but with bull put spreads. I am curious, what sort of advantages come with using naked puts instead? My account is not really large enough for naked puts at the moment, but I still want to prepare myself for strategies I could use in the future.
Thank you in advance for taking the time to help me with some of these questions, it is appreciated.
The following 2 users say Thank You to djcline94 for this post:
Welcome. Thanks for your input. We agree on some things and disagree on others. That is OK.
You are correct that we don't agree on the fundamentals. You certainly can predict some black swan moves. If there is a drought in the US during grain growing season you know that there will be a huge price increase. Drought in Brazil? Coffee is going much higher. Abnormally cold US winter? NG is going higher. Hogs get virus? LH going higher. And all of this has just happened in the last two years.
Your opinion on black swans applies more to equities than commodities. Black swans on equities are harder to predict. Commodities not so hard.
You have just been doing options on futures for a few months. You haven't been through some of the fundamental changes that have affected markets that many of us have. Experience is a great teacher. Five years from now you will have a different opinion of things.
The following 2 users say Thank You to ron99 for this post:
Thanks for the quick reply, but the section you quoted is from user K20a, not myself . Though I would like your opinion on the advantages of selling naked puts instead of selling bull put spreads? While I do not think my account is large enough to sell naked puts, I really look forward to when I can try out the strategy. Secondly, are you aware of which broker is currently providing the best margin requirements and exchange minimums?
Very interesting. Yes my statements were for equities. I have not looked at predicting commodities so it may be there. Still my belief is that all liquid, freely traded markets by world wide participants have the same degree of predictability/unpredidctability for the retail trader. You have raised somedthing worthwhile for me to investigate that may change my belief.
But another is thought is if you able to predict black swans with consistency, do you have the confidence to trade the moves outright directionally instead of selling options ? You can sell options normally until you detect a black swan, then switch to futures or a options directional strategy - you would make much more wouldn't you ?
I will just answer the futures part here, this is the futures thread I have already went offtopic on equities stuff enough in the futures thread.
1. I only like CL & NG, I have trouble getting filled at fair prices in other stuff for far OTM strikes. When I ramp up the account size, these are the only 2 I have found that are tradeable for me. CL & NQ are also somewhat correlated, so it's not ideal but I have no solution at the moment.
2. Depends on what R:R you want, if you want 1:3, you place order FOUR times the premium you received. You received $10 and want to risk $30, you place order at $40 if you get stopped you lose $40 minus $10 you received equalling $30 net, your risk. If you have place 3x premium means you are risking 1:2. That's upto you, I personally use 1:3 for monthly trades.
3. Naked gives you more range. You can sell a put strike of 80 for 13c naked, you get the 13c. If you do a bull put you sell the 80 you have to buy a 75 for around half the premium. So you only get 6c. Now if you are happy just picking up the 6c, you might as well just sell the 75 put naked instead of the spread for 6c. Your short strike will be at 75 naked vs 80 with the spread. Further OTM means lower delta means less risk when price goes against you. You save on commissions too which adds up in selling options.
Risk you are paying is of course being prone to unlimited risk (until underlying is 0 on downside). If you can manage your risk properly I think it is worthwhile to get the extra range.
If you have $1000 you should be able to sell 1 contract of CL, after factoring in 2x free margin. So you definitely should be able to sell naked if you are alreadying do verticals/bull puts..
Interesting that you are young and your style reasonates with mine. I am also quite young, currently trying to finish my undergraduate in finance. I started trading in high school, my happiest goal for 21st birthday was that I could open a damn US options account lol (it's 18 for equities only and 21 for options margin).
Maybe it is our youth's impatience & risk-taking that pushes us towards selling less time & concentrated positions. best of luck, well done for getting compounding on your side while you are young..you probably have a fair bit to learn when your first few losses comes - preserve through it and you should find good stuff after that. Keep the compounding going I have built up a decent size from compounding when I was 18 and now make what my friends who are now entering the workforce are quite jealous of.
The following 2 users say Thank You to k20a for this post:
Wow, more similar than I even imagined! I'm 20 right now, just starting my junior year of undergraduate school as a finance major, and began trading initially when I was high school. My first few trades were simply buying stocks, but I quickly found myself diving into buying options. From there I moved on to credit spreads, and now I am entering the naked options arena . Great to see there are others like me out there! While credit spread were a great introduction to selling options for me, I definitely see the benefits of selling the naked options instead, which is what has brought me here, to continually learn more. My account has grown quite nicely over the last few years, and I want to continue to learn new strategies, so thank you for the input.
The following user says Thank You to djcline94 for this post:
You say that only CL and NG are liquid enough for you. Have your tried selling ES? It is very liquid. I have no problems with fills. Last week when we had the big sell off I was rolling out with no problems at all.
I would ask about option spread management. For example, sell LEV4 P145 and buy LEVP140. Spread price about 1$ and IM = 704$ (according to Zaner). Would you apply the same margin rule as for simple selling options or another formula?