Thanks. I have been thinking about BlackSwan all these days recently since I decide to restart the option selling.
I realize that all the BlackSwan or massive crashes from what I know happened in a ESTABLISHED DOWNTREND. I guess by following the trend, we might do better. Like right now, SPY and all major market indexes are in an uptrend, so, we stick with selling puts, when the market turns down (lower low, lower high established in weekly or monthly chart), then we stick with selling calls.
I wouldn't, not crude, not at those volatility levels. If someone held a gun to my head, I'd consider short puts between $70 and $75 and maybe even up to $78, but I would not sell $105 calls at very close to all time lows in IV, especially after the market has already declined > $10/barrel.
You might consider natural gas. You don't have all the geo-political risk and the volatility is about 50% higher - gives you more room to be wrong.
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Yes, I do use some of the tools on OX to do some calculations and to compare margin requirements when it comes to commodities options.
In all honestly, I miss IB's trading platform. IMO, I find it to be better than OX or Zaner360 (DeCarley). And dollar for dollar, IB has the lowest commissions but again, with what we are doing here, lower margin requirements is the main issue.
I have started the paperwork process to open an account with IB again but it will be used for equity options selling and scalping of CL and ES. IB simply is not friendly to commodities options sellers.
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I have finished my reading up to page 345 so far, all great information here.
But I do have one question, I can't found answer yet.
Since I once got one margin call from IB early this year for selling put on ES (I lost 25% of the acct), I am very concerned about margin call.
I just opened one acct with OX but have not started trading yet, I can trade with my fund tomorrow though.
But before I start, I want to know
under what circumstances that one bad trade can wipe out 12 months of premiums? was there a margin call?
I know diversification will be one option, you can maybe put 20% of your acct to one commodity or one trade, when the trade goes against you, you can exit with Ron's strategy, but what if you are not in front of the screen, let's say for whatever reason, there is one event causing the trade goes against very badly, or you just freeze there that you just can not even exit the trade, and you got a margin call. Then what? my understanding is that the margin call is supposed to protect the fund in the acct, after margin call, you still have something left, is that right?
is that possible you lose all your 20% of the money you allocate to this trade when you get the margin call? or is that possible you lose all the money in your acct even you only allocate 20% to this trade?
The margin call I got from IB was that IB liquidated my ES short put with a market order, that happened in just one blink of eyes, I don't know how other brokers would handle the margin call under a very extreme fast moving market.
My position was short weekly ES put with delta around 0.25, very risky then, I just started to sell option without knowing risk control at that time. The good thing is I learned my lesson and also found this thread by searching how to control risk when selling options:-). I will start to use Ron's strategy moving forward. Thanks.
Last edited by daydayup8; September 2nd, 2014 at 03:06 PM.
A naked put with a delta of 0.25 is playing with fire. Also a weekly put with a delta of 0.25 is playing with a nuclear bomb. I monitor Ron99's exit point and also one used probably by lots of others. If I sell $400.00 of premium, and my losses reach $800.00 for this posiiton (independent of others), then I close the position. This is very easy to monitor. Wish you the best of luck.
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Different people have different rules but must people risk 2%-5% of their account on one trade.
It depends on how much you lost on the open trade. It's possible that you could not only wipe out your entire account but also that your broker could require you to send them more money to cover your losses.
If your allocating 20% of your account to a single trade I think its likely that you'll blow the account.
Remember that while the intent of margin is to cover potential losses on the position, it's not guaranteed to cover them. When excessive moves happen the daily PnL change can easily surpass the margin requirement.
I have an IB account as well. I find that their margin requirements are very high compared to some other brokers, especially for options. Their liquidation process is rather harsh as well - market orders - hopefully there is a liquidate market when they liquidate. Given that they internalize a lot of their order flow to an affliate it's probably not surprising. There are lots of complaints that they will actually force liquidate BEFORE you actually run out of margin money. Did you know that you can go in an designate the order in which you would like them to liquidate.
Last edited by SMCJB; September 2nd, 2014 at 03:44 PM.
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