Given the sell off in oil would anybody be selling calls at least? Im thinking of selling the DEC 107 calls (as per Rons rule of 25 pts out) . Seasonally, i know oil goes up in december but given currrent environment and technically its in a downtrend I just dont see it really causing a problem. Of course, everything changes if things in middle east get worse.
I suspect there are lots of traders experiencing pain in the big oil move. I know I have been. I'm out of all my put positions (taking some significant losses) except one, a 73 put that expires tomorrow. I thought that this put was completely safe until the last couple of days, but even it has seen an uptick in trading price.
I have not had time to read this thread so what I am posting may have already been covered.
I have traded options on futures for about 8 years. My approach or strategy is quite different. I am selling what some label a synthetic strangle. My trades are entered Delta Neutral -- for example: CL long 1000 deltas and short 1000 deltas. I am ATM in most cases. Therefore I collect the highest amount of premium and of course benefit from the most time decay as I am a seller of options. Of course it would seem that I am thereby assuming the most risk.
For example say I sell 2 ATM CLZ4 Call options and receive more than $4,500 in premium which goes in part to offset my margin. My margins are relatively low due to SPAN margin on my Portfolio TOS account.
Now a typical trade I will sell the ATM calls and at the same time buy a CL futures contract creating a synthetic strangle. This will also lower margins because I have a "covered" position -- I am both long and short the CL. I am trading the active month futures with about 30 days to expiration.
Obviously if I had sold OTM options I would be collecting about $1000 in premium on 2 contracts. So far less premium but less apparent risk.
Managing the trade is my "job" during the time in the trade. I manage the deltas by taking profits on the position when the market permits. The more volatile the trading the more opportunity I have to capture profits but even without movement I am collecting about $100 per day in theta (more of course when closer to expiration). When I have profits of $300 or so on one side of the trade my deltas have increased and so I buy back the profitable calls and then sell further out of the money calls to again put the trade at close to neutral deltas. Last Friday October 17, 2014 -- I had the opportunity to make several trade adjustments which netted me $970 for the day.
Having both sides of the market (Short Calls vs. Long Futures) will allow me to book realized profits on one side of the trade and hold the other side as an "unrealized" loss waiting for the market to reverse direction and then "rinse and repeat". This method does require more monitoring than just holding till expiration but since I do not have to be glued to the screen it is not stressful. I do hold to about 10 days to expiration and have alerts in place to ring my phone should the trade ever require management when I am away from the computer.
Thanks again to all on this thread for your helpful posts which indicates a knowledgeable group of posters. I may have to spend more time with BM group and even pop for an elite membership
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@ticks how do u deal with option market been closed yet futures open. Do you just do this in futures or stocks also I presume just futures as more volatile? Have you tested this with option vue or otherwise ?