So I placed my first real trade as an options seller after months of research and wanted to share my thoughts and feedback as someone who's "popped his proverbial cherry".
1. The reason I went with oil is because I'm a news junkie and follow global news daily. Adding a bit more commodities news to the mix wasn't too hard and my habits gave me a bit of back ground on the overall bearish sentiment.
2. I believe the supply glut will be there for some time. At least until the OPEC meeting in June. The OPEC nations need to go to war with Russia to make sure they don't lose China's business. The Chinese represent 2/3 or so of OPEC revenues given the drop in US and European demand. Although the Russians have never really trusted the Chinese they are going to be forced to deal with them due to sanctions from the west and a crashing economy. Add to that the Chinese don't want a destabilized Russia as a neighbor and a more secure land based delivery method for oil vs ships and a continued weakness in Europe and you have the perfect recipe for continued oversupply until someone breaks. The bullish statements from OPEC's Al-Bardi caused a small spike but can't affect the larger trend in surplus which will, in my humble opinion, cause prices to remain down.
3. My first trade was small from a premium point of view but bigger than I've seen others make. I sold 12 March15 calls at $58 for a $900 premium.
4. The strike price was chosen because it's 27% out of the money on the current price and 18% out of the money from the 20 day SMA.
5. I wanted to start with 1 position with a high degree of certainty to help me gain experience so I can expand in a controlled way. The biggest thing here is managing my emotions and following a business process.
6. The margin requirements practically gave me a stroke. OptionsExpress stated that SPAN was $14,000 in margin for a $950 trade. How do you guys manage this? What do you do to have a decent gain without tying up so much capital?
7. Things I would have done differently next trade and mistakes? The position was just too large.
I'm a long time options trader. Your position size is just a nibble for me yet running an eye over your logic scares the crap out of me, so it is little wonder you are finding the experience terrifying.
Points 1&2, markets can and will do anything you can imagine and regularly do things that are unimaginable. There is no such thing as pretty safe, particularly when trading volatile instruments such as oil. It is up to you to safegaurd yourself. If you keep taking on open ended risk such as this it is just a matter of time before you get wiped out. No matter how logical an arguement sounds you can never know the future. Just think the best conspiricy theories have an element of truth and sound logical, and yet are totally delusional.lol
Point 3,It doesn't matter what other people do, often it is the blind leading the blind. Why take on potentially huge risk for little return, are you here for the money or the game.
Point 4. Refer to points 1&2
Point5. There is never a time when I will sell calls after a huge move down or puts after a huge move up, because of the potential for a large catestrophic retracement, but I regularly do the reverse. This is where I am taking profit on previously sold options. There needs to be a directional element to your positioning, that reduces risk whilst getting you the maximum premium, written at or in the money vertical spreads often fit the bill.
Point 6, The span margin reflects the daily risk of your combined positions not the total risk that you might be exposed to which could be far greater, if I was looking at risk/reward ratio as poxy as yours I would be having kittens as well, quite frankly I would shut down the position immediately but then I have already had that lesson in the past. Did you notice what just happened to a lot of people in the Swiss Franc, well you are exposed to the same potential level of risk, if you keep exposing yourself at some point it will happen, better sooner rather than later because then it might take everything you have.
Point 7.You have told us that the position is too large, therefore what needs to be done should be obvious. Lets hope that there will be a next trade, because at this point you are relying on nothing more than hope and wishful thinking.
Point 8.Smart trading by it's very nature will minimize the emotional rollercoaster, if you are experiencing huge emotions this is your instinct screaming at you that something is not right, usually it pays to take notice of these warnings.
I am not trying to be a wet blanket here but it would be obvious to most options traders that you are juggling live grenades. If options trading were as easy as newbys think then everybody would be doing it. Don't leave yourself as the next grist for the mill.
Last edited by Johno1; January 27th, 2015 at 08:48 PM.
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