You have to have a residence or legal presence in the US and file taxes as a citizen of the US to trade options with most brokers. It's a new set of laws passed to prevent tax evasion and money laundering. If you maintain a residence in the US then use that address and all your information from the states such as your SS number, etc to open the account and you'll be fine. Also, make sure to file everything properly with the US IRS otherwise they'll take extreme pleasure in auditing you over and over .
Ron99 is there a rough approximation of your equation with regards to the change (loss experienced) in terms of the premium at entry?
The reason is that I just wanted to compare the equation to the exit that I had been using which is Take Profit at 50% and my stop loss at 100% of the potential premium at entry. I was just curious if I was being to conservative or liberal with the SL I had been using. The reason I chose that ratio of TP to SL was that I should only need to right approx 70% of the time and I will make money
I am just trying to make sure I set enough/correct alarms and emergency automated exits if I breach the SL max. I usually do make exits if in loss a discretionary decision by taking into account fundamental and DTE but I sleep better at night knowing I have a hard SL in place just in case.
Last edited by Chubbly; May 26th, 2015 at 08:03 AM.
If you exited at doubling of premium, your loss would have been 3.9% of the account balance at entry.
I realize some traders can't deal with their account balance dropping 25%. And that is OK. If so then getting out at doubling of entry premium would keep each trade's losses low.
Looking at this test run of the strategy https://futures.io/options-cfd-trading/12309-selling-options-futures-423.html#post495702 using these entry points and using doubling of premium to exit, you would have exited 3 times in 2014 (none in 2013 or 2015). Using the number contracts in that study for each trade, the losses would have been $52,205 out of the $186,767.50 profit if you didn't exit at doubling of premium. But that loss is not figured correctly because you would have had less positions on after the first loss. That would have reduced profit later but also reduced the later losses.
Of course what you did after exiting the trade at doubling of premium would affect the net profit at the end of the study.
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ron99, yes I have studied your posts with the results of your studies quite a bit. There is much to be learned from them. I thank you for sharing the results with us.
Some of the data confirms what I was always thinking and other data opens up new ways of thinking about this strategy. The 50% TP and 0.03 delta are definitely the way to go, that I have no doubt.
What I have been thinking a lot about the past few weeks with a defined X%TP of max prem what is the optimal number to risk in order to make that X% TP.
In the example of a 100K account acceptable loss set at 25% with the TP being $50 per contract and you have 50 contracts @666 IM x3=$2000/contract, then if you hit the SL with the 3x cushion you lose $500/contract ($25,000 total) so the risk reward ratio is 10:1 the drawdown is very large but is acceptable because since the win rate is so high (100% in your study). If you know your numbers you can figure always out how risky a strategy really is with a risk of ruin calculator. It won't tell you how much you will make but will tell you if there is a probability that a strategy could run into a bad streak and result in a total loss. There are more elaborate calculators out there but this first one is easy to use quickly. http://2ndskiesforex.com/risk-of-ruin-calculator/ http://www.automated-trading-system.com/resources/risk-of-ruin-and-drawdown-calculation-tool/
So depending on your win rate you have varying accuracy and be profitable as long as the payoff ratio works for the strategy accuracy.
So basically my thoughts are if I choose a SL at X% of Premium and a TP at X% of premium, could I safely have a smaller cushion? Hence if I needed a smaller cushion (example 2x) could I create more puts contracts and hence earn more revenue that makes up for the higher rate of losing trades. I think this needs exploring. The closer you get to a 1:1 risk:reward the lower your accuracy needs to be to be profitable.
The other thing to think about is what is my own psychological tolerance for a risk of major drawdown
Last edited by Chubbly; May 26th, 2015 at 11:58 PM.
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I did a quick search on this thread but really couldn't find anything so I'm not sure if this was brought up already. Have you done any back testing with your latest method of trading during periods of extremely high volatility with the S&P 500? Is the win rate approximately the same? Did you find that you had to have higher amounts of cash reserves to ride out the position?
Your backtesting of new ES strategy is really amazing. But I was wondering like few who have posted. My questions are:
1. During the period of backtesting market was going up most times. So, perhaps put strategy would have worked although I agree that no one knew market would be going up. So, what would backtestng of calls would yield? Have you done testing of calls during same period?
2. You have mentioned that calls' ROI is poor. But during downtrend would you do calls or still do puts with lower delta eg 1?
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