Thanks for modeling the option prices in 07-08 and just looking at your examples regarding IV:
ex. 1 Jan 2008 - 197.25 point drop in ES
.03 delta put price increase 3.83->21.15
ex. 2 July 2008 - 194 point drop in ES
.03 delta put price increase 3.83->18.67
ex.3 Sept 2008 - 83 point drop in ES
.03 delta put price increase 3.4 -> 38.08
IV and the put price soar after the failure of Lehman Brothers, and even though there was only a 83 point drop in ES.
This could be example of what Btrader11 was referring to "many not-so-far-fetched scenarios (the IV blow out is being wildly underestimated)"
No one knew about the how bad the banks were until mid September and the failure of Lehman Brothers over the weekend and Morgan Stanley on the brink later that week. Then the subsequent financial crisis began, the government bailout with TARP, the great recession and the real spike in volatility happen.
I don't want to derail this thread as I don't trade options. But I don't understand your post. Loss is part of life as a trader, I lose money all the time. But it's just temporary, as my expectancy is positive. Avoiding loss or avoiding risk is not the solution. The solution is knowing the risk and then trading accordingly.
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The following 2 users say Thank You to Big Mike for this post:
Natural gas winter of 13/14 and crude oil Fall 2014 to Spring 2015 are more recent examples of volatility blow outs, especially NG,. All the data can be found in Dudetooth's SPAN tool for those who want to test their strategies or just to learn how quickly things can turn.
The following user says Thank You to CafeGrande for this post:
Thought I'd give everyone a quick update on how things have been going with this trade. It's certainly not been as smooth a ride down to 50% as I would have hoped. In the first few weeks the decay was nice and orderly. Even as the market started to grind down my position still held up well, didn't lose too much value, and was positive. However, on the 28th Greece announced a referendum and the markets went to hell. My position when from almost $6,000 up to $5,000 down in one day. It came back a bit but since then I've been down a few thousand and it looks like next week is going to be just as volatile. My position is still in the red and I'm not sure what's going to happen with the markets going into the next 2 weeks. I thought of exiting and just eating a small loss given the impact a Greece exit and the Chinese market plunge would have but didn't want to make panicked decisions.
Option: OESU5 P1700
Expiration: Sept. 18th 2015
Opening Premium: $5.25
Current settlement price: $5.50
Opening Initial Margin: $45,450
Current Initial Margin: $38,600
S&P when the trade was opened: 2111.25
Current S&P: 2067
Date Position Opened: 6/3/2015
Days left before Expiration: 77
Days position open: 30
So it has only used 14.50 of the 1,869 held for each contract.
In 7/1 I entered Oct 1550s at 3.40. They are also 4.05 now.
Yes this strategy is boring some of the time. Patience is the key.
I have tried many, many times to time entries and exits. I have had no luck because you just never know what is around the corner. The only thing I am doing now is not having my accounts full because of the Greek situation.
NOTE: FYI SPAN margins were recalculated for Friday July 3rd. Mine dropped 6% from Thu. It's interesting that premiums are higher but IM is lower than about a month ago.
Last edited by ron99; July 4th, 2015 at 01:20 PM.
Reason: Margin changes for 7/3
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The big reason I was looking at an exit was because of the number of unknowns coming into the weekend. If Greece voted no we can all expect a big dip in the market. My thought was to buy back the position at a small profit or even a small loss, and sell again the following week. I reconsidered the idea and decided to just sit and wait. Ron said it best some time ago in this thread, the more boring this method of trading is the better it is. In the end, doing nothing is probably better than doing something.
Agreed, that is very interesting. This tell me the markets aren't really too worried about the uphevel. I'm pretty deep in to my position right now and thought of reducing my exposure last week but would have just taken a loss. I'm just holding on for the ride.