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You are basically betting on this pairs trade to keep moving lower. Essentially, what you did here is similar to long 72 shares of RDS and Short 93 shares of Exxon, except the share numbers will change as the prices move. I guess the downside to this is that theta is slightly against you.
Additionally, with companies like XOM and RDS, extreme price changes in one without the other (as they are highly correlated) are not as likely, so big losses aren't as worrisome. If RDS keeps lagging against XOM it will be a losing trade however.
IMx3 rule is more geared for theta decay while withholding enough reserve margin to weather out the corrections when they happen. I doubt it's a useful way to keep track for this trade. The stops will be more discretionary, how much are you willing to lose before you decide to bail when the pair price goes against you?
Also, stock options don't use span margin.
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I just wanted to see which broker everyone else are using for futures options. I know this has been discussed before and DeCarley seems like one of the favorites but I find their fees a bit expensive ($7 round trip). I currently use TOS (TD) for my individual account and am happy with their services. (Mainly trade /es /cl /ng /zb)
However, I would like to start trading futures options in my tiny ROTH IRA account which TOS doesn't allow until I have minimum $25k balance within the IRA account. I noticed DeCarley requires a custodian to sign-up which I understand may require hundreds of dollars a year in fees. Does anyone know a great broker for IRA accounts to trade futures options?
Christ what a day. One of my positions was close to exit yesterday, the other about 50%, then...bam. One is in the red and the other is holding on for dear life. Looks like there will be more selling before this is all over. I was hoping the winds of fortune would allow me to exit both positions this week..but that's probably not going to happen.
On a side note I should really stop watching the ticks of my trade every few minutes. I think I'm ripe for an ulcer.
Last edited by rsm005; August 12th, 2015 at 01:17 AM.
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All the major crashes in history seem to have happened in August, September and October (Wall Street Crash of 1929, Black Monday of 1987, Asian Crisis of 1997, Russian Crisis of 1998, Terrorist attack of 2001, Subprime Mortgage of 2008, European Crisis of 2011, Ebola of 2014, just to name a few) so you gotta be extra cautious when selling naked ES options in these months. I usually sit on the sidelines and wait for a major spike in volatility before stepping in. Ron's IMx3 still works and can withstand a lot of turbulence, but a draw down of 30%, for instance, will really test your nerve and not everyone can endure it. I think you may want to do one of the following: (1) sit on the sidelines and be opportunistic, (2) cut losses if the value of the short option doubles and roll down further out of the money, (3) use the proceeds from selling deep out of money options to buy some closer to the money options for some insurance, (4) short ES itself for some protection. Live to fight another day!
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From my understanding with stock options, there are different risks to consider such as dividend payments and potential stock splits. I will look into the ROI differentials but have not back-tested any strategies, instead I am forward testing some stuff just to get used to options in general. I will look to focus on options on futures in the future, in particular energy commodities, but TOS doesn't allow you to trade them on paper. Great points to consider non-the-less.
Interesting, I thought all stock options were worth 100 shares. Is your calculation based off of the delta? Hence why it could change?
I think that DeCarley is well worth the money. Multiply the number of trades you do a year times the extra cost at DeCarley and then think if that much extra money is worth the cost for the best customer service in the industry.
As far as small ROTH IRA, I doubt you will find any place that allows you to trade futures in them and doesn't require a custodian. Most custodians are around $300 per year.
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