Very interesting, I was wondering how often options traders checked on their positions. When trading outrights you'll mainly be stuck to the screen whilst you have positions on, whereas I was wondering how you fill the time when trading options. I suppose it allows for more time spent researching and scouting for opportunities...amongst other internet activites
I thought I would post a quick update about some of the things that I've observed so far with my last trade. Most of these things pretty much confirm what's already been said in this thread but it's always good to have firsthand knowledge. Some of you may remember I posted two different trades this time around, one that expires approximately 100 days out in the other 130 days. What I found so far is that even though the 130 day trade provided a higher premium it just isn't worth it. There is a substantially higher-margin hold and very little liquidity that far out.
Another thing to note is that Ron mentioned looking at trades that are approximately 350 to 400 points below the current market value with a delta of 3. What I can safely say here is that delta is more important than the number of points below the market. In my last trade I went approximately 350 points down but the delta was a little bit higher. The net result was a slower rate of decay which left me in the position longer exposed me to more risk in the marketplace.
So does look like 100 days is the maximum and does seem to provide the best performance.
For some of the folks that are opening up test accounts are just looking to fund new accounts don't go chasing the higher premiums too far out. It's tempting but in the end it's just not worth it.
As it stands I am just unhappy with the trade that is 130 days out. What I plan to do is exit that position as soon as the market rebounds from this latest selloff and then reposition myself for a better trade going forward.
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Thanks Ron. I have been thinking about opening an account with DeCarley as TOS limits my options to only few popular instruments. I have no complaints with TOS as far as /ES is concerned but it's frustrating when it comes to trading others, such as coffee for example, as the platform doesn't allow option trading in them.
I guess I can't get away with those custodian fees if I want to grow the IRA account starting immediately.
To add a bit more color the the trade 130 days out vs the one that's approx. 100 days out, here's how the margin has behaved after the most recent pounding by the Chinese currency devaluation.
Contract: OESV5 P1750
Days to Expiration at Open: 93
Initial Margin: $978
Days Open: 8
Current IM: $872 Margin as of 8/12/2015: $810
Contract: OEWX5 P1750
Days to Expiration at Open: 132
Initial Margin: $978
Days Open: 3
Current IM: $1,315 (ouch) Margin as of 8/12/2015: $1,251
Notice how little time has actually affected the position further out in time. That $9 premium looked very sexy .... but it would have been a far better use of capital to have a larger position in the OESV5.
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I agree on the delta bit of your assessment and was going to add a small position at the same delta to see what would happen but didn't find enough volume. More importantly it would have passed my excess cash amount.
That's crazy. That margin number was lifted straight from the platform when the trade was made. I spoke to my broker and she said that there can be discrepancies like that and to check the statement to be 100% sure!!!! I've tried to use dudetooth's calculator but just can't figure it out. I'll spend a bit more time on that and see what comes out of it.