I ended up making my first trade this week and exited pretty quickly.
ESK6 1450P -25 9.75
ESK6 1200P +50 2.60
I entered the trade on Monday, during the holiday and exited today. The total profit was very small and the margin hold was very small relative to the total amount in my account. The gain at exit was ~25%. Th e IM was approx. 609 per contract.
The reason I exited the position was because I didn't want to have an open position hanging out there over the weekend after a strong 3 day rally in this market. Lord knows what will happen Sunday night .
I do believe that I was overly nervous and exited the position too quickly though. Reason being, after I bailed on the position the decay + gain on the protective puts kept the margin and losses in check. I'll wait for another pull back before opening another small position. If the market goes above the 200 day moving average and news gets better I'll modify my strategy. I do believe the market is ripe for a big pullback.
I'm following Ron's rules on spreads but adding my own bit about much smaller positions. Just thinking outloud, any thoughts would be most welcome.
Last edited by rsm005; February 19th, 2016 at 06:14 PM.
Reason: My original post wasn't contributing to the thread in any way.
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While watching the power lunch session while on treadmill, I saw the add for PUTW etf from wisdomtree and thought I'd bring this up for discussion here on the forum to see how everyone feels about the etf.
The etf aims to implement the put write strategy on S&P500 index, basically writing ATM puts 30 DTE and collect premium. Idea being sold is not really income but "protection" from downside, which is of course true if it works as intended.
Just curious to see how all the seasoned traders here feel about the strategy. The fund only has about $25M in assets (I say only in relation to wisdomtrees ~$44B in AUM), and has only been trading for last 4-5 days.
The main reason I ask is so I can also get more info on the fund and how it might operate from some of the more knowledgable posters here. If the fund does this with Reg-T margins on equity index, then maybe I'm thinking $25M won't make a big dent. But if they aim to do this using SPAN on ES futures (put options) there might be a higher supply of put options in the market (as they're writing) and premiums could fall to account for this. Just wondering if there's any merit to my logic here. I don't think $25M itself would be impactful a great deal, but what if the fund size starts to grow, to say $200M (as it gets bigger in jumps as institutional/pension funds move some of their moneys in). Of course, they'll not be using all money in margin as there's liquidity to be concerned about, but still wanted to have (still "academic") the discussion.
Also going beyond ES and looking at more diversified portfolio, wondering what size account size do you guys think starts to get in the wa of generating slid returns. Say using the strategy we've been talking about here for a long while generates ~2-3% ROI/month, getting to ~35% annually. Do you think that this return profile works for all account sizes? Using the same logic as before (in para above) would you expect you'll no longer be able to efficiently write puts/calls (efficiently = premium/risk profile). Do you think someone managing this for, say, $20M can expect to generate similar returns to someone doing this on $100K. Of course, the market is much much much bigger than $20M so doesn't move much I guess with this volume, but I'm wondering about the scalability of this strategy.
P.S. I'm still quite new to this, so please go easy on me and on my naivete!
When I spoke to the futures desk at OX the guy told me their margins don't count the long puts in the spread against margin... very strange. I'll call again tomorrow and double check, maybe the guy I was speaking to was just stupid.