Here is a table of the largest gains and drops for ES since 2006 in a 90 day time frame. One column is drop in points the other percentage. I used the last 200 days before expiration of each contract. So there was some overlap.
Biggest point drops during recession were 551.50 and 470.75. Biggest drop in points since 2009 was 268.50 Mar 2016. And biggest drop percentage wise is 19.3% Dec 2011.
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The current contract, ESm2016, had a 259.00 drop and a 282.50 gain. -12.5% and +15.6%.
So I have been looking at doing put options that are 20% OTM so that the option is further OTM than the largest drop percentage wise since the recession. For futures at 2080 that would be ESu1670, which is currently trading at 10.00 with a delta of about 7.16. Then cover with long put(s) below that.
So I just couldn't keep my current position open as is going into next week with the Brexit vote looming. After doing some reading it looks like a lot of banks and hedge funds hadn't priced in a "leave" vote with over 78% of hedge fund managers saying "it ain't gonna happen". I can't get caught on the wrong side of that. With that said I adjusted my position to the following
ESu6 P1740 -10
ESu6 P1490 +20
EWu6 P1700 -15
EWu6 P1450 +30
EW3v6 p1650 -25
EW3v6 p1400 +50
I made sure the larger premiums covered all transaction costs. One of the benefits of having 12x margin hold . The deltas are radically different from what we've been trading but that's something that couldn't be helped here. I didn't want to go into a debit or open way more contracts than I have opened now.
The extra time should reset the longs and the ones with the most time decay have the smallest position. This breakdown also my overall strategy going forward. Have multiple trades at any time with each trade being much smaller. I'm willing to wait on this one and even take a smaller profit when it happens to get this wheel rolling.
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I don't remember if I posted this previously. It is my Excel Net Profit Calculator. You enter your positions for a trade and it calculates Net P/L, Monthly ROI%, ROI% and shows a chart of the results.
Basically, change the yellow cells to match your position.
It can be used for any commodity by changing the Multiplier in cell A2 and the price in cell A7. Cell A6 is the increase in price from one row to the next.
One thing this points out is the max loss you can have with your position. If you add the max loss (lowest Net P/L) to the Total Margin & Excess (Tot M&E in cell L2) this shows the amount your account could lose if prices were to go below your long options if you are doing covered options. The wider the spread between your short and long(s) the higher possible loss.
In one ES example I was looking at, when I had a 100 difference between the short and long it took 18X to cover the max loss with margin and excess and make the account never go negative no matter how low futures dropped. But that lowered the yearly ROI to 7%.
In 2008 ES futures dropped 551 in 90 days. Or about 40%. 40% drop now would take futures to about 1250. Of course in ES you probably could exit before it dropped 800. But in other commodities you might not get that chance if they go limit down several days in a row.
Just thinking out loud here. Back to research.
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