I thought about this but didn't do the math. It's def worth trying out and seeing how the system behaves...may be a good tool in the bag when known events like fed meetings, etc are coming up. I'll start playing with the numbers and see what happens.
I hold naked puts, but get out of the trade when the S&P moves below the 200 dma. This strategy has worked well in August 2015 and January 2016, but once in a while I loose money, as I get out of a trade and the S&P turns upwards immedately.
Best regards, Myrrdin
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The attached Excel has different ES option strategies that were entered on 8/17/15, the worst day to sell puts before the 8/24/15 crash. Naked options and spreads with one or 2 longs.
You can change the margin factor (IM times this number. 6X would be using 1/6 of account to cover IM and 5/6 for cash excess) in the yellow cell to see how it affects the drawdown, account balance for IM and the ROI.
A higher delta naked short, 7.29 did better than a lower delta 3.27 or 2.93.
If the difference between the long and short is too small then the ROI gets too low to trade.
When I used 2 longs with a short for a net 1.99 delta it stayed off of margin call for the initial drop on 8/24/15 when using a margin factor of 3, but it went on margin call for the 2nd futures drop. Probably because the delta on the longs got too low.
On the drop on 8/24/15, using 3X caused all trades to go on margin call except the one using 2 longs. 6X worked for most except the 3.00 delta naked shorts.
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That's the same thing I found. A 5x to 6x multiple is the only way to avoid getting hammered on all accounts. I go 10x-12x now just because I'm extra paranoid. Also, there were announcements like today where margins were doubled because of the UK referendum, that make me cringe. If I had 5x and something like that happened I'd be below the 3x min and sweating bullets.
In all cases what you said early on is the best, find your risk threshold and go with that. The rules you created are awesome but should be used as a guideline. Going forward for example I'm using the following
1. 9x min for margin excess
2. no single position greater than 15 contracts
3. no naked positions
4. roll early if needed but smaller positions help avoid this.
5. take smaller profits, exiting spreads is a pain in the ass and I'll always make less then predicted but that has to be ok.
I'm working on developing a few extra tools to help me and once I get them sorted out I'll share with the group. BTW, what's the general consensus for the upcoming vote? Overall, do you guys think it'll have a massive negative impact on the market like the China devaluation or be more like Greece?
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In my opinion Brexit, if it occurs, will not have a massive negative impact on the US market in the long run. Exports from the US to Great Britain are limited. But in the short run, the indices could show massive moves, as people panic.
I currently hold a reduced position of ES puts, but intend to sell additional puts after the vote no matter if there will be Brexit or not. In case of Brexit I will wait until the dust has settled.
Only intraday margins requirements were increased to overnight level for the ES future, that should not harm option sellers. Overnight margin was doubled for European Indices and some currencies only.
Best regards, Myrrdin
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