Last week I was busy "feeding the beast" almost everyday.
When time erodes the margins and premiums, I then have cash freed up to put on new positions. It seemed like almost every day I was adding positions to keep the accounts full.
I notice the accounts do better if you stay on top of keeping the accounts full. But there are times when you want more cash when markets are crazy. Experience will tell you when. The school of hard knocks will teach you too.
With Friday's new margins being lower I need to add more positions on Monday. Plus I have a bunch of options expiring on Monday.
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Regarding adding on to positions as margins decrease, do you ever find that the margins decrease, you sell more options, and then the margins pop back up, and your margin + 2X rule is violated? Do you do anything special (like exit positions) to handle that situation, and get you back to margin + 2x cushion?
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Ron99, when you "add" positions to keep your account full, does that mean you may add additional positions to a contract month that you are already holding short positions or are you referring to a new market/month entirely?
For example, let's say you are already short DOTM May CL puts but then, cash is freed up from other positions due to decay, would you add on more May CL puts at around the same strike?
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Here's a lesson on why you don't want to go too far out in time selling options.
I sold SB puts on Jan 2nd when SBh3 futures were 19.69. Futures have dropped to 18.49 but the premium has dropped, so far, because I was far OTM and close in time to expiration. 16.00 Mar puts.
But the Jul 16.00 puts have gone up from 0.07 to 0.13 in the same time frame.
Time erosion gets stronger the closer you get to expiration. Thus margin and premium drop quicker. The further out in time you are the more that the option will follow the future instead of ignoring it.
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If you look back at past trades, do you find yourself biased towards selling puts, or selling calls?
I would imagine that for most instruments that selling puts would be more common, since it is less risky (selling calls in crude could be dangerous if a terrorist attack occurs, grains can skyrocket in droughts). For ES options, I would think selling calls might be preferable (think of a stock market crash).
I'm curious about the thoughts of the experienced experts here...
Oil is always going to be one of those markets that has the terrorist volatility variable waiting to be added to the current price. I would agree with you that the energies will always have a bias to the upside because of this. I am waiting for oil to drop a few dollars in price and will look to sell puts again because of the ever present terrorist threat. Time is on our side when selling options so I can wait for months if needed. I'm short March 900 wheat calls and my reasoning was that price was in the 50% retracement range even after the last bullish crop progress report in January. I sold 680 puts also. I think the tendency is to want to sell puts. The vast majority of the general public that owns stocks only want stocks to go up. This makes for a price bias on calls that makes them more expensive then puts. The futures markets are a minority but shorting a futures contract is more routine in futures than it is in stocks so why should we be 'scared' of writing call options on futures? Because we're scared that something like a terrorist threat can spike prices. In the grains it can be drought, OJ freezing weather, cotton the boll weevil..etc. But, these 'variables' usually happen with the seasonal aspects of the markets. I wait for those seasonal highs, or what I think might be the seasonal high along with what the charts are saying to let me know when it might be safe to sell calls. But, you are right. I fell more comfortable selling puts but sell calls nonetheless. It's all a waiting game for me and how I interpret charts.
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