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Initial Margin, and the exchange calculates it for any option or future based on how risky they determine it to be. They use a process called SPAN on most exchanges. Some brokers add their own margin on top of the span minimum, but it's more desirable to have a broker that does span minimums if you're writing options because your trades will be more capital efficient.
I know we have been exploring optimal ways to sell puts (short volatility) giving us a high-probability defined reward strategy. While nobody has a crystal ball, I think its safe to assume we are closer to the end than the beginning of this market cycle and that a long volatility strategy with positive carry and positive convexity could be appealing.
I would think we could formulate a strategy whereby we entered backspreads (sell 1 and buy 2) with higher initial deltas at a net credit at approximately 100 DTE. The idea would be to keep a defined percentage of the initial net credit (25-50%), while speculating on an explosion in volatility where the trade structure would then exhibit convex return characteristics with a theoretical outsized or even unlimited return profile. If the trade had a time stop, we could eliminate much of the risk of backspreads (getting caught in between strikes with few DTE). I envision this as a core stand-alone strategy or possibly, a disaster hedge in a larger short volatility portfolio with positive carry, or a trade to implement when markets start to look precarious (the opposite of the kinds of conditions we look for with the current core strategy).
Has anyone explored implementing (or backtesting) this trade systematically? I am not experienced running backtests with the spreadsheet, however, I would be happy to work on this with a little assistance or guidance.
I use a very similar system to protect my stocks account. I am not able to give details, as this system is from a (German speaking) service I pay for. But I will give you an overview.
I sell 2 OTM puts, and place an order at the same price to buy 3 OTM puts a little bit further OTM. I have the risk of being short the puts in the beginning, but after some weeks I own 3 long and 2 short puts. The game begins again. I sell 2 puts, and I place the order to buy 3 puts. After a while I own more long than short puts even after the beginning of the next round, and, thus, the positions give some protection.
The nice thing about this concept: There is some risk during the first couple of weeks because of the naked short puts. But afterwards this risk is protected by the long puts. And: There is no cost for the protection, except fees.
The system works well if it is set up during a phase of low volatility, and afterwards there is an explosion of volatility. Eg. in February 2018. The system does not work well in case the indices move downwards slowly.
I would not use such system as a stand-alone strategy, as such explosion of volatility does not happen very often. But the system is well suited to protect stocks or speculative short put positions against severe drawdowns.
Kein Problem bei alten Freunden aus "Terminmarktwelt" Zeiten......... LOR-Gast?
Bleibt nur die Frage, von welchen Seiten sich unsere Berliner Freunde haben "inspirieren" lassen. Ich hatte schon vor Jahren Olaf und Christian auf Ron`s System aufmerksam gemacht
MFG
Sorry for these few TEUTONIC lines, won`t happen again --- Thanks
Just wanted everyone to know about something that has happened at optionsellers.com
I became a client of theirs back in February. Opened an account with the minimum deposit. The account was up 25% at one point but then the gold smackdown occurred and the account suffered huge drawdowns. I saw that they really were not following their own risk parameters as outlined in their book. I decided to close the account out about 2 months ago (personal reasons) and luckily only lost a few thousand.
And glad i did !!
I still get emails from them and today this came:
I am writing to give you an update on the situation here with your account.
We have spent the week unwinding our natural gas call position as expediently as possible. Today which was to be the final day of liquidation, the market flared as prices appear to have been caught in a “short squeeze.”
The speed at which it took place is truly beyond anything I have seen in my career. It overran our risk control systems and left us at the mercy of the market. In short, it was a rogue wave and it overwhelmed us.
Unfortunately, this has resulted in a catastrophic loss.
Our clearing firm, FC Stone now requires us to liquidate all positions. We hoped to have this done today. If not, it will be completed tomorrow.
Your account could potentially be facing a debit balance as of tomorrow. OptionSellers.com will be processing fee credits over the course of the coming days to help alleviate debit balances. What these will be will be determined after all positions are cleared.
This has in effect, crippled the firm. At this point, our brokers at FC Stone have been assisting us in liquidation.
Our offices will remain open and we will all still be here to answer your questions and process account closings. We will do everything in our power to ease what discomfort we can.
I am truly sorry this has happened.
I will be updating you again via memo in 24 hours.
