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Remember how much money you have made in a year is more important than money made on one trade. By turning over my short option trades more quickly at 50% drop in net premium, I will have made more money at the end of the year than you will riding them out to expiration.
Why do you exit at a couple of days before expiration? You waited that long you might as well get all of the money out of them by letting them expire.
Of course it depends on how far we are from the strike price.
But I give you one example. I have a vertical put spread on cotton expiring next Friday 75/70. At one point of time it turned in the wrong direction for me and as I already lost money on cotton the previous contract, I took more risks and corrective measures so I took a short strangle 71/78 (it was approximately 60 days before expiry)
So cotton could and still can in 5 days go below 75 or above 78 (as I'm writting it is 78.25). So for the time being I stay in position as the price of one of the side of the options is decreasing day after day and I may stop at anytime but no later than the last day (at least for one of the side). I do not want to be executed the last day.
In short and I have very much appreciated myrrdin detailed modus operandi and I will think about it but to summarize I apply Cordier's rule: selling/buying back my options before the expiry date when they are almost worthless unless the safety margin is such that there is no chance to be executed.
For me commodities are quite different than index and Forex (as Cordier said a trend is lasting longer with commodities and certain levels are more rarely broken of if broken only for a short period of time). So if you have really analysed your results only with commodities (starting with selling commodities far OTM with 90 to 140 days before expiry, preferably results on vertical spread and keeping them up to expiry and comparing with selling/buying back at 50% of value) please indicate me the page numbers on this file and I will check.
SMCJB I would be interested knowing what model do you use and if you know a not too expensive one for commodities.
From what I can see the BS model availabe there is quite sufficient for me to have a good approximation of what can be the price in 10 days from now and the greek letters values. I have other models like black 76 or binomial ones but they are more difficult for me to use (and I do not have the impression that the result will be so much different for my use anyway). https://www.optiontradingtips.com/pricing/
I had to adapt the model to the size of the contract for each commodities and take into consideration the interest rate (in February it was 4.01% with my broker and consider the holding cost at my broker (expensive) but with all these parameters changed and adapted (adding extra columns, adapting some formulas) I am quite happy with my adapted model (and I know exactly what will be the maximum gain including all the broker costs taking into consideration the holding time of sophisticated combinations e.g. 2 spreads and a short strangle etc.) but if you know better I am interested.
Thanks
Sagal
Maybe for a naked option or a short strangle but acknowledge (as you cannot prove otherwise see my previous post and I am still waiting...) that short vertical spreads are another story. In this case it takes much longer to go the point where you have 50% profit. When you are touching this point with the decay of time, most of the time there is not point anymore to sell before a couple of days before the expiry where the options values are almost worthless.
Maybe it was not clear from my strategy but I do at least 75% of short vertical spread (quite conservative) with maximum 10% of my capital at risk.
No problem ron99. Take it as you want....
As I mentioned before I read around 200 pages on this file, therefore I have had as well the opportunity to notice that you do not always accept very well when someone is contradicting you and in this kind of case it ends that way...
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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I don't actively trade options, and the few options I do have I only use models to have an estimate of relative prices and greeks and not to try and price something better than others. For futures you'd want to use Black-76 which is just a slightly modified Black-Scholes. You can get the formula anywhere ( eg wikipedia) and it should be easy to use in excel, either as in cell(s) formula's or as a user defined function
While you have definitely read more pages than many people who jump in and ask questions, there are 500 pages you haven't read. Most of the questions asked have been asked and answered multiple times at this point. Just saying.
I have ventured back into selling ES puts. Seasonally ES usually rises from Apr 11 to Apr 26. It has risen 11 of last 12 years during that time frame an average of +28.60.
I sold EW3n19p2275(-2)p1980(+3) for 4.55. Price is a little higher now. 99 DTE. I'm using 6xIM. Plan to exit at 50% drop in net premium.
but how to place at ZANER/ Gain / DeCarley a pending order for closing this trade? If I place the offsetting order (closing at 2.30 debit) I can not use a stop order, only either market or limit. If I choose LIMIT, will it be closed at any price above 2.30 or below 2.30?
