Welcome! In many ways your trading experience and history are remarkably similar to mine. I too started selling options within a few months of placing my first trade. I too have day traded stocks and futures. I have also traded stock options. I have used credit/debit spreads, vertical spreads, and iron condors.
But just like you, I have also found that the simplicity of selling naked options and strangles have given me the best and most consistent results. You said that you started out just selling options and that worked great, so why not stay with what works while continuing to learn and adjust the way the you trade, mostly by going even farther out of the money when possible.
As for people and firms telling you that you are over-leveraged, consider the source and the reason why they are telling you this. Many have commented in this thread about how certain brokerages are not friendly with net option sellers. My guess is options sellers probably generates the least amount of commissions compared to day traders or even swing traders. There is a time and place to use certain types of spreads but many firms would prefer that you do an iron condor that contains FOUR commissions vs selling naked that only has one commission. I can not speak for everyone here but sometimes I go days, weeks, even a month without making a trade. I am sure my broker is not thrilled about that.
Secondly, the concept of option selling is misunderstood by most, even by so called professionals. People fear what they do not understand. Ever try looking for good option selling books at your local book store? I do not find that many. And until I found this thread, it was even hard finding other traders to discuss the topic. Many traders tell me that they are not interested in waiting 60-90 days for an ROI of 20% or higher. But yet these same traders will trade futures and put half or more of their account at risk every day. I once told a friend with 15K that by selling deep out of the money options that I would have a good chance of doubling his account in under a year, he laughed at me. And in a few weeks he blew out his account day trading MCP stock options. Try your best to ignore the naysayers. Or at the very least find out what their knowledge level is before taking what they say seriously. You say you are doing well selling options, don't second guess yourself. Continue to learn and improve on your results!
Wow. That's a lot of positions with 28K and only 11K in margin? I noticed you have quite a bit of CL calls. Many here, especially Ron99, have warned not to sell any CL calls between now and May. If you look at the seasonal charts you will see why also.
With SPAN margin, it is very tempting to strangle all the time. I use to be that way too thinking that I can double my ROI. But I have since learned, thanks to all the other traders here, to look at and respect the seasonal tendencies of many commodities. I am short CL puts and believe me, I am tempted to sell CL calls to establish a strangle but a quick glance at the 5-10-15 year seasonal chart tells me to not do it until maybe May.
The following 4 users say Thank You to MJ888 for this post:
Welcome fellow Ohioan! I'm up near Lake Erie, Ron's a bit further south of me, and you're in southern Ohio. We've got the state covered!
You definitely have a lot positions on, which may or may not be a problem, if you take the proper steps when prices slowly move against you.
But what about a price shock, where you can't exit quickly enough? That's what I'd be worried about (and what I do worry about in my own trading). Terrorist attacks, euro falling apart, Bank of Japan taking some dramatic actions, currency devaluations, US going back to gold standard, etc. All those have some non-zero chance of happening - and any of those has the potential to wipe you out and then some.
I've heard it said there are old option sellers, bold option sellers, but very few old, bold options sellers. Well, actually I heard that about traders in general, but you get my point.
Bottom Line: You might survive for years with this type of portfolio, but eventually I think you would blow it trading this way. But that is based on my risk preferences, not yours.
The following 3 users say Thank You to kevinkdog for this post:
If you're a college football fan and you remember Keith Jackson commentating you this might sound familiar:
"Whoaaaaaaaa Nellllleeeeey!!!" That's the first thing I thought of when I saw this. My trading career started about 16 years ago or so and I have taken my share of hits during that time and have learned from them. As far as the broker goes, yeah, I'd be a little wary also but OX dropped their commission to $3.50 for futures options per side so they have become very competitive now. I don't think the broker is trying to scare you. He or she is just protecting their assets as well.
If I counted correctly..I see 40 uncovered positions with a 28K account. And, all of them are tied in some way with the US dollar. An adverse reaction in the currencies could really hurt here. I don't see any grains or softs contracts here. In other words, very little diversification. For the year 2013 I've only been in two markets, wheat and crude and for the month of January I returned just under 6% in my account. An unbiased opinion here...too exposed and not enough diversification.
However, you answered your question already.
"Iíve been selling options on futures for the past 7 years with mixed results. I started out just selling options and it worked great. Then I tried some new types of trading and had a blow-out my second year."
"I started out just selling options and it worked great." ...Why did you change your methodology? If it works, don't change it. That's always easier said then done. Re-think the 'good years' and what you did back then and try to relearn those positive returns.
If I was trying to reassess my current account and positions I would NOT take on any more positions. Let these play out and or exit early if needed. I think the majority of contributors to this thread look for options with less than two months of time left that are way OTM and less than $100 in premium. The probabilities are lower that those options will go ITM. This might be new for you but it is worth thinking about nonetheless. You will hear a lot about seasonal tendencies of the markets here also....what happens in the past has a good chance of happening in the future.
Ask Ask Ask....
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Well first the H3's are about to expire untroubled over the next week or so. The J3's also look quite OTM and have little value left. A quick move up in CL to above 100 would affect the C115s and C120s, although with only 4 weeks left, they might come under a bit of pressure and in my opinion are the most risky.
I am quite frankly amazed you have got so many on for only $11K margin. Your broker must be using bare SPAN and that is why he is feeling a little anxious and exposed. Your average margin for 40 contracts is $275. It is quite conceivable that a large move in the dollar could affect Gold and Oil and your margins could easily double or more.
I would heed Ron's advice and limit your margin to 33% or about $9.33k in your case. Apart from a little more diversification and seasonal recognition which others have mentioned already, I don't see that you are doing too much wrong.
Would you be willing to name your broker and give his commission charges as it will help to add knowledge to others seeking information of option unfriendly brokers.
The following user says Thank You to britkid99 for this post:
Hi all, I think it may have been discussed before on the previous thread. If it is, I apologize for that.
I'm pretty new to the commodity options and I've been trading CL and GC for a while.
I would like some more recommendation about other commodities that can be used for diversification in addition to CL and GC.
I noticed that some of you are trading KC and CT. Are they liquid?
As I read the book, it mention that not all the commodities are liquid.
By looking at the seasonal, is it ok now to sell put on CT?
Yep Iíve got an IB SIPP as well as a standard account with them. I mainly trade futures, but Iíve been branching out into options, mainly CL and ES. Iíve found short straddles are paying off pretty well recently, particularly on CL, but I donít have historical options data, so I canít backtest how much thatís due to current market conditions.
Iíve been selling a few options, but the problem with IB as you know, is the margin. I was just about to open an account with OX when they stopped supporting non-US clients, so Iím now looking into OEC. The research continuesÖ
Really like the thread.
Say hello to the concrete cows for me.
(hint for non-UK readers: Google ďConcrete cows Milton KeynesĒ)
Take a look at the grains (Corn, Soybeans, Wheat). The options on these are very liquid and there are far out strikes available to sell for decent premium. Take note of the seasonal tendencies with grains especially during the spring/summer months in USA.
I have not traded too many options on Coffee (KC) Sugar (SB) or Cotton (CT). Options on these are not as liquid but can be traded, you would just have to be patient by using limit orders to get the price you want to sell at. I find it is similar to Silver (SI) options in terms of liquidity. I am sure the other experienced members in this thread can give you more advice about trading options on the softs.