While I am profitable at the end of each one of those nine years, I am not as consistent as you are Ron. I have not fully found a trading plan that I am 100% comfortable with so I am constantly refining my plan.
Over the years, I have gotten more and more risk adverse but I also realize there is no way to eliminate risk. Just respect it more. I am choosing strikes with lower and lower delta's.
Being disciplined and patient has been an issue for me in my option selling career. Even though I am profitable 9 out of 10 years, I know that I should be doing even better. When I look back at my annual results, sometimes I get very frustrated because there is always that one or two trades where I had a lapse in discipline that damaged my overall results. Some say I am being too hard on myself and I am a perfectionist but I am always looking to improve.
Here is a chart comparing premiums on different strategies last year. What happens when markets go against you.
Aqua line is a short Aug 12 CL 80 put. Naked option.
Red line is a short Aug 12 CL 80 put and a long 75 Aug put. Covered short put. Same months.
Yellow line is short Aug 80 put and a long 77 July put. Diagonal spread. Different months.
On May 1st the premiums were,
On June 1st the premiums were
Starting June 13th the Aqua and Yellow premiums were within a few pennies of each other. Red is 1.13 less.
The covered spreads same months gave you more protection when the market went against you. But they also offer lower returns. Depends on how risk adverse you are.
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I just got through talking with RJO Futures over the past couple of weeks. They start with $14 RT, go down to $10 and maybe $6 if you don't want their research and just want to be self-directed. I was able to negotiate them down to $4 RT. I told them that I was looking to switch my account to a new IB and that I had an offer from another IB that clears through RJO at $4 (which I did) and that if they matched it I would work with them. They asked me quite a few questions about my account size, trading style, risk management and the like, but in the end they agreed. They said anything below $6 has to be approved through the powers to be. At least that is what they told me.
Hope this helps.
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I don't think you'd be able to hold this position at IB after the expiration of the Long options.
In my IB SIPP (UK Pension) account the initial margin for CJ77's calendar spread is approx $2,765.
As a strangle the IM increases to $25,380. (that's not a typo ). Even though the strangle margin will decrease by then there will still be a HUGE jump in IM after the May expiry, and a good chance of a margin call.
I think CJ77 is using this as a means of making the best of IB's byzantine margin structure. Closing the position isn't too much of a problem because of IB's low comms. Thank you CJ77.
The main point of the chart is the time frame from May 1st to Jun 1st. The covered spread, same month, loses less money because the long options are the same month as the short options. The diagonal spread loses more money because the time erosion of the long option which is 30 days closer to expiration.
The diagonal spread will make more money when things are going OK. In the one example it was 9.8% vs 7.2% monthly. The diagonal spread will lose more money when things go wrong.
You have to decide what fits your risk tolerance.
Same for naked options. If you do an option with a 0.1000 delta you will make more money than a 0.0300 delta. But you could lose far more money when things go wrong.
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