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Rajab, read Cordier's book two or three times to establish in your mind that time decay of options is the only investment strategy that is consistent and reliable.
Then start at Ron99's post #4105 on page 411 and read from there. No need to try to figure out fundamentals of cotton or corn or oil. Profit from time decay of the overall market.
Thanks Ron for setting up this thread and sharing this strategy with all of us.
I have recently started this journey with a small ~$20k ish account. Will update you guys along the way
I am short some ES Puts (just like Ron). Markets were down yesterday and even though my P&L open and day were in the red, I know very well that my positions are safe because I am so far out of the money to be threatened.
Looking forward to your updates. Not to rain on your parade, but having traded options for almost 10 years there has been many occasions where I thought the same thing, and while I watched the option premium rise and rise eventually selling for a lost or taking assignment. With Ron's strategy, 2/3 or more of the account available for margin increases is essential in this period of low IV
Thanks blb014, I realise that with Ron's strategy, I will be forced out of my trade (using his 2x excess rule) before the future ever goes into the money.
I agree with you, in this period of low (but increasing?) IV, it is prudent to keep excess to ride out any spikes in the VIX.
Say I had a position open with 120 days to expiry and it has now been open for 60 days with another 60 days to expiry. Also, say the market has been all over the place and you have not seen the premium decrease by 50%, instead lets say it's 25%-30%. At this point would you just exit and take the smaller gain or keep waiting until you reach 50%.
The reason I ask is you mentioned in a previous post that >60 days provides you with the best safety and ROI. If the market grinds against you would you just take your gains to avoid going below the 60 day mark? I opened a small position some 40 days ago and it's decayed a lot but still hasn't reached the 50% mark. I think I know what to do but wanted a bit of confirmation.
A few minutes ago there ended an important FED meeting that has kept volatility high for some time. The result of the meeting was more or less zero, and as expected. Volatility should come down during the next couple of days, and the value of your options should decrease quickly.
Based on ES seasonal trends, ES futures at 8:30-9:00 am ET the Friday of futures expiration (Mar, Jun, Sep, Dec), 6/19/15 this month, will be higher than the settlement price on Thursday (today). It has done that 22 of the last 25. Two of the losers were 1.00 & 1.50. The other loser (21.75) was Dec 2012 when US Congress was screwing around.
The last 8 have averaged +5.60.
So if you are selling puts you want to have them on about a week before the future expiration.
18 of last 25 times ES has dropped from Friday 8:30-9:00 am ET to Friday expiration. But it was up the last two.
There is a tendency for ES futures to then drop the week after expiration. But it isn't as consistent. Especially on the timing. Then it rises into early July.
Of course something like Greece situation could throw everything off.
So if you are needing to add ES puts, wait till next week.
