I know many in the media are watching drilling rigs, but it is far more important to watch oil production. The wells being started now are much more productive than in the past.

North Dakota drillers completed an unusually high number of superwells flowing >2000 b/d in July

Production has hardly dropped even though drilling rigs have dropped by quite a but.

This Week In Petroleum Crude Oil Section

RON, do you have an alternative strategy for the time ES will be bearish? I mean, not just a correction but a change of trend. I know it could last between 6 months and 2 years so it could be nice if we could find something similar to that so easy strategy.

I do not expect that to happen in the short term, but you never know

the debt-to-equity ratio for S&P 500 companies now sits at 105%, well below the long-term average of 161%.

Having to roll happens rarely. If you keep the excess when you acquired the position for the entire time you have on the position, you should be covered for at least a 160-170 point drop in ES futures (depends on how fast it drops). That has only happened once since the recession. Once in almost 6 years. And that time (gov shutdown) was very predictable and you should not be holding short puts during that time. Same for the recession.

For example, if the IM when you acquire the option is $700, then you should keep $2,100 of your balance for that position the entire time you hold that contract. That is your safety net.

I keep track of that excess with my Access database. You could also do it in Excel or other spreadsheet.

Hi Ron,

New to the thread and doing my best to catch up.

Was wondering if you have looked at managing your winners more aggressively than 50%, say at 25%?

Doing some searching of this thread to learn more about how margin increases/decreases over the life of the option and found this post.

@ron99, do the majority of losses related to this style of trading come from being wrong (direction/strike/etc) at expiration or mainly from margins going against one's position too much?

If you are far OTM then yes it is margin calls that will force you out not going ITM.

From what I have been reading, it seems like the main risk is margin going against one's position, even if one is "correct" that the price will close on the right side of the strike for that option.

Ron,

Thanks for the study links. I did notice that on both studies, managing at 40% had a greater ROI than 50%.

So, it does beg the question if managing even more aggressively will continue to raise the ROI.

Beginners to option selling think that as long as futures don't hit their strike then they are good to go. But that is rarely the case. Not having enough excess to ride out losses in premium and increases in margin is the main problem.

IMx3 is a good start to having enough excess. IMx4 is even better but you will give up profits for the safety. Personal preference of amount of safety will decide risk and reward.