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This counter trend rally may not last very long (from a day to a few days) and will very likely be sold by traders. A V-shape recovery like in past few years has a low probability of repeating considering we are just entering the worst season of the year (August, September, and October). We will at least re-test the low of today's historic plunge in coming days or weeks and see where we go from there. I'm going to sell some FOTM ES calls when my technical analysis gives a green light.
After the winter NG debacle of 2013/2014 I had a similar experience and similar epiphany. Keep the size small. The strategy (including the ES) works but I was way too large at IM X 3.
This is why we've been discussing in recent months what would happen if you woke up to a 10% ES drop in this thread. Which is pretty close to what we saw intraday today.
Most of us are happy to make 50% per annum but not happy to take a 50% haircut, myself included. Right now I'm trading about 1/3rd the size IM X 9 and will gladly make 16% per year and only suffer 16% haircuts on days like today.
Also, it certainly helps to have strategy diversification and not rely on any one strategy.
Ironically, natural gas has been a decent option selling candidate since late winter/early spring. About 35-40% at the money implied volatility (so you're getting paid for the risk) and a broad trading range suitable for short strangles or ratio sales. All bets are off if it looks like we're going to run out of storage space (increasingly unlikely) or we have a super cold winter (who knows), but on a day like today, it's showing, via a very narrow range, that it is a DOMESTIC commodity, at least for a few more quarters when LNG exports begin.
I agreed to a certain extent. However, human nature never changes, at least that's the cornerstone of technical analysis. We all understand that this is a probability game. No one knows anything for sure, but based on careful analysis and sound risk management, we can still make educated guesses and earn decent $$$ for our work. Again, I'm selling FOTM calls to take advantage of a fragile rebound in coming days. It's not safe to sell a ton of ES puts right now. Fear for the most part is irrational.
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It was down as much as 7% for about 10mins most of the time is was down only 5%. Premiums were through the roof, more because of the vol spike (VIX traded 53 vs 28 close) than the price move though. Obviously they come hand in hand though.
Name of the game is always to survive to fight another day. If your conservative like that you also give yourself lots of room to add positions when something unexpected happens like this AM.
Ditto. to rsm005 and ron99. I'll post a link here in the coming days to a new journal to share my experiences selling options on futures, a trade plan which is based on ron's approach. Like you rsm005, I have had my first losing trade today after several successful months, rather than years, a large enough loss to erase profits to date. Timing is (almost) everything and this has been one of the most difficult aspects for me....when not to re-initiate a trade. I did exit intraday today rather than waiting for overnight settlement, against my plan.... I believe I did the right thing, having not experienced this situation before, markets locked limit down, there was no reasonable probability of me knowing what might happen next, what I did know is market context confirmed as changed (according to my plan) and fear was in the air - in short, number one rule today for me was Capital Preservation.
