@ron99,

Best wishes for a speedy recovery.

I took a look at some possible variations to your black swan protection idea that I hope may help.

I noticed that your long options were covering about 40% of the short's delta. One thing that I thought might be an issue is that the 30 DTE options protecting the 90 DTE options may only have a narrow window of coverage, so I looked at combinations that would extend that window but still cover about 40% of the short option's delta.

#1 is your original posted position: -1 ESX5 P1700, 1 ESX5 P1500, 2 ESU5 P1600
#2 moves to a 60 DTE for coverage: -1 ESX5 P1700, 2 ESV5 P1600
#3 keeps the coverage at 90 DTE: -1 ESX5 P1700, 3 ESX5 P1400
#4 for the heck of it this looks at keeping all the protection at 30 DTE, but covering more delta: -1 ESX5 P1700, -2 ESU5 P1800



Then, just to see what it would look like during a less volatile period, I went back to June and looked at similar setups.

#5 similar to #1: -1 ESU5 P1700, 1 ESU5 P1500, 2 ESU5 P1600
#6 similar to #2: -1 ESU5 P1700, 2 ESQ5 P1560
#7 similar to #3: -1 ESU5 P1700, 3 ESU5 P1400



These were just a couple of small tests, but I think that it may show that the same type of protection might be possible with a less complicated spread.

Hope this may help.

can you share what is the original delta for the put contract that we buy on strategy #3 ? (in your example : ESX5 P1400 on 17 Aug).

Dear Ron99 & Dudetooth

Thank you for posting the black swan protection idea
would you kind to enlight me on several items below ... thanks in advance ...

@ron99 , i see that some of the strategy being posted by you using protection by Buy 2 Put contract 60DTE to cover Sell 1 Put contract 90DTE (just like strategy #2 post by Dudetooth below)... i just curious is it possible that after 60 day the Premium hasn't reduce 50% yet (i.e due to the ES price is fall moderate but faster than the time decay) ? ... (So we still have the Sell Put contract but no more Buy Put contract after 60 days) ... if that is possible, is that mean that we don't have a protection if the flash crash is happen after 60 days ...

You will just have to buy more longs.

@Dudetooth ... i am interested in finding more on the strategy #3 normal credit spread 90 DTE with ratio 1 : 3 (1 sell, 3 buy). I think it can be strong candidate for protection mechanism. To make it mechanical can you share what is the original delta for the put contract that we buy on strategy #3 ? (in your example : ESX5 P1400 on 17 Aug)

I am hoping later on we can create the mechanical of the strategy i.e :
* Sell 1 Put contract ES 0.0300 deltas at 90-110 DTE
* Buy 3 Put contract ES 0.0100 deltas with the same expiry
* IMx3

This won't work for a couple of reasons.

1. If you buy the same month as the short you don't get enough protection during a Black Swan move. The longs that are a month closer will be a higher strike than if you buy the same month. They will then give more coverage during a Black Swan.

2. You won't get any premium credit. For example, right now a ESz5p1330 is 3 delta and the price is 6.00. A ESz5p1075 is 1 delta and the price is 2.00.

thanks for the enlighment ... Ron99 hope you get speedy recovery ...

ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

First, thanks for starting this thread and doing the webinar. I think it is great on both accounts.

Please forgive me if this is a naive question. I did not want to bother unless I had something
to contribute, unfortunately I do not yet. With that said, your post requires me to ask a question however.

When you say we are to volatile for equities is that because of the danger of a margin call?

Using today as an example. If you sold 1620 puts expiring in 17 days when we were falling for $4.10,
is the danger more about the margin then ending in the money?

Please only answer if you are in the mood and have the time.

Thanks again...

PS I did take a draw-down as well as others. I could of minimized it more if I would have exercised
discipline and took my stop when I should have. I will next time...

ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

Front-month Brent crude futures rose by more than 10 percent on Thursday, 5 percent on Friday and 8 percent on Monday, before plunging by more than 8 percent on Tuesday.

To put that in context, the percentage daily price movements were 4.6 standard deviations away from the mean on Thursday, 2.4 standard deviations on Friday, 3.7 on Monday and 3.8 on Tuesday.

If price changes followed a normal distribution, a move of 3.5 standard deviations should occur only once every eight years and a move of greater than 4.5 standard deviations should happen once every six centuries.