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Ron, I do a similar thing but in order to gain a better comparison I turn the index values into comparative percentiles...See chart below...this way you can make a percentile comparison such as the current year is 5% lower than the percentile of past and recent years, Cheers Michael (BlueRoo)
BlueRoo, I like to see each year because a small sample size of an average of 3 or 5 years can be highly affected by one abnormal year. With my charts I have the option to not use an abnormal year in the average.
I wanted to share a few thoughts as well as get some advice. About 7 days ago I opened a relatively small spread on /ES and the market started its move down.
Position at open:
OESU6 P1740 -50 -> value = $7.40
OESU6 P1490 +100 -> value = $2.10
Total value of the spread at the time of purchase: $3.20
IM = $339
MM = $309
As of today the values are very different but the margins haven't changed much.
Current position:
OESU6 P1740 -50 -> value = $17.50
OESU6 P1490 +100 -> value = $5.25
As of right now the value of the spread is valued at $5.75
IM = $348
MM = $317
The margins are holding steady and as of today I have 10x excess capital. For me the take aways are
1. The spread helps contain margin very well
2. The draw down is approx. 4% so far...so not too bad
3. I opened the position with about 12x excess capital with the idea that volatility may not be too far down the road but impossible to predict. Being over leveraged is never a good idea. I learned that the hard way last year and apparently Karen didn't learn that lesson either
4. There's plenty of excess for me to roll out if I need to.
Question:
My position has been open for 7 days. With the British Exit vote coming on the 23rd I'd like to get some strategy advice. If we operate with the assumption that they will vote to leave the EU than and assume a volatility spike, maybe the same way we saw in August. So given my position will be 14 days old at that point should I
1. roll out 1 month and a bit lower, about 40pts to 1700 for the short
2. roll out 1 month but keep the same strikes
3. keep everything as is. (Is time decay worth more than the potential spike?)
before the vote and expected volatility spike to "reset" the long positions ?
I would keep as is. 14 days held is not a lot and the long positions should still be helping. If you were past about 25 days held then I might have suggested a roll.
You might want to look at the delta of the longs and if it gets too low then it is time to roll. But I haven't researched that response at all.
I have been working on an ES put selling strategy using higher cash excess. I'm not quite finished. I did find that if you sold a naked put Nov 1675 delta 3.27 on 8/27/15 and used 8x your drawdown would have been 39.5% on 8/24/15 and your acct balance used for margin would have been 74.5%. In other words you could have survived that crash and eventually made a profit. 7X would have taken account to 92%. 10X 53.8%.
I want to research covered spreads and see what they would do.
I ran the scenario with spreads and here are the results for August and the drop around christmas. In both of these cases it was 1 short to 2 longs with 10x excess using the same deltas you identified earlier. This is the sizing I've chosen to go with.
so a 1% drop in the S&P will result in a .38% increase in the options price. So an increase of 5% in IV for this spread will require a 13% drop in the S&P.
Does that sound about right? Does Vega have a greater impact than theta during a VIX spike?
Taking a quick look with TOS today for the following:
EW3Q6 will sell @ 3.9 (Aug 1540 Put - 66 DTE) (ES)
With a 5% increase in IV, and a 2 % decrease in price. Loss will be approximately $287.00 .
THETA goes from 8 to 15.
VEGA goes from -15.7 to -49.6
VEGA is negative for the put seller, and is the killer in a spike in IV as we all know from last year.
For a 5% increase in IV as above shows a 216% increase in VEGA. And IV can increase much more than
5 % . IV may increase linearly, but VEGA increases in some exponential manner.
Here is an Excel for some options entered on 8/17/15. You can change the margin excess (yellow cell) and see how it affects the Monthly ROI, Percent of Beginning Premium, Drawdown, and Acct Balance for IM.
The four columns on the right are calculated. If you want to paste other options just paste into the 8 columns on the left.
