I buy outright futures on the first of the month, -24.25 so far this year, but I suppose it depends on stop placement. Most of that loss was March, as far as I remember that was due to the Russian intervention in Crimea.
Hi guys, I do a lot of studying and hands on trading many spreads just because at this time I want to be covered.
Couple of thoughts. If you are selling those way OTM options you are basically in a direction less trade and your profiting on time decay. With that being the case, one of the keys to your trading success is going to be your adjustments. When the price is no where close to your strike, then things are good. However, when price gets close you have to make a decision or that small gain can blow up to a big loss.
So here are some ideas. 1) Be prepared to make adjustments and add that to your plan. This could be to roll to the next month buying you more time. Additionally, keeping some money on the side to get into a bigger position when you roll, to offset the one month loss. 2) Review your delta position and either buy some calls or puts depending on direction to reduce your delta exposure as price gets close. If the markets are moving fast this might be preferred over rolling.
Why do I say this? Because with a nice adjustment strategy it does not matter what the market is doing, remember you are selling time, and you can trade month after month. However, many people do not have an adjustment strategy and that is where OTM or premium selling can break down.
Just some thoughts
Last edited by spreadhead; October 9th, 2014 at 08:05 AM.
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The other thing that is interesting about this trend is that it usually reverses at 9:30 am ET on Friday of futures expiration day. That is the time that Sep futures quit trading. The Dec contract usually starts dropping at 9:30 am ET.
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Hi can you help. FB is at 74$. There are contracts that expire in 4 days. So I sell 10- 70 puts and 10- 78 calls for like 0.08 each. TOS says I would get 62$ for each. Margin is $11,000! So if the market doesn't get to 74 or 78 I make $120? What if market gets to 69 and the 70 put gets exercised? That means a buy order opens for me at 70? So that means I would be down 1,000$? Is there a way around this loss? I think you said once that you would close the position when market gets to 70?
Sorry. I have an example with ES. Market is at about 2015 and the 1900 put is going for 11.00. So it says the premium I would get is 550$. Now, do I get the $550 right away or do I have to wait for it to expire? If someone exercises, do I still get the $550?