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Selling Options on Equity
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Selling Options on Equity

  #1 (permalink)
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Selling Options on Equity

Any interest in selling options on equities or everyone sells on futures only ?

My weekly bread & butter comes from SPY options. I used to sell strangles on expiry Friday for one day trades. Have recently started selling straddles over the weekend after a large backtest.

Last week's trade. Timestamp are UTC+8:00 so my entry was on US market hours Friday 3.36PM and exit on Monday 9.31AM. Essentially near the close and at the open after weekend, making it a weekend only trade. Return was $2.6k or 1.7% return on margin.

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You should use TA or whatever to put odds slightly in your favor, blindly selling will probably still give you positive results LONG TERM but won't be that great as we are targetting a few cents only.

I do this on my leftover free margin on Friday since they are closed on Monday anyway even if you get margin call over the weekend position is reverted to flat on Monday.

Interested in sharing and discussing about other strategies for equity options.

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  #2 (permalink)
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  #3 (permalink)
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@k20a, thats's risky, what if an major event happened during the week end and moved the SPY much lower or much higher on Monday?
It would be interesting to see what would happen with your trade with SPY @196 or 216 on Dec 22.

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  #4 (permalink)
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sam028 View Post
@k20a, thats's risky, what if an major event happened during the week end and moved the SPY much lower or much higher on Monday?
It would be interesting to see what would happen with your trade with SPY @196 or 216 on Dec 22.

Hi sam028, can you please check the date you are referring to again ? Friday the 19th closed at 206.52 and on Monday 22nd SPY opened at 206.75 so not much happened. Point of the strategy is to side step week day moves. As for weekend moves, yes they do happen but that's the same risk upi are taking on as selling a few weeks/months out.

For past 10 years, biggest loss was a loss of -13.20% on margin on weekend of Jan 18th, 2008. There were 2 other instances of loss above 5% for past 10 years (-12.20% & -6.13%). Personally that's manageable for me, if not then reduce position size/increase margin. Of course I don't trade my full account on this so it's not the total loss on account, only margin.

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  #5 (permalink)
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k20a View Post
Hi sam028, can you please check the date you are referring to again ? Friday the 19th closed at 206.52 and on Monday 22nd SPY opened at 206.75 so not much happened. Point of the strategy is to side step week day moves. As for weekend moves, yes they do happen but that's the same risk upi are taking on as selling a few weeks/months out.

For past 10 years, biggest loss was a loss of -13.20% on margin on weekend of Jan 18th, 2008. There were 2 other instances of loss above 5% for past 10 years (-12.20% & -6.13%). Personally that's manageable for me, if not then reduce position size/increase margin. Of course I don't trade my full account on this so it's not the total loss on account, only margin.

I know the last close and the open was around 206, my question was what if it was + or -10 points (so 206 or 196) .
But it seems you've done your homework, so that's fine.
Are the SPY weekly options were available in 2008? I though it was created more recently.

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k20a View Post
Any interest in selling options on equities or everyone sells on futures only ?

My weekly bread & butter comes from SPY options. I used to sell strangles on expiry Friday for one day trades. Have recently started selling straddles over the weekend after a large backtest.

Last week's trade. Timestamp are UTC+8:00 so my entry was on US market hours Friday 3.36PM and exit on Monday 9.31AM. Essentially near the close and at the open after weekend, making it a weekend only trade. Return was $2.6k or 1.7% return on margin.

You should use TA or whatever to put odds slightly in your favor, blindly selling will probably still give you positive results LONG TERM but won't be that great as we are targetting a few cents only.

I do this on my leftover free margin on Friday since they are closed on Monday anyway even if you get margin call over the weekend position is reverted to flat on Monday.

Interested in sharing and discussing about other strategies for equity options.

I sell equity options. I am using methods from watching tastytrade.com Using their dough.com platform, you basically have a 50/50 shot at making money (52%) actually. see below:

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they also just did a segment this week on what you are backtesting:



I noticed you backtest was using 80 contracts. I would do 1 or 2 to see if the odds are working out in your favor or not.

Good luck!!!

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  #7 (permalink)
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So, the takeaway is counterintuitive, as usual. Weekend risk not worth it.

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  #8 (permalink)
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sam028 View Post
I know the last close and the open was around 206, my question was what if it was + or -10 points (so 206 or 196) .
But it seems you've done your homework, so that's fine.
Are the SPY weekly options were available in 2008? I though it was created more recently.

I don't think they were available, only indexes at that time. I used frontmonthlies instead for period of start of 2005 to mid 2010 as I only had data for weeklies since mid 2010.




lrfsdad View Post
I sell equity options. I am using methods from watching tastytrade.com Using their dough.com platform, you basically have a 50/50 shot at making money (52%) actually. see below:

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they also just did a segment this week on what you are backtesting:



Thanks for the link and the timely video. I don't see any point in using POP. It assumes you hold until EXPIRY, of course at expiry a straddle will have around 50% of making money. It will either be call or put making a profit depending if price went up or down. It dosn't indicate at all the probability of closing earlier (I'm assuming your not holding til expiry). It also does not show HOW much profit in terms of risk.

As for the video, it's a flawed test in my opinion. It assumes you can pick which week end will be "quiet" ahead of time. Also net of commissions of course actual will be lower than expected. Also they see $6.89 as an unacceptable return. When you extrapolate it, it is 20%+ per annum. Yet they were impressed by Karen's 11% (net of fees) return for the year. It is my impression that they are real traders but not really profitable. They do present some good ideas and tests but take it with a grain of salt.


lrfsdad View Post
I noticed you backtest was using 80 contracts. I would do 1 or 2 to see if the odds are working out in your favor or not.

Good luck!!!

Thanks for the suggestion, but they were live trades. As for backtest, number of contracts is pretty irrelevant for SPY with its massive liquidity - did you mean forward test ?

10 years of backtest shows the odds is possible to work out in my favor. Backtest are limited to theoretical and hindsight but 2 months of forward test with real money are suggesting similar results:
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Notice how I had a much higher profit chance than 50%/52% ? Maybe it was just luck or maybe POP does not show the whole picture..I notice you are in/testing this week's 208.50. I am in @ 209.

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  #9 (permalink)
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k20a View Post
...
10 years of backtest shows the odds is possible to work out in my favor. Backtest are limited to theoretical and hindsight but 2 months of forward test with real money are suggesting similar results:
...

Did you get the backtest with the price of the underlying (SPY) or with the options historical data?

As for the video what make sense is a week end is more dangerous than 2 days during the week. It's always possible to hedge a position and do something during the week if a disaster occurs. During the wek end you can only wait and hope .

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  #10 (permalink)
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sam028 View Post
Did you get the backtest with the price of the underlying (SPY) or with the options historical data?

As for the video what make sense is a week end is more dangerous than 2 days during the week. It's always possible to hedge a position and do something during the week if a disaster occurs. During the wek end you can only wait and hope .

I used both, compared one against the other. Only flaw I can see is I used the midpoint of the bid/ask for options which may not be possible at all times in a real environment but on SPY it's mostly smaller than 3c spread so the impact is not huge.

As for week end vs week night, on average in my data period (~10yrs) week end moves 0.43%. and week night moves 0.39% (I'll throw in a gem here for those who can potentially capitalise on it.. Tuesday nights moves average 0.29%). For week end you get 3 nights of decay for a 0.43% move against 1 night of decay for 0.39% move. (down moves are reverted to positive number for % move)

But I agree there is no hedge I can do until Asian futures are open if disaster happens. That's the tradeoff I am taking for having the advantage of decay against price volatility in my favor.

--

Week end trade closed yesterday.

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2.64% return on margin Fri-Mon. That's the last trade for week end trades I'll post but more than happy to discuss it if anyone wants to. Great income style or extra weekly paycheck trade but for better wealth building I beleive is in taking longer (weekly or monthly) short options to/further towards expiry.

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