any new trade recommendation before xmas?

First of all I would like to make clear that I do not give any trade recommendations. I write about what I am doing. In case you want to "copy" one of my trades, please be sure to check yourself if you fully understandthis trade, and if it suits to your account size, composition of your account, risk tolerance etc.

Remember that for me it is very important to have the account well balanced. As I hold other positions than the short options, this balancing often is done via positions not described in this thread.

Currently I hold the following positions in the short option portfolio:

CLJ C65
Entered at 0.67 before the OPEC decision. Looks like volatility has come down since. I intend to liquidate this position on a further moderate move downwards.

LHG P60
LHJ C80
Longterm. The February contract looks undervalued, although it might see the 60 again before turning upwards. Cash is weak. Placed an order to sell LHG calls at a little bit higher price of the underlying.
Sold some April calls, and intend to add puts at a lower price of the underlying.

KEG P4.4
Short time trade. Will exit at 50 %, which should be soon.

LEG C134
LEM P100
Added the LEG calls recently to balance the risk of the LEM puts. I consider LÉG futures as overvalued and LEM futures as undervalued.

SIK C22
SIK P14.5
This strangle was sold recently. Intend to liquidate at 50 %. This strangle was also suggested by James Cordier, but he prefers the July contracts.

I also hold the following futures covered by short options as longterm trades:

KCH and KCH C1.40
NGH and NGH C3.6
I entered these trades long time ago (I began with KCZ and KCZ C1.30) , and intend to keep them for while.

Best regards, Myrrdin

I didn't notice Silver is a big contract. Though I entered half number of normal contract size, the total SI margin still hit 15%, which doubled my normal comfort zone. Now I need to liquidate half the position to get back to 8% margin. How can I get it done with less loss with such unfavorable bid/ask spreads?

Many thanks again.

David

Thank you very much for sharing your portfolio.

I am particular interested in your silver position. It is found that the ask/spread is quite large even in US trading hours. How do you manage to get better fill in this case?

When I looked into OSIN8 P14 yesterday, its ask/bid is 0.119/0.145. So I put the average (0.119+0.145)/2 = 0.132 to get the order filled. It filled quite quickly, which is not a good sign for me. How do you managed to fill SI position?

I didn't notice Silver is a big contract. Though I entered half number of normal contract size, the total SI margin still hit 15%, which doubled my normal comfort zone. Now I need to liquidate half the position to get back to 8% margin. How can I get it done with less loss with such unfavorable bid/ask spreads?

Many thanks again.

David

I'm wondering who the market makers are that have been referred to? Are they responsible for the bids/asks in identical quantities surrounding the theoretical value of an option?

Why are they bothering to place orders that are rarely filled?

For example, a couple weeks ago I sold the September British Pound (OGBE) 1.13 put for 17pts. The open interest was zero so I normally wouldn't enter a trade in an option with seemingly low liquidity, however there was a bid of 15pts and an ask of 19pts with a bid size of 40 and ask size of 40. Given that each of the distant strikes in the market had these large orders surrounding the theoretical value I figured it would be liquid enough to trade. I watched for days before my fill and observed how the underlying would move and so would the bid/ask but no fills occurred. Finally I got filled by placing my order between the bid/ask.

I've attached a screen shot to show what I mean about these orders. What I'm wondering is:
-Who is placing these orders?

-Why do they seem unconcerned with actually getting a fill?

-Are markets like this in fact liquid for larger quantities despite the low open interest? (I'm concerned that these market makers may disappear someday when I need to exit!)

First of all I would like to make clear that I do not give any trade recommendations. I write about what I am doing. In case you want to "copy" one of my trades, please be sure to check yourself if you fully understandthis trade, and if it suits to your account size, composition of your account, risk tolerance etc.

Remember that for me it is very important to have the account well balanced. As I hold other positions than the short options, this balancing often is done via positions not described in this thread.

Currently I hold the following positions in the short option portfolio:

CLJ C65
Entered at 0.67 before the OPEC decision. Looks like volatility has come down since. I intend to liquidate this position on a further moderate move downwards.

LHG P60
LHJ C80
Longterm. The February contract looks undervalued, although it might see the 60 again before turning upwards. Cash is weak. Placed an order to sell LHG calls at a little bit higher price of the underlying.
Sold some April calls, and intend to add puts at a lower price of the underlying.

KEG P4.4
Short time trade. Will exit at 50 %, which should be soon.

LEG C134
LEM P100
Added the LEG calls recently to balance the risk of the LEM puts. I consider LÉG futures as overvalued and LEM futures as undervalued.

SIK C22
SIK P14.5
This strangle was sold recently. Intend to liquidate at 50 %. This strangle was also suggested by James Cordier, but he prefers the July contracts.

I also hold the following futures covered by short options as longterm trades:

KCH and KCH C1.40
NGH and NGH C3.6
I entered these trades long time ago (I began with KCZ and KCZ C1.30) , and intend to keep them for while.

Best regards, Myrrdin

Currently I hold the following positions in the short option Portfolio (positions in brackets are already liquidated and are commented):


GCM P1250
2/3 of the potential profit were achieved within a few days. Intend to buy back on the slightest move back of the underlying. I am bullish metals and do not intend to sell calls in the near future (see comment regarding silver strangle).

Very Often Yes.

Because they make money doing it. Either in the trades themselves or in discounts they get from the exchanges for 'painting the board'.

Most options market makers are making markets in volatility and not price. They will make a market in any/every option available trying to buy volatility and a certain price and sell it at another. Any trades they do they manage on a portfolio basis (they manage the greeks of the portfolio). So they will normally hedge away their price risk immediately (which is why you will often find option quotes with a cross hedge are tighter than those without).

Market makers. ie Citadel, DRW, Wolverine, Optima, Eagle7 etc.

It's just CPU cycles - the cost to them is negligble, and the theory is the make on the options that do actually trade.
There's multiple questions in there. Many of these markets are a lot bigger 'off' exchange than they are 'on' exchange. For example the interbank FX market is enormous. So there could be substantial bilateral OI that you can not see. When it becomes to market making, the more you are prepared to pay to get executed the larger the liquidity becomes. Saying all of that, while these market makers aren't likely to disappear, at times of high volatility they can withdraw liquidity from the market. This means their bid-ask widen and their quoted volume's reduce. People get very frustrated about that but you can't really expect somebody to catch a falling knife. Over in the ES thread Ron has discussed how the ES market makers withdraw liquidity at crucial times and how that makes it hard to liquidate positions.