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Diversified Option Selling Portfolio
Started:September 6th, 2015 (11:22 AM) by myrrdin Views / Replies:26,540 / 586
Last Reply:10 Hours Ago (02:51 PM) Attachments:39

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Diversified Option Selling Portfolio

Old February 3rd, 2016, 01:47 PM   #131 (permalink)
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myrrdin View Post
Sold the GCM C1300 / GCM P990 strangle today. In my opinion, Gold should move sideways in the next couple of months.

Best regards, Myrrdin

Hello Myrridin,

First of all thanks for this awesome thread, i find your analysis and comments very beneficial for new traders like me.

I recall that gold positions have caused some serious pain to traders who sold their puts during a massive liquidation that occurred few years ago. Apparently, it was Ron who posted a detail description of that extreme shift in gold futures somewhere in the middle of Selling Options on Futures thread. Since the massive liquidation traders have had little interest in options on gold. I have neither seen any posts on gold positions (like you do in this thread), nor discussion of fundamentals on gold market in options selling threads. Do you believe in a wake of volatility in equities and the vast majority of commodities, gold has again become a feasible instrument to trade?

I am about to make my fist steps in option selling, i doubt my first trade going to be a gold, though i would be grateful if you share your read on the gold market. In particular, what sources/websites have you used in order to conduct your analysis? I get my fundamentals from sources that were many times cited out here, including Hightower, Cordier newsletters, Reuters, Bloomberg. In addition to these, could you recommend any sources that cover gold fundamentals well?


Jerard

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Old February 3rd, 2016, 02:41 PM   #132 (permalink)
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ys91 View Post
Thank you sir! Appreciate the help understanding this. I am just starting to fund my account with DeCarley. While the ES/financials have been a bit weird lately, I do like their research/perspective emails sent out. I like the mix of fndamentals and technicals in these.

I was wondering if you prefer to conduct your own analysis using some of the USDA reports out there (for ags commodities) or do you prefer looking at research reports such as Hightower or others. I am quite new to commodities, so "preferred" resources would be very helpful. Once I start (probably small with 10-15K) I'd really like to run my trades by you for opinion. Hope you'll agree to be my sort-of mentor in this.

Cheers!

As I trade a large variety of commodities I have to rely on reports. But it is important not only to trade their suggestions. You have to fully understand, what they write, cross-check it with own studies and other reports, and then trade.

Regarding grains & beans I have good experience with the RJO reports, which are available for their customers. My source for meats is described below. For other commodities I rely on Hightower, deCarley, and some others. And of course you find a lot of valuable information regarding the indices and some of the commodities at futures.io.

When you start trading I suggest you choose one commodity or a small group of commodities, and try to fully understand them (eg. supply & demand, seasonality, COT, correlation to the US$, weather issues). According to my experience, Grains & Beans are easier to trade than Meats or Softs.

Please feel free to ask further questions (and use the "thank you" button in case the answer is helpful).

Best regards, Myrrdin

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Old February 3rd, 2016, 02:55 PM   #133 (permalink)
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Jerard View Post
Hello Myrridin,

First of all thanks for this awesome thread, i find your analysis and comments very beneficial for new traders like me.

I recall that gold positions have caused some serious pain to traders who sold their puts during a massive liquidation that occurred few years ago. Apparently, it was Ron who posted a detail description of that extreme shift in gold futures somewhere in the middle of Selling Options on Futures thread. Since the massive liquidation traders have had little interest in options on gold. I have neither seen any posts on gold positions (like you do in this thread), nor discussion of fundamentals on gold market in options selling threads. Do you believe in a wake of volatility in equities and the vast majority of commodities, gold has again become a feasible instrument to trade?

I am about to make my fist steps in option selling, i doubt my first trade going to be a gold, though i would be grateful if you share your read on the gold market. In particular, what sources/websites have you used in order to conduct your analysis? I get my fundamentals from sources that were many times cited out here, including Hightower, Cordier newsletters, Reuters, Bloomberg. In addition to these, could you recommend any sources that cover gold fundamentals well?


Jerard

I do not trade Gold very often. But looking at the chart for recent months, it is obvious that volatility is smaller then volatility of the indices.

It is a good sign for option sellers that nobody is interested in this commodity.

Strong moves happen in all commodities. Thus, it is important to keep lot sizes small.

Often large moves begin small. It is possible to get out due in time, but many traders try to "ride it out". I prefer to get out of short option trades at a maximum loss of 200 %. (If I sold an option for $400 I will get out at approx. $800. See details of my exit strategy in one of my last posts.)

My favorite report for the indices, currencies and metals unfortunately is in German language: Wellenreiter, a report looking at the fundamentals for longer time frames (months). I rely on it for many years, also for my stocks accout.

Before you start trading I would strongly recommend to learn everything about the fundamentals of the commodity of your choice. Regarding details please have a look at my last post.

Best regards, Myrrdin

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Old February 4th, 2016, 03:30 PM   #134 (permalink)
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Current short options positions:

CLK C53
CLK P 25.5
Intend to liquidate the spread at 10 %.

GCM C1300
GCM P990
Intend to liquidate the spread at 10 %.

LHJ C76
LHQ C84
Partially hedged via LHJ-LHQ spread, placed orders to sell LHJ P60 as additional hedge. Intend to liquidate at 10 % (LHJ) or approx. 50 % (LHQ), respectively.

LCQ P110
Hedged via LCZ-LCQ spread. Owned the LCQ P100 before, and bought it back profitably. Intend to liquidate at approx. 50 % .

KCJ C140
KCK C150
Intend to liquidate at 10 % .



Best regards, Myrrdin

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Old February 8th, 2016, 09:19 AM   #135 (permalink)
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myrrdin View Post

GCM C1300
GCM P990
Intend to liquidate the spread at 10 %.


Bought back the Gold strangle at a loss of approx. 50 %.

Gold looks strong in recent days, and I consider this position my most vulnarable one, and the one using the highest margin. To allow for selling additional positions in the meat market (see below), I had to reduce margin.

Best regards, Myrrdin

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Old February 10th, 2016, 06:03 AM   #136 (permalink)
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Marc Abell View Post
There are so many op my opinion, the low in the indices is in.
My rules regarding a stop loss are different: You should define a stop in the underlying where You expect the option to approximately double in value. If successful, you need to buy back the options at 50 %, and re-enter a new position.

I have similar rules for ending a trade. But for me it does not make sense to always exit at 200 % or 50 %, respectively.

When I recognize that the fundamentals or the chart of a commodity have changed significantly to my disadvantage I quit. Last week I saw gold moving across the 200 dma. On Friday after the report gold prices came done, but moved back up strongly. This was the sign for me to liquidate the position significantly below 200 %.

In case an option loses value very quickly I often liquidate at 50 %. But if the option is at 50 % of its original value, and there is not much time to go, and the fundamentals seem to be ok, I often stay in the trade. Currently I hold Coffee calls (KCJ C140) that will expire on March, 11th. They are now at 30 %, and I intend to hold them down to 10 %. Of course there is some risk that a weather forecast suggests dry weather in Brazil. But regarding the large amount of coffee waiting in Vietnam and other countries to be sold makes me believe that this risk is small compared to the reward.

The question I ask is always: Would I sell these offee calls today (not regarding fees and slippage, as they are already paid). In case the answer is yes, I keep the positions.

Best regards, Myrrdin

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Old February 10th, 2016, 11:36 AM   #137 (permalink)
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myrrdin View Post
The question I ask is always: Would I sell these offee calls today (not regarding fees and slippage, as they are already paid). In case the answer is yes, I keep the positions.

I think this is a question everybody should be asking themselves about every position they have on continually. Would I still enter this position right now if I didnt already have it on. If they answer is no - get out.

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Old February 11th, 2016, 10:36 AM   #138 (permalink)
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myrrdin View Post
Current short options positions:

CLK C53
CLK P 25.5
Intend to liquidate the spread at 10 %.

Liquidated the CL strangle at a loss of approx. 50 %. Currently I have no idea where CL is headed to - not a good precondition for option selling.

Sold LHJ P62, which now form a strangle with the LHJ C76. LH should move more or less sideways during the next couple of weeks.

Best regards, Myrrdin

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Old February 16th, 2016, 04:26 PM   #139 (permalink)
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First trade in

Hi guys,

I took my first step in my live futures account last week and placed a couple of trades mid-last week:

1. Short CLK6 strangle P20/C45 for 0.38/0.40
2. Short Lean Hog April P62/C76 for 0.30/0.4250

Started small, and don't intend to open new positions to keep enough excess cash for spikes, but fundamentally I think these should be good. Did get a scare over the weekend with Saudi-Russia talks and the build up due to it, but with production limited to Jan levels, I think market is coming down to a more "reasonable" level, and should probably stay around the $30 - $31 mark for CLK6 for next week or so (barring big fluctuations in USD).

Unsure about the hogs, but doesn't seem like a lot is going on there. @myrrdin posted his trade earlier as well, with his reasons on the position. My fundamental analysis is largely based on commentary from Hightower, and seems like there might be just sideways movement for next few weeks, but appraching Easter, the market may have downward pressure to account for higher supplies and lower demands.

I'll intend to close these out at around 50% prem. value.

@myrrdin and others, I'd really appreciate your feedback on the positions. Also, would like to ask for your opinion on closing out the trades, one leg at a time. I think my margin right now is relatively low since I have a strangle on, but I tried calculating the margin on Zaner360 and looks like, after closing the CLK6 P20, the margin for CLK6 C45 goes up quite a bit. Any thoughts?

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Old February 16th, 2016, 05:20 PM   #140 (permalink)
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ys91 View Post
Hi guys,

I took my first step in my live futures account last week and placed a couple of trades mid-last week:

1. Short CLK6 strangle P20/C45 for 0.38/0.40
2. Short Lean Hog April P62/C76 for 0.30/0.4250

Started small, and don't intend to open new positions to keep enough excess cash for spikes, but fundamentally I think these should be good. Did get a scare over the weekend with Saudi-Russia talks and the build up due to it, but with production limited to Jan levels, I think market is coming down to a more "reasonable" level, and should probably stay around the $30 - $31 mark for CLK6 for next week or so (barring big fluctuations in USD).

Unsure about the hogs, but doesn't seem like a lot is going on there. @myrrdin posted his trade earlier as well, with his reasons on the position. My fundamental analysis is largely based on commentary from Hightower, and seems like there might be just sideways movement for next few weeks, but appraching Easter, the market may have downward pressure to account for higher supplies and lower demands.

I'll intend to close these out at around 50% prem. value.

@myrrdin and others, I'd really appreciate your feedback on the positions. Also, would like to ask for your opinion on closing out the trades, one leg at a time. I think my margin right now is relatively low since I have a strangle on, but I tried calculating the margin on Zaner360 and looks like, after closing the CLK6 P20, the margin for CLK6 C45 goes up quite a bit. Any thoughts?

Excellent idea to keep position sizes small. It is my experience that my performance improves significantly when reducing position size.

Total margin should be reduced when closing one part of a strangle. I would estimate the discount for a strangle at approx 20 %, certainly much less than 50 %.

I bought back my CL strangle, because I am afraid of large swings of the CL price due to political announcements. In my opinion there are better trades.

Regarding the hogs: I assume that cash prices will move sidewards for some weeks. Another point: There is very large open interest in LHJ C70 and LHJ P70. Thus, there might be strong traders to move the price towards 70 at expiry of the options. (I sold a very small lot of LHJ C70 / P70 for more than 6 points on Friday. Profitable from 64 to 76 at expiry.) I intend to hold this trade down to approx. 10 % premium value.

Good luck !

Best regards, Myrrdin

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