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Diversified Option Selling Portfolio
Started:September 6th, 2015 (11:22 AM) by myrrdin Views / Replies:26,203 / 581
Last Reply:December 2nd, 2016 (01:20 PM) Attachments:38

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Diversified Option Selling Portfolio

Old June 9th, 2016, 03:03 PM   #251 (permalink)
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myrrdin View Post
I appreciate your comment, as I am not always sure someone is interested in this topic.

There is a very limited number of questions, few comments about trades by other traders, a small number of readers clicking the "thank you" button. On the other hand obviously a large number of members read the thread.

Every question or comment is highly appreciated, as it shows me there is interest in option selling. This motivates me to go into more details in my contributions.

Best regards, Myrrdin



Hello Myrrdin

Very nice thread indeed, been looking after it since very first page.

Although, a few posts back you mentioned you had rather negative experience with the currency options, i assume you have developed a solid understanding of those. My question: Would you ever consider selling OTM naked put for British Pound?

No doubt fat premiums and relatively low margin gives very attractive ROI as of today, though one must understand how bad may this trade go in case if UK chose to "Brexit"

From your standpoint , what is the worst case scenario for British Pound if "Brexit" happens? Some estimate pound may drop as much as 15%- 20% against dollar owing to huge uncertainty that comes with "Brexit". Would you consider the estimate as pessimistic, neutral ( you agree with the estimate) or way too optimistic, another word pound may lost a bit more value ?

i have sold 3 BPU6 P1.25 today, can you help me to understand how premium will explode given 20% fall
Therefore 1.4514* 0.8 = 1.16328, option deep in the money, then what is my exposure?

I'm intended to keep 5x margin against this trade.

My arguments why Brexit won't happen

1. Current prime minister David Cameroon and some other very influential individuals support "remain in UK"

2. Transnationals and high net worth individuals are generally against Brexit. Obviously, Brexit would cause a lot of trouble
to UK economy and consumer/investor confidence is of relatively small magnitude comparing to capital outflow, massive

selling of assets, including commercial property and equipment as some may be forced to leave country ( think of new banking and immigration policies ). In addition these high net worth own some very important mass media in the country. For example, FT publishes their Brexit coverage in a very direct anti-Brexit tonality.

3. UK has had a lot more less trouble with refugees than other EU countries. Therefore, i believe refugees crisis is not that big trigger for leaving EU

4. Scotland has voted against leaving UK.
Controversial statement, because affect only Scotland. But, i believe those Scottish who voted to remain in UK will vote to remain in EU as well. And they are majority.


Thanks, Jerard


Last edited by Jerard; June 9th, 2016 at 03:46 PM.
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Old June 9th, 2016, 03:51 PM   #252 (permalink)
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Jerard View Post
Hello Myrrdin

Very nice thread indeed, been looking after it since very first page.

Although, a few posts back you mentioned you had rather negative experience with the currency options, i assume you have developed a solid understanding of those. My question: Would you ever consider selling OTM naked put for British Pound?

No doubt fat premiums and relatively low margin gives very attractive ROI as of today, though one must understand how bad may this trade go in case if UK chose to "Brexit"

From your standpoint how, what is the worst case scenario for British Pound if "Brexit" happens? Some estimate pound may drop as much as 15%- 20% against dollar owing to huge uncertainty that comes with "Brexit". Would you consider the estimate as pessimistic, neutral ( you agree with the estimate) or way too optimistic, another word pound may lost a bit more value ?

I assume, i have sold 3 BPU6 P1.25 today, can you help me to understand how premium will explode given 20% fall
Therefore 1.4514* 0.8 = 1.16328, option deep in the money, then what is my exposure?

I'm intended to keep 5x margin against these trade. The whole process

My arguments why Brexit won't happen

1. Current prime minister David Cameroon and some other very influential individuals support "remain in UK"

2. Transnationals and high net worth individuals are generally against Brexit. Obviously, Brexit would cause a lot of trouble
to UK economy and consumer/investor confidence is of relatively small magnitude comparing to capital outflow, massive

selling of assets, including commercial property and equipment as some may be forced to leave country ( think of new banking and immigration policies ). In addition these high net worth own some very important mass media in the country. For example, FT publishes their Brexit coverage in a very direct anti-Brexit tonality.

3. UK has had a lot more less trouble with refugees than other EU countries. Therefore, i believe refugees crisis is not that big trigger for leaving EU

4. Scotland has voted against leave UK.
Controversial statement, because affect only Scotland. But, i believe those Scottish who voted to remain in UK will vote to remain in EU as well. And they are majority.


Thanks, Jerard

1. I am not an expert for currencies. There is an own thread for currencies, and traders there might be able to tell you how far the BP will move down after Brexit. but definitely there will be a strong move of BP in case of Brexit.

2. Generally I do not trade a commodity or an index or a currency, if there is such event as the possible Brexit or a weather market in the grains or a Supply & Demand Report in case I have no strong opinion on the outcome of this report. In case there is Brexit, you will loose a lot of money. In case of Great Britain staying in the EU, you will make some money. I do not like trades with the risk of a huge loss. You would have to sell a lot of options to earn the money back, that you lost in this one trade.

3. In case you keep 5 x margin I am pretty certain you have to pay a significant amount of additional money to your broker in case of the BP moving 20 % against you. I would estimate that assuming constant volatility the price of your option will rise to the five to ten-fold at least. Volatility will not be constant, but it will explode dramatically.

You should also think about how large a percentage of your account you are willing to risk per trade. To me it looks like you intend to risk 100 % of your account. I prefer to risk 3 % of my account for an average trade.

Please be aware that trading futures and options you can lose more money than there is in your account. Remember the time when there was the large move (approx. 20 %) in the Swiss Franc 17 months ago. A number of traders went bancrupt. They did not only lose their account, they lost all they had. The probability of this strong move of the SF at a certain time might have been small - but it was a quite realistic scenario, and it happened.

Thus, in case you expect a potential move of the BP of the magnitude of 20 % in case of Brexit, it is my suggestion to buy your options back before the vote.

Best regards, Myrrdin

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Old June 13th, 2016, 02:19 AM   #253 (permalink)
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Liquidated the natural gas strangles at a small profit of about 10 %.

The calls reached the stop loss that I had set for the first few weeks of the trade (close above the November and January highs).

Fundamentally, the change from El Nino to La Nina should yield a hot summer (in case la Nina begins early enough) and a cold winter. Both result in a large consumption of Natural Gas. Thus, risk seems high for short calls, although seasonals suggest falling Natural Gas prices for the next weeks.

Best regards, Myrrdin

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Old June 14th, 2016, 10:50 AM   #254 (permalink)
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Bought back the LCQ P120 at a loss of approx. 80 %.

Intend to re-enter LCQ puts (eg. strike between 100 and 104). Future prices do not follow the cash prices (not even the LCM, which will expire in a couple of days), which is hard to understand.

Best regards, Myrrdin

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Old June 14th, 2016, 11:06 AM   #255 (permalink)
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Futures Edge on FIO
Sold the LCQ P106.

Best regards, Myrrdin

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Old June 14th, 2016, 11:53 AM   #256 (permalink)
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Current positions of the Diversified Option Selling Portfolio:

WU C600

LCQ P106
LHQ C90, C92

Unfortunately, I was not able to re-enter the CL calls and the GC puts at higher levels. But I do not like to chase these trades.

Best regards, Myrrdin

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Old June 14th, 2016, 12:07 PM   #257 (permalink)
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Bought back the WU C600 with a profit of approx. 50 %.

The option has a long way to go until expiry, and in case of a strong move up in corn (pollination period in July) wheat might follow.

COT data is bullish, thus, in case of a move up it could be a strong one.

I intend to sell W options again at a higher level and / or when the weather during pollination of corn is better known.

Best regards, Myrrdin

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Old June 14th, 2016, 12:10 PM   #258 (permalink)
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myrrdin View Post
Sold the LCQ P106.

Best regards, Myrrdin

The're is some worries over increased supply of Live Cattle in July, while demand deemed to be lower. What's your read on the market?


Last edited by Jerard; June 14th, 2016 at 12:16 PM.
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Old June 14th, 2016, 12:15 PM   #259 (permalink)
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myrrdin View Post
Sold the LCQ P106.

Best regards, Myrrdin

When I see a market that just was limit down I usually avoid them for a few days till they settle down.

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Old June 14th, 2016, 12:28 PM   #260 (permalink)
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myrrdin View Post
Bought back the WU C600 with a profit of approx. 50 %.

The option has a long way to go until expiry, and in case of a strong move up in corn (pollination period in July) wheat might follow.

COT data is bullish, thus, in case of a move up it could be a strong one.

I intend to sell W options again at a higher level and / or when the weather during pollination of corn is better known.

Best regards, Myrrdin

I'm curious what do you look at in the COT reports. Here is what I look at.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


It's my DCOT report on my tableau graphs page.
https://public.tableau.com/profile/ron.h8870#!/

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