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Diversified Option Selling Portfolio
Started:September 6th, 2015 (11:22 AM) by myrrdin Views / Replies:26,466 / 581
Last Reply:December 2nd, 2016 (01:20 PM) Attachments:38

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Diversified Option Selling Portfolio

Old August 3rd, 2016, 04:31 PM   #351 (permalink)
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I know this isn't option selling but I wonder if this is a way to play possible high volatile days like the upcoming Aug 12th Crop Production report. Buy OTM options at the same price. Both puts and calls since you don't know which way it will move.

The options on the winning side could move far more than the losing side.

Here is an example in corn. On 20160620, Sep corn was 4.267. The next day it dropped 24.5 cents. If you had bought calls and puts, the next day the puts would have made more than the calls lost.

Here are some examples. The lower the DTE the better it worked.
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Old August 3rd, 2016, 04:41 PM   #352 (permalink)
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ron99 View Post
I know this isn't option selling but I wonder if this is a way to play possible high volatile days like the upcoming Aug 12th Crop Production report. Buy OTM options at the same price. Both puts and calls since you don't know which way it will move.

The options on the winning side could move far more than the losing side.

I had a look at this strategy some time ago. The problem is that volatility rises before these reports, and it collapses afterwards. In case the report causes a large move this strategy works. In case there is only a minor move it causes a loss.

Many reports are non-events. I am not sure that this strategy in the long run is profitable.

Best regards, Myrrdin

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Old August 3rd, 2016, 05:26 PM   #353 (permalink)
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myrrdin View Post
I had a look at this strategy some time ago. The problem is that volatility rises before these reports, and it collapses afterwards. In case the report causes a large move this strategy works. In case there is only a minor move it causes a loss.

Many reports are non-events. I am not sure that this strategy in the long run is profitable.

Best regards, Myrrdin

OK I see that is what happened in 2014.
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Old August 3rd, 2016, 06:32 PM   #354 (permalink)
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ron99 View Post
I know this isn't option selling but I wonder if this is a way to play possible high volatile days like the upcoming Aug 12th Crop Production report. Buy OTM options at the same price. Both puts and calls since you don't know which way it will move.

The options on the winning side could move far more than the losing side.

Here is an example in corn. On 20160620, Sep corn was 4.267. The next day it dropped 24.5 cents. If you had bought calls and puts, the next day the puts would have made more than the calls lost.


myrrdin View Post
I had a look at this strategy some time ago. The problem is that volatility rises before these reports, and it collapses afterwards. In case the report causes a large move this strategy works. In case there is only a minor move it causes a loss.

Many reports are non-events. I am not sure that this strategy in the long run is profitable.

I was thinking the same as you @myrrdin, that the implied vol crush following the report would kill any profits. But when you look at @ron99 's examples in his first post you'll see the implied vol wasn't crushed, in fact the Call IVs actually went up.


ron99 View Post
OK I see that is what happened in 2014.

The big difference in your first example, which seemed to make money, and your second example which doesn't is how far the options are out of the money. For the options in June you used a straddle that's width was equivalent to 42% of the underlying price, but in your 2014 examples that lose money the straddle width's are only 7% and 14% of the underlying. What happens if you looked at a 3.20/4.30 Strangle or even a 3/4.50 (for 20140811)

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Old August 3rd, 2016, 07:29 PM   #355 (permalink)
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SMCJB View Post
The big difference in your first example, which seemed to make money, and your second example which doesn't is how far the options are out of the money. For the options in June you used a straddle that's width was equivalent to 42% of the underlying price, but in your 2014 examples that lose money the straddle width's are only 7% and 14% of the underlying. What happens if you looked at a 3.20/4.30 Strangle or even a 3/4.50 (for 20140811)

For the Sep contracts, 11 DTE on 8/11/14, the 3.20 was $19. The rest of your examples were at cabinet.

Here is what you get for the Oct 2014 46 DTE options. They are still losers.

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My first example were just a random date picked before a big down day. The rest of the examples were the day before a major report.

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Old August 4th, 2016, 02:34 PM   #356 (permalink)
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Sold the KCH C240, following a recent suggestion of James Cordier.

The current crop is huge, and even some problems during blooming period should not pose problems for the next couple of months.

Best regards, Myrrdin

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Old August 4th, 2016, 02:48 PM   #357 (permalink)
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myrrdin View Post
Sold the KCH C240, following a recent suggestion of James Cordier.

The current crop is huge, and even some problems during blooming period should not pose problems for the next couple of months.

Best regards, Myrrdin

I'm curious why so high DTE.

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Old August 4th, 2016, 03:20 PM   #358 (permalink)
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ron99 View Post
I'm curious why so high DTE.

From October 2014 until some time in spring 2016 KC was in a clear downtrend. During this period, I preferred to sell calls with less DTE, as I considered selling KC calls as a directional trade. Recently this has changed, and KC moved above its 200 dma. Thus, I do not expect a further move down as for many months. In my opinion, KC should move sidewards in a wide range. To allow for KC price to move upwards, and still receive an acceptable premium, I decided for the March contract.

Seasonals show a move sidewards until December. At that time, the March options should have lost most of their value.

Finally: My recent experience with coffee calls having less DTE was mixed. On some occasions I was stopped out with a loss.

Best regards, Myrrdin

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Old August 4th, 2016, 03:41 PM   #359 (permalink)
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Here's KCh without abnormally high 2012. I added softs and LC to my Seasonal Futures charts this morning.
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Old August 4th, 2016, 04:35 PM   #360 (permalink)
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ron99 View Post
Here's KCh without abnormally high 2012. I added softs and LC to my Seasonal Futures charts this morning.

Thanks a lot for your seasonal chart.

There is an interesting difference between your data and MRCI data: The October high of MRCI is lower for all time frames (5, 15, 30 years) than the August high.

The October high, that occurs in some years, is probably caused by dryness during the blooming period. Your data shows very nicely, that in years with a small crop (and consequently high prices) - KCH11 and KCH15 - the move upwards in October is approx. 40 cents, whereas in years with a large crop (KCH10, KCH16 - as in 2016) this move is approx. 15 cents. This confirms my assumption that potential dryness during the blooming period will be less critical this year than in years with small supply.

Best regards, Myrrdin

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