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Diversified Option Selling Portfolio


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Diversified Option Selling Portfolio

  #701 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
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Thanks Received: 2,651


TraderGriz View Post
You might not understand me because I wasn't sure how to put to words.

I see the relation between feeder cattle an live cattle or crude an fuel oil. You mentioned corn an soybeans. Others talk of cattle an corn. A better way to ask is about spread tradeing utilizing different markets that correlate.

I do a lot of spread trading of correlated commodities, but often I use future spreads instead of options.

Examples are the 5CZ-2SX, the KWN-WN, or the SMN-BON, all of which I currently hold positions.

Still not sure what you are asking.

Best regards, Myrrdin

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  #702 (permalink)
TraderGriz
Minnesota
 
Posts: 89 since Feb 2017
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My biggest issue is the exit.
Sold some at 550 an bought back at 130 2 weeks later. I'm good with that.
I am sitting on some that I am well ahead on. Guess what I want to ask is does one wait for time to make you money or get out with a smaller profit?

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  #703 (permalink)
 myrrdin 
Linz Austria
 
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TraderGriz View Post
My biggest issue is the exit.
Sold some at 550 an bought back at 130 2 weeks later. I'm good with that.
I am sitting on some that I am well ahead on. Guess what I want to ask is does one wait for time to make you money or get out with a smaller profit?

That is one reason why I like selling options. The problem of exiting is solved easier. But I assume your question is referring to outright or spread trades for futures.

When entering a trade it is a good idea to have a target. This target can be from the chart or from fundamentals. When approaching the target, you can either take a close stop or take profit using a limit order.

In cases where you work without a stop there is the following way to get around your problem: Take profit for half of the position, and hold the rest.

Best regards, Myrrdin

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  #704 (permalink)
TraderGriz
Minnesota
 
Posts: 89 since Feb 2017
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"In cases where you work without a stop there is the following way to get around your problem: Take profit for half of the position, and hold the rest."
By myrrdin

I have done that in the past when I mostly bought options. Now that I am more focused on selling the exit is not as clear to me. Most trades I do are naked. That is why my exit is concerning me. At what point does a person quit waiting for time to make them a profit?
I waste no time if a market is providing me a loss of getting out. It's the ones that give me good gains then go stall for a couple weeks an still have 60 days to go that make me concerned about exit timing. Not too concerned about them being in the money but more about my roi.

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  #705 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
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Broker: QST, DeCarley Trading, Gain
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TraderGriz View Post
"In cases where you work without a stop there is the following way to get around your problem: Take profit for half of the position, and hold the rest."
By myrrdin

I have done that in the past when I mostly bought options. Now that I am more focused on selling the exit is not as clear to me. Most trades I do are naked. That is why my exit is concerning me. At what point does a person quit waiting for time to make them a profit?
I waste no time if a market is providing me a loss of getting out. It's the ones that give me good gains then go stall for a couple weeks an still have 60 days to go that make me concerned about exit timing. Not too concerned about them being in the money but more about my roi.

Taking profit after about 50% drop in premium has a higher ROI than waiting for expiration. The first 50% drop usually takes shorter time than the last 50%.

Here is a study I did. Best monthly ROI was at 60% drop.

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  #706 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
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TraderGriz View Post
"In cases where you work without a stop there is the following way to get around your problem: Take profit for half of the position, and hold the rest."
By myrrdin

I have done that in the past when I mostly bought options. Now that I am more focused on selling the exit is not as clear to me. Most trades I do are naked. That is why my exit is concerning me. At what point does a person quit waiting for time to make them a profit?
I waste no time if a market is providing me a loss of getting out. It's the ones that give me good gains then go stall for a couple weeks an still have 60 days to go that make me concerned about exit timing. Not too concerned about them being in the money but more about my roi.

Sorry - I misunderstood your question. Obviously you are talking about selling options, and you are talking about exiting to take profit.

I would like to distinguish two different cases.

ES Puts: As Ron has proven it is best to exit these trades when 50 or 60 % of the potential profit are made. I enter these trades one after the other without major interruption, as I consider these trades as non-directional.

Other commodity options: These options cannot be sold one after the other. I consider these trades as directional trades. It is necessary to have an opinion about the next large move of the underlying. Among these trades there are high risk trades (eg. selling Natural Gas calls in winter). I liquidate these options as early as some profit has been made (eg. 50 %). There are options without such major risk, which I can roll to a higher price (puts) or more DTE, when they made 50 % profit (eg. I rolled the LCQ P90 to the LCQ P94 recently). But there are other options that I do not want to roll (eg. lower strike for calls or more DTE to risky). In this case I might decide to keep the trades, if there are no better trades around. Yes, the ROI is lower than during the first weeks. But it is still better than not being invested. This happens quite frequently as I sell options for a maximum of 3 % of the account value (or less). There are other trades in my account, but it happens quite often that there is money left. In this case I keep low risk options until they made 80 or 90 % (or in rare cases 100 %) of the potential profit.

Best regards, Myrrdin

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  #707 (permalink)
TraderGriz
Minnesota
 
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Myrrdin
You mentioned non directional, not sure I understand.

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  #708 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
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TraderGriz View Post
Myrrdin
You mentioned non directional, not sure I understand.

Non-directional: I sell the options without having an opinion on the next move of the underlying. I am always short some of these options. This works with the ES puts. I did not find any other options for which this works.

Directional: I have an opinion on the next move of the underlying. I sell puts in case I assume the price of the underlying will move upwards or sidewards. And I sell calls in case I assume the price of the underlying will move downwards or sidewards. This works for all options. But the price of the underlying should not move strongly against my position.

Best regards, Myrrdin

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  #709 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
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Today I sold a NGq7p250c450 strangle for 0.030. IM is 284.

Weather isn't much of a concern now.

I looked at what happened to a NGn7p215c420 strangle from Feb 27th to April 6th when NGn7 went from 2.926 to 3.470. The net strangle premium went from 0.032 to 0.038. The put went from 0.016 to 0.001 while the call went from 0.016 to 0.037. Max drawdown was 3.3% and max amount of account balance used for IM was 30.2%.

So even though futures increased 0.544 the strangle only lost $60 on the worst day.

If I held that strangle I would have exited the put when it dropped to 0.002 because only $10 more to be made and easier to get out at $20 than $10.

I am thinking that for NG it is better to exit at 60-70% of initial net premium instead of waiting for 50%. That should get you out quick with a decent ROI and before your position can turn into a loser waiting for 50%.

We'll see how this turns out.

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  #710 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651



ron99 View Post
Today I sold a NGq7p250c450 strangle for 0.030. IM is 284.

Weather isn't much of a concern now.

I looked at what happened to a NGn7p215c420 strangle from Feb 27th to April 6th when NGn7 went from 2.926 to 3.470. The net strangle premium went from 0.032 to 0.038. The put went from 0.016 to 0.001 while the call went from 0.016 to 0.037. Max drawdown was 3.3% and max amount of account balance used for IM was 30.2%.

So even though futures increased 0.544 the strangle only lost $60 on the worst day.

If I held that strangle I would have exited the put when it dropped to 0.002 because only $10 more to be made and easier to get out at $20 than $10.

I am thinking that for NG it is better to exit at 60-70% of initial net premium instead of waiting for 50%. That should get you out quick with a decent ROI and before your position can turn into a loser waiting for 50%.

We'll see how this turns out.

I sold the NGN P2.8 some time ago and the NGU C4.5 recently.

Today I added the NGQ P2.6 / C4.5 strangle for 0.039. Thank you, Ron, for the idea.

Best regards, Myrrdin

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Last Updated on May 26, 2022


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