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Diversified Option Selling Portfolio
Started:September 6th, 2015 (11:22 AM) by myrrdin Views / Replies:26,377 / 581
Last Reply:December 2nd, 2016 (01:20 PM) Attachments:38

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Diversified Option Selling Portfolio

Old November 4th, 2015, 10:39 AM   #81 (permalink)
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satghost View Post
I am also interested in your trading. At the moment I am concentrating on the ES puts ...

In my opinion this is a good place to start in case you do not have a special affinity to one of the other commodities, and are interested to study its fundamentals.

There is the risk to place too much money on one trade - be careful. We have seen in August that this trade can go against you and prduce severe losses in case the (mental) stop loss is not placed properly with regard to the account size.

In famous books you can read that strikes can be chosen far out of the money, and that the underlying future will never get there. But this is not the point. The value of the option rises when (in this case) the ES drops, and volatility rises. And within some days or even hours you are forced to get out of the trade, taking a severe loss.

Thus, keep the trade small.

Good luck !

Best regards, Myrrdin

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Old November 4th, 2015, 10:46 AM   #82 (permalink)
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myrrdin View Post
The value of the option rises when (in this case) the ES drops, and volatility rises. And within some days or even hours you are forced to get out of the trade, taking a severe loss.

Of course if you have properly placed longs to cover your shorts a flash move will not hurt you.

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Old November 4th, 2015, 10:56 AM   #83 (permalink)
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Yes, I have seen this and been also following Ron's thread.

Seems like you are still selling naked ES puts, not the 1:2 short/long which is delivering the best span margin results. And using your own exit strategy.
At the moment the 200 DMA of the S&P is about 2062, does this mean, you are buying back all ES put, when S&P is droping about 50 Points below 2062?

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Old November 4th, 2015, 11:16 AM   #84 (permalink)
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ron99 View Post
Of course if you have properly placed longs to cover your shorts a flash move will not hurt you.

Yes, placing long puts properly avoids this issue. The problem I see is to choose the long puts in a way to work properly under all conditions. Backtesting is usually done assuming conditions we know from the past. But is has happened that conditions differ from those in the past, and this might lead to problems.

Therefore, I prefer to get out at a pre-defined stop loss, which currently is the 200 dma of the S&P index.

On the one hand, I got out of the problems after 20th August with minor losses. On the other hand, I let money on the table, as I also got out of the trade after a close of the S&P below the 200 dma on 8th of July.

I am aware that there are many ways to make money, selling ES puts.

Best regards, Myrrdin

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Old November 4th, 2015, 11:26 AM   #85 (permalink)
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satghost View Post
Yes, I have seen this and been also following Ron's thread.

Seems like you are still selling naked ES puts, not the 1:2 short/long which is delivering the best span margin results. And using your own exit strategy.
At the moment the 200 DMA of the S&P is about 2062, does this mean, you are buying back all ES put, when S&P is droping about 50 Points below 2062?

Yes, I am still selling naked ES puts, which I hedge from time to time via ES outright futures. (I am hedged since yesterday before the close.)

I take the 200 dma of the S&P index and not of the ES future. This avoids the problem of linking different contracts to each other. The 200 dma of the index currently is at 2035, The index itself at 2108.

I intend to buy back the ES puts on a close below the 200 dma of the index. This happenened twice since I started using Ron's program in spring of this year (8th of July, 20th of August).

Best regards, Myrrdin

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Old November 5th, 2015, 05:00 AM   #86 (permalink)
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myrrdin View Post
..
I take the 200 dma of the S&P index and not of the ES future. This avoids the problem of linking different contracts to each other. The 200 dma of the index currently is at 2035, The index itself at 2108.

I intend to buy back the ES puts on a close below the 200 dma of the index. This happenened twice since I started using Ron's program in spring of this year (8th of July, 20th of August).

The close below 200 dma, seems a interesting exit criteria for me.

If you exit after a close below the 200 DMA, when will you start selling again? F.e. SPX was below 200 DMA this year between Aug 20th and Oct 21th.
From your postings, you started selling again at the beginning of Oct. And from looking at the SPX chart, since then the SPX won more than 200 points. Nearly the perfect point for starting

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Old November 5th, 2015, 11:57 AM   #87 (permalink)
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satghost View Post
The close below 200 dma, seems a interesting exit criteria for me.

If you exit after a close below the 200 DMA, when will you start selling again? F.e. SPX was below 200 DMA this year between Aug 20th and Oct 21th.
From your postings, you started selling again at the beginning of Oct. And from looking at the SPX chart, since then the SPX won more than 200 points. Nearly the perfect point for starting

Yes, as you found out correctly I start selling options again below the 200 dma in case I made out a turn around. Sometimes - as in this case - the index moves far below the 200 dma, and it makes sense to start selling again.

In this case of more risky trades it is essential for me to keep lot sizes reduced, and to have a good place to get out again (stop loss) or to hedge.

One other important point: I consider the re-entry as an individual trade, and enter it with a lot size independent of the losing trade. Usually when I get out of the trade below the 200 dma, the options are above 100 %, and the trade results in a loss. Many option sellers now try to sell this amount at a lower level, thus, placing a rather large trade to "take revenge". It is important to forget about the trade that brought the loss, and to start again with a reduced or normal lot size.

Best regards, Myrrdin

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Old November 7th, 2015, 12:10 PM   #88 (permalink)
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Current positions of my option selling portfolio:

CH P340
BOH P26
SH P800

LHG P60
LCG P130
LCG C156

ESF P1725
ESG P1600
ESG P1650
ESG P1680
ESG P1700
ESG P1720

The Lean Hog Puts are in the money, but I intend to hold them. For several reasons I am convinced that the price will move up again. Among others, cash prices are significantly higher than future prices. This difference is much larger as usually during this time of the year. And even using very pessimistic assumptions, the cash price in February (and December) should be significantly above 60. Last but not least, there is a lot of time left until my options expire.

I sold a third of a lot of the Soybeans Put at 9 cents, and placed further orders at 12 and 15 cents. I scale into these options, as I am not sure how far price will go down. But somewhere between 830 and 880 the Chinese will start buying again, and planting intentions in the US will be reduced.

I am hesitant selling Gold or Silver puts again. Palladium reacted much stronger on yesterdays numbers, and, thus, I bought it outright. (Option open interest in Palladium tends against zero.)

ES puts are currently fully hedged.

Best regards, Myrrdin

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Old November 8th, 2015, 11:53 AM   #89 (permalink)
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On my watch list for option selling there are the following positions:

SH P800: I am currently scaling into this position. In my opinion, the seasonal low should be close.

CLK P45: I intend to sell this option again in November or December on a further move down. Probably I will also scale into this position.

KC puts: Coffee price has not been below 100 since 2007. Thus, I intend to scale into some KCK puts within the next two months. Seasonals begin moving upwards strongly in the middle (last 5 years) or end (last 15 years) of December.

Usually at this time of the year I sell Natural Gas options. I am careful in this regard, as El Nino could bring a warm winter in the US, which makes it dangerous to sell puts. Selling calls is not interesting and dangerous at current price levels - one cold blast, and the options gain value extremely fast.

Best regards, Myrrdin

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Old November 10th, 2015, 12:20 PM   #90 (permalink)
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myrrdin View Post

CLK P45: I intend to sell this option again in November or December on a further move down. Probably I will also scale into this position.

Sold a first lot of CLK P45@3.17 .

Intend to sell further options at higher prices if possible.

Best regards, Myrrdin

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