Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
My seasonal of buying ESh7 on 11/12/16 and selling on 12/26/16 made $5,188 profit this year. My mistake in not trading it with futures. I do have on ES put spreads.
I then ran a backtest on CL using the same 5.00 delta short and two 1.50 delta longs starting 4/8/15. CL futures increased 11.6% in 6 trading days. The covered call spread was able to ride it out.
But when I tried this strategy for the 25.9% increase …
This one is just saying I wasn't able to find a strategy that worked.
I am finding that the strategy I found that works for ES puts is not working well for other commodities. Especially on calls. I need to do more research.
Here is a post showing numerous attempts to find a spread strategy in NG
Here is what I am seeing trying to reduce risk when selling a NG call to cover the 10.9% increase in NG futures over 11 days last June. The list is sorted by Highest % Balance for IM. These use IMx3.
The spreads have just as much or more drawdown …
I never was able to find one that worked because you can't sell far enough OTM to avoid movements the same amount as in the past and make any money. Also I couldn't find any combination of short and longs that protected.
So I just sell with a long 10 from the short for black swan protection (major disruption in Middle East like a bomb, war, natural disaster, market crash up or down) and cross my fingers.
Whereas last year I sold naked ES put options I will return to a more conservative strategy in 2017. Reason is that I expect a more volatile trade under president Trump.
I decided to sell ratio spreads, buying a put 2.5 % below current price, and selling puts 5 % and 7.5 % below current price. I intend to sell options with 90 to 110 DTE.
These spreads can currently be sold for approx. $500.
Differences to Ron’s excellent trading system are:
Ron’s protection works in the beginning of the trade, and, thus, Ron closes his trades when the value of the option has decreased by 50 %. For ratio spreads, the protection works in the second half of the trade, and it is more than a protection. I will get to this point later.
Ron’s system can be set up easily. There are clear rules for entry and exit of a trade. Ratio spreads allow for more flexibility when exiting the trade. But you have to decide.
Independently of the kind of protection I prefer to be closer to the money to own a smaller number of options. Disadvantage is that I will be stopped out more often. Advantage is that the damage in case of a “catastrophe” is smaller. To give you an order of magnitude: For an account of $100,000 Ron will hold more than 50 puts, compared to a maximum of 6-12 puts for the ratio spreads. But there is no free lunch …
As mentioned above, the protection of ratio spreads is strong in the second half of their life time. Thus, I intend to sell 1 lot each week with 90 to 110 DTE. I would like to own permanently ratio spreads just entered and ratio spreads which I already own for a while. The second group has lower risk and even can pay for some of the potential losses. In case one of the ratio spreads expires 2.5 – 10 % below the price where I sold it, the long put contributes essential profits. (But this is not the main target of the concept.)
There are various ways to exit a trade.
To begin with the most annoying one: I exit the trades when the break even at expiry time is reached (entry price minus 10 % minus selling price). This is my stop loss.
For the successful trades, I can exit the trade when the price of the spread is zero. This often happens somewhere around 50 % of DTE. But I also can hold them for longer, wait until a few days before expiration and sell the long put (more aggressive) or the long put and the first short put (less aggressive). And I can wait for the long put to expire in the money and provide some extra profit.
I expect profits to be in the order of magnitude of 20 – 30 % per year, but the prediction is not as easy as with Ron’s concept. The probability of being stopped out is significantly higher, but an extra profit via the long puts is possible.
I hope I could make the concept understandable. In case of any questions, please feel free to ask.
