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)
First of all, a successful 2017!
I did some homework with your ratio spread on worst trading days in 2015 (2015/08/17 and 2015/12/29). With all my respect I did`t find any additional protection during big drop (please see Exel with 3 spread strategy). Or I have not correctly understood your approach?
Thanks a lot for your comment and for your detailed study on the strategy. I really appreciate this work.
As I described above ratio spreads have a very limited protection in the beginning. They consist of a covered long put, which gains value, when the underlying moves downwards, and a naked short put. This short put gains value quicker than the covered long put, but there is some protection regarding the value of the spread. Margin is strongly dependend on the short put, and, thus, there is not much protection regarding margin.
It looks different the closer you get to the expiry of the options. A few days before expiry the ratio spread often gains value when the underlying moves downwards. The short put is too far out of the money to be affected.
Thus, it is important for me to hold ratio spreads which are just sold, and ratio spreads, which are mature.
The main advantage of ratio spreads is flexibility. If you want to hold your spreads until a well defined date, I would work with Ron's excellent concept. I give you an example what I mean with flexibility: In August of 2015 the S&P moved down sharply. I was short naked ES puts, and covered them when the S&P crossed the 200 dma. I got out with a small loss. Ratio spreads would have given me the opportunity to buy back one or two of the short options of one or several spreads, and get a more or less aggressive bearish constellation.
In case the concept is still not clear please do not hesitate to ask again.
When selling a ratio spread, the risk is high in the beginning and significantly lower close to expiry. Thus, it makes sense to me to reduce the excess over time. But I am not sure to what degree, as I have to find out how the management of the spreads works in practice. How often I sell parts of a spread to achieve a more aggressive long or short position, and at what time I get out.
I will begin with 6x, and try to find out what value is suited in the long run. As the ES program is only a part of my account I have some flexibility.
After the holidays I hold the following short option position:
LHG C66
I expect to expire the LHG future somewhere between $60 and $65.
The report just before Christmas was bearish, the 3 most recent export reports were the weakest in 2016. Mexican Peso is weak, which makes hogs expensive for Mexicans.
I am looking to sell some LCG puts between 112 and 113 for the LCG, if given an opportunity.
+2190 / -2140 / -2080, expiring on March, 31st (2 lots),
+2195 / -2135 / -2080, expiring on April, 21st (1 lot).
Unfortunately, not all weekly options expiring in April are trading at this time of the year. Does someone know about the systematics when the different expiries begin to trade ?
