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Diversified Option Selling Portfolio


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Diversified Option Selling Portfolio

  #1101 (permalink)
Calamari88
Henderson, NV, USA
 
Posts: 63 since Feb 2015
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Is there a Greek that will help predict how much a strike could increase in value when the underlying moves against it compared to another strike? For example during the hurricanes some of the cheap OJ and Cotton options increased in value percentage-wise more than some of the closer more expensive options. Other times it's the opposite where the less expensive, further out strikes are less affected by a move. As option sellers we are of course looking for which strikes have the most resistance against change and I wonder which Greek helps figure that out.

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  #1102 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
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Trading: Commodities
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Calamari88 View Post
Is there a Greek that will help predict how much a strike could increase in value when the underlying moves against it compared to another strike? For example during the hurricanes some of the cheap OJ and Cotton options increased in value percentage-wise more than some of the closer more expensive options. Other times it's the opposite where the less expensive, further out strikes are less affected by a move. As option sellers we are of course looking for which strikes have the most resistance against change and I wonder which Greek helps figure that out.

Usually the OTM options move faster than the ATM options.

Thus, you have to be careful when determining the size of positions. You could get margin problems even if the option far out of the money.

Best regards, Myrrdin

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  #1103 (permalink)
 manuel999 
Germany
 
Experience: Intermediate
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Trading: Options on futures
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Calamari88 View Post
Is there a Greek that will help predict how much a strike could increase in value when the underlying moves against it compared to another strike? For example during the hurricanes some of the cheap OJ and Cotton options increased in value percentage-wise more than some of the closer more expensive options. Other times it's the opposite where the less expensive, further out strikes are less affected by a move. As option sellers we are of course looking for which strikes have the most resistance against change and I wonder which Greek helps figure that out.

Is that not the Delta and the Gamma?
Delta: the amount an option price is expected to move based on a $1 change in the underlying stock.
Gamma: the change in the delta on a $1 change in the underlying stock.

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  #1104 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
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Currently I hold the following positions in the short option portfolio:

LHZ C66
LHG P60
Longterm. The February contract looks undervalued, although it might see the 60 again before turning upwards. Cash is weak. Intend to sell LHG calls at significantly higher price of the underlying.
Meanwhile I added LHZ C66 as a hedge of the LHG puts, as cash price remains weak.

LCZ P104
LCZ C124
LCG P102
LCG C134
Longterm. Rolled the puts up a bit, and added calls, using the higher volatility before the Cattle on Feed-Report end of last week. Looks as it was a good move as the report was bearish.

CLH C61-C71
Longterm. No Intention to add short puts in the near future.

Two small lots of ES ATM put and call spreads. I hold them in my stocks account, where a Delta-neutral strangle has the same (even a bit smaller) margin as an outright position. Took profit recently and added a new position in the January contract.

I hold a number of further positions, but - due to the low volatilities - I prefer outright future positions or future spreads.

Best regards, Myrrdin

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  #1105 (permalink)
Calamari88
Henderson, NV, USA
 
Posts: 63 since Feb 2015
Thanks Given: 91
Thanks Received: 33


myrrdin View Post
Currently I hold the following positions in the short option portfolio:

LHZ C66
LHG P60
Longterm. The February contract looks undervalued, although it might see the 60 again before turning upwards. Cash is weak. Intend to sell LHG calls at significantly higher price of the underlying.
Meanwhile I added LHZ C66 as a hedge of the LHG puts, as cash price remains weak.

I'm not sure I've seen this type of spread. Are both these options short? What are the advantages of this set-up?

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  #1106 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
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Calamari88 View Post
I'm not sure I've seen this type of spread. Are both these options short? What are the advantages of this set-up?

Both of these options are short. I will try to explain the concept of this trade:

In the meat markets, the indvidual futures for different months trade more or less independently from each other. In comparison, futures for different months in the metal markets trade more or less synchronized. The reason is that it is more difficult to store meat than to store metals.

It takes some months from the start of "production" of hogs until they can be sold. This period of time is fixed, as the meat cannot be stored in large volumes.

In Q4 there will be too much meat, cash price moves downwards since middle of July, price for delivery in December more or less follows cash price. This is a normal seasonal behaviour, which is intensified this year, as two new plants that started this fall will still not be up to capacity. In Q1/2018 there will be less meat available, thus, price for the February contract should move upwards. I expect the December contract to expire somewhere below $55, and the February contract somewhere above $65.

As cash price affects all contracts to a certain degree such spreads help to use one option as a hedge for the other.

Best regards, Myrrdin

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  #1107 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
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Trading: Commodities
Posts: 1,938 since Nov 2014
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Thanks Received: 2,651

Further plans for option selling:

Seems like sufficient rain will come to Brazil to allow for widespread flowering. Coffee price should remain below $150 for the next couple of months. I intend to sell calls above the market for the March contract.

I am also looking at selling Gold strangles, as there is no severe inflation in sight, and Gold does not react strongly anymore after news from North Korea. Unfortunately premiums for puts are very low. Thus, I am not sure about this trade.

Best regards, Myrrdin

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  #1108 (permalink)
VolumeRider
Cologne + NRW/Germany
 
Posts: 7 since Sep 2017
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myrrdin View Post
Further plans for option selling:

Seems like sufficient rain will come to Brazil to allow for widespread flowering. Coffee price should remain below $150 for the next couple of months. I intend to sell calls above the market for the March contract.

I am also looking at selling Gold strangles, as there is no severe inflation in sight, and Gold does not react strongly anymore after news from North Korea. Unfortunately premiums for puts are very low. Thus, I am not sure about this trade.

Best regards, Myrrdin

Hi myrrdin,

i have red some of your posts, and have to thank you first for great contant, which is close to my understanding of Markets and analyses Methods.

Also, have had similar ideas about menrioned trades.
Regarding Gold: Leging in, would be nice. First, Call Ratio, after the Market declines, sell some Puts. That is at least what i am going to do next couple of weeks.

Regarding Coffee, well, I like it, but the liquidity and spreads are not that great, so i tend to, sell Ratios rather then to go naked, but, i hope you can give me some advice in this case.


Also,
I build up Call Ratio on CL, and going to add some short calls to that, if prices are going to rise. Basicly on the assumptions of fundamentaly bearish Crude Oil and temporary, short term, rallyies on Korea and Hyrican news.
currently 1:4 Position, with 60 Long, 3x63 Short and 1x65 Short. Looking for Strike 70.. But if the Prise will close below 49.70, below current Range, i going to add some Short Calls OR/AND close long call.

Secondly, i have a "kind of" PUT butterfly Construction on Nov Corn, speculating on Price Range between, 355-345. I like the Risk Reward and Probability of it. I do not wait till expiration.

Best Regards
Alexander Martens

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  #1109 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
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VolumeRider View Post
Hi myrrdin,

Regarding Gold: Leging in, would be nice. First, Call Ratio, after the Market declines, sell some Puts. That is at least what i am going to do next couple of weeks.

Regarding Coffee, well, I like it, but the liquidity and spreads are not that great, so i tend to, sell Ratios rather then to go naked, but, i hope you can give me some advice in this case.


Also,
I build up Call Ratio on CL, and going to add some short calls to that, if prices are going to rise. Basicly on the assumptions of fundamentaly bearish Crude Oil and temporary, short term, rallyies on Korea and Hyrican news.
currently 1:4 Position, with 60 Long, 3x63 Short and 1x65 Short. Looking for Strike 70.. But if the Prise will close below 49.70, below current Range, i going to add some Short Calls OR/AND close long call.

Secondly, i have a "kind of" PUT butterfly Construction on Nov Corn, speculating on Price Range between, 355-345. I like the Risk Reward and Probability of it. I do not wait till expiration.

Best Regards
Alexander Martens

Gold: I agree, current options price for puts is too low to enter a trade.

Coffee: Here it is important to keep the lot size small. Coffee price can make large moves, and there is important rain in the forecast, but it has not materialized yet. I prefer to sell a small number of naked call options. Bid / ask spreads are significant for coffee options, and, thus, I like to trade a small number of them to keep slippage low.

Crude Oil: It is important for me to limit risk, as there might be events that make CL move upwards strongly. Not because of supply & demand, but because of psychology. Thus, I buy one call for each call sold.

Corn: I thought about selling strangles, but premium was too low in my opinion. Currently I trade grains & beans with futures and future spreads (see section "Commodities Futures Trading" at this site).

I assume you are customer of IAB, as you use TWS as your platform. Here it is almost mandatory to limit risk, as margin for naked options is huge. I would expect that also ratio spreads (1 long option and several further out of the money short options) use a lot of margin.

Best regards, Myrrdin

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  #1110 (permalink)
Calamari88
Henderson, NV, USA
 
Posts: 63 since Feb 2015
Thanks Given: 91
Thanks Received: 33



myrrdin View Post
Further plans for option selling:

I am also looking at selling Gold strangles, as there is no severe inflation in sight, and Gold does not react strongly anymore after news from North Korea. Unfortunately premiums for puts are very low. Thus, I am not sure about this trade.

Best regards, Myrrdin

I'm probably going to strangle June Gold. Which month are you looking at?

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