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Larger Portfolios - How to Scale Option Selling Strategy
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Larger Portfolios - How to Scale Option Selling Strategy

  #1 (permalink)
Trading Apprentice
Omaha NE
 
Trading Experience: Advanced
Platform: Think or Swim
Favorite Futures: Selling Option Premium
 
Posts: 8 since Jan 2018
Thanks: 0 given, 20 received

Larger Portfolios - How to Scale Option Selling Strategy

I primarily sell option premium as a core strategy and am using ToS as my platform. They offer 10 products with options, so I am trying to make the most of them. I usually trade 1 lot strangles, but often I will have 2 strangles on in each product in different expiry months. For example I have a March strangle in CL and April strangle in CL and will open a May strangle in CL when the March comes off.

I am comfortable with this strategy for a $50k portfolio, but I am having a hard time finding ways to scale without simply putting on more risk with size or duplicate positions. Especially in this low vol environment where option premium is slim. I am interested to learn how others are diversifying their portfolios in addition to the option selling strategy. I can trade stocks and options too, but like the margin requirements of futures.

Does anyone care to share how they would allocate $100K or more in an overall portfolio where the focus is option selling? thanks in advance, and I appreciate the info that I am finding on this forum.

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
Linz Austria
 
Trading Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker/Data: DeCarley, IAB, RJO
Favorite Futures: Commodities
 
Posts: 1,413 since Nov 2014
Thanks: 1,761 given, 1,753 received
Forum Reputation: Legendary



Soycorn View Post
I primarily sell option premium as a core strategy and am using ToS as my platform. They offer 10 products with options, so I am trying to make the most of them. I usually trade 1 lot strangles, but often I will have 2 strangles on in each product in different expiry months. For example I have a March strangle in CL and April strangle in CL and will open a May strangle in CL when the March comes off.

I am comfortable with this strategy for a $50k portfolio, but I am having a hard time finding ways to scale without simply putting on more risk with size or duplicate positions. Especially in this low vol environment where option premium is slim. I am interested to learn how others are diversifying their portfolios in addition to the option selling strategy. I can trade stocks and options too, but like the margin requirements of futures.

Does anyone care to share how they would allocate $100K or more in an overall portfolio where the focus is option selling? thanks in advance, and I appreciate the info that I am finding on this forum.

Diversification is an important topic (for large and for small accounts).

Thus, in addition to my short option trades, I hold some outright and spread trades. Especially inter-commodity spread trades show no significant correlation with short option trades. You find many of my trades in the commodities section of this forum (eg. threads energies, grains & beans, softs, seasonal trades).

Currently I hold the following positions (in Addition to the short option trades):

RBN-HON,
LCJ-LHJ,
NGN-NGJ,
KWN-WN,
KWZ-MWZ,
SN-SX (via options),
CCH,
CTH.

Best regards, Myrrdin

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  #4 (permalink)
Elite Member
Dallas, Texas
 
Trading Experience: Intermediate
Platform: TOS
Favorite Futures: AAPL, /ES, IWM, SPY Options
 
Posts: 328 since Oct 2012
Thanks: 552 given, 172 received

Diversification is tough for me with my trading account, trying to trade multiple instruments across multiple sectors is challenging for me. I focus on a couple equities, AAPL, FB, index SPY, IWM and /ES options.

My investment account is where I am diversified, index funds VTI, VWO, bonds funds, I did try to incorporate looking at beta in the CAPM but that is waste of time for me at least.

In all honesty the way equities move in lock step of the overall market now, it is hard to diversify in sectors or even international funds. When the US market is down so are the majority of sectors and international funds

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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  #5 (permalink)
Trading Apprentice
London, UK
 
Trading Experience: Beginner
Platform: IB (TWS), DeCarley(Zaner)
Favorite Futures: CL, GC, meats, grains
 
Posts: 35 since Jan 2018
Thanks: 133 given, 30 received


Soycorn View Post
I am comfortable with this strategy for a $50k portfolio, but I am having a hard time finding ways to scale without simply putting on more risk with size or duplicate positions.....

Does anyone care to share how they would allocate $100K or more in an overall portfolio where the focus is option selling? thanks in advance, and I appreciate the info that I am finding on this forum.

Scaling from $50K to $100K isn't that big a jump. Going to $500K or $1million is a challenge. If the main focus is purely option selling (as opposed to futures spreads, outrights etc), then I would suggest :

- choosing lots of different underlyings (grains, energies, softs, metals etc), not forgetting the less obvious ones like Robusta Coffee, Gas-oil, etc etc
- ensuring the right position sizing within each sector
- ensuring proper diversification across commodities - eg having lots of soybean and corn nakeds at the same time is not real diversification, but having say soymeal and NG would be better (less correlation)
- using different types of shorts - some naked strangles, some credit spreads, some iron condors, maybe ratio spreads too. I do all of these, but hope to reduce the nakeds, as my temperament isn't what it used to be.
- using different expiries - selling some short term (eg less than a month), some medium, and some longer term options (180 days). Personally, I don't sell options further than around 90 days as the time decay is too slow.
- using different strikes - some with higher deltas (I will often sell credit spreads where the shorts are at 40 delta), some medium, and some very low deltas.

Good luck.

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  #6 (permalink)
Market Wizard
Linz Austria
 
Trading Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker/Data: DeCarley, IAB, RJO
Favorite Futures: Commodities
 
Posts: 1,413 since Nov 2014
Thanks: 1,761 given, 1,753 received
Forum Reputation: Legendary


zxcv64 View Post
Scaling from $50K to $100K isn't that big a jump. Going to $500K or $1million is a challenge. If the main focus is purely option selling (as opposed to futures spreads, outrights etc), then I would suggest :

- choosing lots of different underlyings (grains, energies, softs, metals etc), not forgetting the less obvious ones like Robusta Coffee, Gas-oil, etc etc
- ensuring the right position sizing within each sector
- ensuring proper diversification across commodities - eg having lots of soybean and corn nakeds at the same time is not real diversification, but having say soymeal and NG would be better (less correlation)
- using different types of shorts - some naked strangles, some credit spreads, some iron condors, maybe ratio spreads too. I do all of these, but hope to reduce the nakeds, as my temperament isn't what it used to be.
- using different expiries - selling some short term (eg less than a month), some medium, and some longer term options (180 days). Personally, I don't sell options further than around 90 days as the time decay is too slow.
- using different strikes - some with higher deltas (I will often sell credit spreads where the shorts are at 40 delta), some medium, and some very low deltas.

Good luck.

To achieve a good diversification, it is important for me to include trading of outright futures and future spreads. This gives the possibility to trade commodities with very small open interest (lumber, orange juice, oats etc.), and the possibilty to trade spreads which are independent of the outrights (eg. 2C-S, KW-W, SI-GC, RB-HO).

Best regards, Myrrdin

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