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I took trade on December crude oil from the newsletter of James Cordier, which is delivered in nice PDF format to my mailbox on Feb 2nd. The trade is strangle (SELL 76C/45P on December crude oil futures contract) with a premium of about $1000 per strangle.
My strangle position was filled at 0.55 for 76C, and 0.53 for 45P, when December crude oil is at about $62. After that the crude oil price dropped about 10% to $55.58, with the premium of 45P tripled from 0.53 way up to 1.6. At the same time, as the volatility surges, the premium of 76C didn't drop enough to cancel the major part of the loss originated from 45P leg.
I walked through the website of James Cordier just now. And (SURPRISINGLY) I found the trade he recommended has been changed to 76C/40P. It is at https://www.optionsellers.com/why-crude-oil-should-be-a-staple-in-your-option-selling-portfolio-in-2018/ You search for the "Conclusion" then you can get to the trade quickly. It is different from what the newsletter he sent out 1 week ago (everything else in the article seems the same, only that number changed). The downside has been changed from 45P to 40P.
It is a $5 strike difference. If you were in my shoe, what would you do next. Your ideas are well appreciated.
The total strangle position takes about 10% of the total margin in my account. The total margin in use is about 35%.
Many thanks to your feedback.
Best Regards
David
Can you help answer these questions from other members on NexusFi?
The major mistakes have already been made. Never trade a suggestion made by someone else (even if he has a famous name), if you do not fully understand it. Define an exit strategy of each trade before entering it. And avoid overtrading.
COT data were clearly bearish recently, and in this case I would not sell puts. It is very common that the price of a commodity moves down severely in this case.
I suggest to risk 1 - 3 % of the account value per trade. It looks like you have already lost more than this.
I suggest you close the trade, condider the loss as a fee for learning, and re-consider your strategy.
There are two threads in this forum which you might want to study: Ron's "Selling Options on Futures" and my "Diversified Option Selling Portfolio". Reading through these threads is certainly worth the time, and would have avoided you entering in these trades. Please feel free to ask your questons in these threads.
