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Diversified Option Selling Portfolio


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Diversified Option Selling Portfolio

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  #1541 (permalink)
Market Wizard
Linz Austria
 
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myrrdin View Post
I did not write anything in this tread recently, and the reason is simple: i did not sell any options to report about. The environment is extremely volatile, and difficult to predict. Thus, I prefer other strategies. See in the commodity section.

Once in a while, the best trade is staying on the side line.

Best regards, Myrrdin

Nothing to add. I still do not hold any short options position.

There are expensive options, eg. in the meat markets, but the risk of selling them is not in an acceptable relation to the potential profit. I preferred times when the options were cheaper, but the outcome was easier to predict.

Best regards, Myrrdin

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  #1542 (permalink)
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Hi myrrdin, thanks for the update.
I sold put options in Copper and Silver 3 weeks ago and I am looking forward to the expiry of a put and a call options for coffee C in less than 3 weeks. I was considering selling put option on Sugar 11 one week ago but I missed the right timing.
I have been doing business as usual during this time but was impacted by Crude Light Oil (WTI) put options (july expiry) despite a long fight to protect it (with short futures). The "coup de grāce" was indirectly delivered by my broker when he suspended/prevented trading on June futures for an undetermined period that lasts in fact for approx. 5 days. If the same was to happen let's say in July and I couldn't rely on protecting my put options with short futures then it was not possible anymore to go on like this and I exited my positions with losses. Crude Light Oil was a real disappointment as on top of that, I was convinced up to recently that prices will go down another time (then I would have sold some naked put options) but it didn't happen that way.
I confirm that these times were quite difficult. At least long term investment in physical ETF on gold, silver and gold miners are doing fine despite a big alert in the middle of the crisis (liquidity issue of some investors).
Edit: Still no trade initiated on spread futures, I am monitoring dec/jul for coffee C but it sounds as a gambling to me at least for the time being....Inter commodities spread Gold/Silver would have been a nice play but probably too late now

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  #1543 (permalink)
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Sagal View Post
Hi myrrdin, thanks for the update.
I sold put options in Copper and Silver 3 weeks ago and I am looking forward to the expiry of a put and a call options for coffee C in less than 3 weeks. I was considering selling put option on Sugar 11 one week ago but I missed the right timing.
I have been doing business as usual during this time but was impacted by Crude Light Oil (WTI) put options (july expiry) despite a long fight to protect it (with short futures). The "coup de grāce" was indirectly delivered by my broker when he suspended/prevented trading on June futures for an undetermined period that lasts in fact for approx. 5 days. If the same was to happen let's say in July and I couldn't rely on protecting my put options with short futures then it was not possible anymore to go on like this and I exited my positions with losses. Crude Light Oil was a real disappointment as on top of that, I was convinced up to recently that prices will go down another time (then I would have sold some naked put options) but it didn't happen that way.
I confirm that these times were quite difficult. At least long term investment in physical ETF on gold, silver and gold miners are doing fine despite a big alert in the middle of the crisis (liquidity issue of some investors).
Edit: Still no trade initiated on spread futures, I am monitoring dec/jul for coffee C but it sounds as a gambling to me at least for the time being....Inter commodities spread Gold/Silver would have been a nice play but probably too late now

You may want to consider exiting short options before expiration. Waiting for the last little bit of premium in these extremely volatile times is very risky without much reward. Studies have been done that show exiting early, around 50% drop in premium, in many cases will give you a higher rate of return than holding to expiration.

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  #1544 (permalink)
Market Wizard
Linz Austria
 
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ron99 View Post
You may want to consider exiting short options before expiration. Waiting for the last little bit of premium in these extremely volatile times is very risky without much reward. Studies have been done that show exiting early, around 50% drop in premium, in many cases will give you a higher rate of return than holding to expiration.

I fully agree.

Even if I do not have any use for the money, I buy back short options at 10 % of the original value. The last few days can be very painful ...

Usually I buy back short optoins between 50 % an 10 % of the original value. I made quite good experience buying back in many small steps. This reduces risk before it gets critical. (The software of my broker allows for placing one order to liquidate one option at 50 %, the next at 48 %, 46 % etc.)

Best regards, Myrrdin

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  #1545 (permalink)
Strasbourg, France
 
 
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myrrdin View Post
I fully agree.

Even if I do not have any use for the money, I buy back short options at 10 % of the original value. The last few days can be very painful ...

Usually I buy back short optoins between 50 % an 10 % of the original value. I made quite good experience buying back in many small steps. This reduces risk before it gets critical. (The software of my broker allows for placing one order to liquidate one option at 50 %, the next at 48 %, 46 % etc.)

Best regards, Myrrdin

Thanks both for your feedback ron99 and myrrdin
I am not following this kind of strategy. I sell naked put or call options 4 to 6 months before expiry and I do not have so many good possibilities during the year. An example of what I target is 8 days ago something I missed Sugar 11 at a strike of 9.75 while price was around 10.2 for a short put option with expiry in September). I wouldn't go for a strike at 10.5 so this opportunity is over. Would I have taken it I wouldn't have sold it at 50% but at a minimun of 80% Why? Because 9.75 floor is not easily broken or if only briefly up to the expiry in September. So what would be the point to cash in only 50% in this case and not have good other opportunity in the same range? Currently there is no possibility I can see on commodities for short selling options (no options to take again HG Copper at 2.1 or Silver at 14 with a nice premium..). You even said the same myrrdin: today it is too volatile for you to get involved and it can go in any direction with a second wave of covid-19 and other lockdowns.

It comes back to the way of doing business/strategy:
1- not so often (around 12 times per year) with bigger premiums and deep OOM and long expiry date but with in my view a good ratio of profits/risk and not taking profits before 80%
or
2 more often, just a little bit OOM but with smaller premiums, with shorter expiry dates (I guess 1 to 3 months) and in my view a less good ratio of profits/risks but then taking profit at 50%
or
3 even as soon as the trend reverses (why not even taking profit at 30 or 20%?)

So I can notice, that I am still active in the commodities options (ok with losses due to a black swan event WTI/Brent) but with your strategy you are not active currently...

I may come to your strategy one day (I even experienced it with Cotton in February but it didn't go well, I never reached even 20% as covid-19 issue exploded), but for sure it is not a strategy I feel comfortable with. Main reason being more trading for reaching the same target.

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  #1546 (permalink)
Market Wizard
Linz Austria
 
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Sagal View Post
Thanks both for your feedback ron99 and myrrdin
I am not following this kind of strategy. I sell naked put or call options 4 to 6 months before expiry and I do not have so many good possibilities during the year. An example of what I target is 8 days ago something I missed Sugar 11 at a strike of 9.75 while price was around 10.2 for a short put option with expiry in September). I wouldn't go for a strike at 10.5 so this opportunity is over. Would I have taken it I wouldn't have sold it at 50% but at a minimun of 80% Why? Because 9.75 floor is not easily broken or if only briefly up to the expiry in September. So what would be the point to cash in only 50% in this case and not have good other opportunity in the same range? Currently there is no possibility I can see on commodities for short selling options (no options to take again HG Copper at 2.1 or Silver at 14 with a nice premium..). You even said the same myrrdin: today it is too volatile for you to get involved and it can go in any direction with a second wave of covid-19 and other lockdowns.

It comes back to the way of doing business/strategy:
1- not so often (around 12 times per year) with bigger premiums and deep OOM and long expiry date but with in my view a good ratio of profits/risk and not taking profits before 80%
or
2 more often, just a little bit OOM but with smaller premiums, with shorter expiry dates (I guess 1 to 3 months) and in my view a less good ratio of profits/risks but then taking profit at 50%
or
3 even as soon as the trend reverses (why not even taking profit at 30 or 20%?)

So I can notice, that I am still active in the commodities options (ok with losses due to a black swan event WTI/Brent) but with your strategy you are not active currently...

I may come to your strategy one day (I even experienced it with Cotton in February but it didn't go well, I never reached even 20% as covid-19 issue exploded), but for sure it is not a strategy I feel comfortable with. Main reason being more trading for reaching the same target.

Currently I prefer trading outright futures or spreads. There will be times when short options are appropriate again.

But there are many different ways to make money ...

Best regards, Myrrdin

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  #1547 (permalink)
Market Wizard
Linz Austria
 
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We know much more about COVID19 than we did in February / March. We will find "softer" ways than a complete lock-out for the whole nation to avoid a second wave during summer. Additionally, infections are not likely outside of houses. I am rather optimistic for the next couple of months that there will be no severe damages to the economy. I am not so sure about the winter 2021.

According to MRCI data, volatilities for a number of commodities is still rather high. Thus, I intend to enter some short option trades in the near future.

Size of the trades will be limited to approx. 1 % of the account size due to the still relatively high level of risk. Normally my maximum size is 3 % of the account size per trade.

I will enter these trades at Interactive Brokers. This broker has very high margins for naked short options. Thus, I will enter option spreads.

I will comment on the trades in separate posts to be able to comment on them later.

Best regards, Myrrdin

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  #1548 (permalink)
Market Wizard
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Volatility for Crude Oil is still high. I expect CL between $30 and $50 for the next couple of months.

Implied volatility has been at 90 - 100 % some weeks ago , and has come to approx. 50 %. In recent years, it has spent most of the time between 25 and 35 %.

COT data is slightly bearish, but far away from extreme values.

Currenty I do not give much on seasonal charts, as they are overruled by the influence of COVID19.

I will enter the short CLV P20 / C60 strangle early next week for $600 - $700 each.

Best regards, Myrrdin

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  #1549 (permalink)
Market Wizard
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As discussed earlier, Natural Gas seems to be very cheap.

COT data is neutral.

I intend to sell the NGU P1.5-1.25 on a further move downwards.

Best regards, Myrrdin

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  #1550 (permalink)
Market Wizard
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The contract low For Kansas Wheat (September contract) is at 431.75 . Currently, the price is only a few cents above this value.

Kansas Wheat is approx. 50 c cheaper than Chicago Wheat, which is extremely unusual. Wheather for Minneapolis Wheat looks less than perfect, which should support the price of KW.

Harvest advances, and a harvest low should be near.

I intend to sell the KW P420-380 early next week.

Best regards, Myrrdin

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