For research I tracked selling two -3 delta ESm0 puts (2560) and buying three -1 delta puts (2200) on Feb 20.

To be able to not have a margin call so far you would have had to have 7xIM. That would have reduced account balance by 94.4% on Feb 28.

ron99 

For research I tracked selling two -3 delta ESm0 puts (2560) and buying three -1 delta puts (2200) on Feb 20. To be able to not have a margin call so far you would have had to have 7xIM. That would have reduced account balance by 94.4% on Feb 28.

Thank you for the impressive study.

I think we agree that it is generally not a good time to sell options ...

There are better trades around.

Best regards, Myrrdin

myrrdin 

I think we agree that it is generally not a good time to sell options ...

It's all risk vs reward. Risk is extremely high right now but so are premiums. Question is whether the premiums justify the risk. We've had a 10 year bull market where selling puts has been a continual winner. Is that because Risk/Reward was in your favor or because the market has gone straight up? It seems like a lot of people want to put this trade on when they are confident the market is not going down, rather than when they are confident the risk/reward is in their favor.

For whats it's worth I sold the EW1 2875/3050 straddle on Fri 28th, expiring Fri 6th for 111.75 (settled tonight at 54.50). My breakeven on that was 2764 on the downside and 3161 on the upside. Lots of risk? Yes but I was very happy with all 3 potential outcomes. (My preferred outcome would be a 3040 value on Friday. In reality I will probably close or roll them before that). 111 points or approx 3.7% is a lot of premium to be paid for a 1 week straddle that needs a market move of greater than 6.7% in order to lose money! For curious minds I believe the IM requirement for this trade was $20630, so max return to IM was 27% which is massive when annualized. Even at 10x IM it's a 2.7% return which is 400% annualized. As I said it's all about risk/reward - hopefully I have this one right. Please don't think I'm trying to brag ~ I'm really not that guy, this was literally a tiny trade (I will say though that for every lot you trade at 111.75 it's equivalent to a 30 lot trade at 3.725!) which has happened to work out in my favor - I have other examples of trades that went just as terribly wrong. (I also sold June 99.25 Eurodollar calls at 8.5 on Friday that closed at 12.50 tonight! Urghhh!)

myrrdin 

There are better trades around.

Not in anyway trying to call you out (actually a big fan of yours) but what do you think the better trades are? Eurodollars/Fixed Income has been an incredible run but how much upside from here is there? Shorting equities is grabbing a Bull by the horns. You might eventually win but will it gouge your insides out first. The trade I keep hearing is credit with the obvious trade being short HYG?

SMCJB 

Not in anyway trying to call you out (actually a big fan of yours) but what do you think the better trades are? Eurodollars/Fixed Income has been an incredible run but how much upside from here is there? Shorting equities is grabbing a Bull by the horns. You might eventually win but will it gouge your insides out first. The trade I keep hearing is credit with the obvious trade being short HYG?

To me it seems that for at least some months the premiums of many short option trades do not justify the risk. As a consequence, I do not enter many of these trades, the only current exception being a small amount of short ATM hog put spreads ((LHJ P62-52, LHJ P64-54).

My personal favorites in recent months are inter-commodity spreads. I hold the RBN-HON (seasonal trade), various KW-W (all new crop - was extremely undervalued at -100 for the old crop), and SX-CZ (recent acreage estimates). And: There were times when I held a larger number of trades.

Best regards, Myrrdin

Selling strangles/straddles in a high vol environment is certainly a high reward play. Generally the timing does not matter.... since vol usually drops in a few days.. However, in this environment vol has stayed high with swings much larger than usual

Congrats to the poster above on the successful strangle. Here is additional input based on my trade which did not have good timing.
Sold the March ES 3300/30250 strangle on 2/25 (Tue)


Why:
Vol was high..close or at 100% from a IV rank (rank of IV based on history)
So called support at 3158 (swing high from Dec 2nd, 2019)

Mistake:
Premium too low: Only 40
Panic was so rampant should have seen that from a larger context and waited

Better trade: Like the poster above, better trade would have been Thu or Friday. Could have also centered the strangle better

Current State: After much wrestling, i should be able to come out on top (rolling calls, capturing directional moves through one side being naked for short periods of time i.e just have a naked call or put and then put it back on at a different strike, one outright scalp etc)

So just be careful IF you think this is an easy trade in such an environment since market timing and context is important
Also with this high a margin one could also question the whether the risk/reward is worth it

Managing short gamma/vol is not a fun game. I'm sure there were many people selling all the way down last week and then buying on the way back up on Monday! In this trade specifically (2875/3050 strangle at 111) I was happy having it put to me at 2764 or called away at 3161 so no management on my behalf at all. If you do want to manage the delta on ES options and have small positions, the micro contracts are great.

SMCJB 

For whats it's worth I sold the EW1 2875/3050 straddle on Fri 28th, expiring Fri 6th for 111.75

Just closed this today at 10. With the market all over the place today it seemed like a good time. Obviously a little early as its 4.85/5.5 right now.

Looking at next week, EW2 expiring Fri 13th, the same 2875/3050 strangle is only 87/89 (ES @ 2967) so over 20% cheaper than last week with a I believe a similar underlying level!

SMCJB 

For whats it's worth I sold the EW1 2875/3050 straddle on Fri 28th, expiring Fri 6th for 111.75 (settled tonight at 54.50).

Isn't that a strangle? Straddles are when strikes of put and call are the same.

Legendary thread here, and lots of great information. Thank you all
There seems to be a lot focus on selling OTM options.. so an OTM put if I am bullish..


Do any of you selling ATM options ? (perhaps if you have a feel your market timing is good)
There is a larger credit to collect, but less room for error..

ron99 

Isn't that a strangle? Straddles are when strikes of put and call are the same.

Litter pedantic but yes of course. Straddle the same strick, Strangle different strikes.

Sunday Night, Markets just opened.
ES Down 110 or almost 4%
Crude Down $9 or almost 22%
Have fun trading.