NexusFi: Find Your Edge


Home Menu

 





Diversified Option Selling Portfolio


Discussion in Options

Updated
      Top Posters
    1. looks_one myrrdin with 812 posts (1,274 thanks)
    2. looks_two ron99 with 207 posts (489 thanks)
    3. looks_3 manuel999 with 109 posts (108 thanks)
    4. looks_4 TraderGriz with 66 posts (26 thanks)
      Best Posters
    1. looks_one SMCJB with 2.4 thanks per post
    2. looks_two ron99 with 2.4 thanks per post
    3. looks_3 myrrdin with 1.6 thanks per post
    4. looks_4 manuel999 with 1 thanks per post
    1. trending_up 281,189 views
    2. thumb_up 2,296 thanks given
    3. group 139 followers
    1. forum 1,598 posts
    2. attach_file 93 attachments




 
Search this Thread

Diversified Option Selling Portfolio

  #61 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651

Sold a small lot of the CLK P45 at 3.

I might add to the position at lower prices.

The line of 40 $ should hold for the December / January futures.

Best regards, Myrrdin

Started this thread Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Exit Strategy
NinjaTrader
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
Futures True Range Report
The Elite Circle
The space time continuum and the dynamics of a financial …
Emini and Emicro Index
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
61 thanks
Funded Trader platforms
39 thanks
NexusFi site changelog and issues/problem reporting
26 thanks
Battlestations: Show us your trading desks!
26 thanks
The Program
18 thanks
  #62 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651

I modified the ES put selling program in the following way:

I buy back at 25 % instead of 50 % to reduce fees.

I sell a new (small) position whenever the value of all ES puts has decreased by approx. 10 %. The reason behind is that in this way the size of the position is always 90 to 100 % of the target. Furthermore, with time there will be a larger number of different strike prices and entry / exit dates in the portfolio. Entries and exits are averaged.

I hedge the position from time to time at 50 or 100 % via short outright futures. This is not so much for raising profits, but for a good sleep at night. Currently I am hedged at 50 %, as the resistance at 2040 / 2050 might cause a drawback.

Questions or comments are - as always - highly welcome.

Best regards, Myrrdin

Started this thread Reply With Quote
Thanked by:
  #63 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651


Rolled the WH C6 to the WH C5.5, taking 61 % profit on the WH C6.

Best regards, Myrrdin

Started this thread Reply With Quote
  #64 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785


myrrdin View Post
I modified the ES put selling program in the following way:

I buy back at 25 % instead of 50 % to reduce fees.

But are you lowering your total profit for the year by doing this?

Reply With Quote
Thanked by:
  #65 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651


ron99 View Post
But are you lowering your total profit for the year by doing this?

I am not sure, and I would be interested in your advice in this regard.

What I have to consider is that I close trades sidnificantly more often than you do in case the market moves against us. I am out, when the options approximately double in value. This helped me to avoid severe losses in this summer, but of course several times I stepped out of a trade, where it would have been better to stay in the trade. But cost for commission, fee, and slippage rises - I have to pay it also for trades that I close with a loss.

I expect volatily markets for some months - more volatile than in spring. Thus, I might have to exit more often with a loss.

Can you roughly estimate the profitability of the second half of the way (from 50 % to 25 %) compared to the first half (from 100 % to 50 %) ?

I might reconsider this point.

Best regards, Myrrdin

Started this thread Reply With Quote
  #66 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651


ron99 View Post
But are you lowering your total profit for the year by doing this?

I had a short look at the Greeks. But I am no expert in this field, thus, please correct me if I am wrong.

Theta is the time decay in US$. Theta devided by price is the percentage the option loses value per day. High percentage should yield a good performance, not taking into account margin or price changes. Figures for the ESF:


strike theta price theta/price
1500 0,09 2,7 0,033
1600 0,13 4,5 0,029
1700 0,19 8 0,024

These figures show that strikes further out of the money show a higher time decay. As long as margin is not an essential criterium, it does not make sense to roll to higher strikes.

Deviding theta by margin, yields following result:

1500: 0,14 %
1600: 0,15 %
1700 0,16 %

There would be an advantage in exiting earlier and rolling to a closer strike, but this advantage would be small, and would partially be eaten up by commission, fees and slippage.

Any comment regarding this study is highly welcome.

Best regards, Myrrdin

Started this thread Reply With Quote
Thanked by:
  #67 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
Legendary Market Wizard
 
Experience: Advanced
Platform: TT and Stellar
Broker: Advantage Futures
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,041 since Dec 2013
Thanks Given: 4,375
Thanks Received: 10,192

Something to consider is that as options decay, the volatility tends to trend upwards. Hence theta gains are partially offset by Vega losses. (I believe the theorists call this the second order greek "Veta"). I think you will find that this phenonem will be higher the further out of the money you go, as not only does the Vol increase, but skew increases as well. Maybe something to consider.

On a different but partially related note I've been watching the ES options recently and am very surprised how negatively correlated volatility and price are. Market rallies and calls go down in value due to the drop in Vega! Very different to many of the energy markets I've traded where they are often positively correlated.

Reply With Quote
Thanked by:
  #68 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
Legendary Market Wizard
 
Experience: Advanced
Platform: TT and Stellar
Broker: Advantage Futures
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,041 since Dec 2013
Thanks Given: 4,375
Thanks Received: 10,192

The heat maps I posted also supported what Ron was saying.
I'll try and run some new ones tonite to post here and illustrate.

Reply With Quote
Thanked by:
  #69 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651


ron99 View Post
To get to 60% drop, 10% more, you have to wait 24 more days for just 10% more premium. And this was in an upward trending market.

Thanks a lot - this looks interesting. I would like to fully understand this issue, which I consider as essential.

To study why the step from 50 % to 60 % took so long it would help to see the chart of the ES contract at the time of the study. Du you still know the starting date for your study ?

We should make sure that there was no setback of the ES price after day 26, which might have caused the long way from 50 % to 60 %.

Best regards, Myrrdin

Started this thread Reply With Quote
  #70 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785



myrrdin View Post
Thanks a lot - this looks interesting. I would like to fully understand this issue, which I consider as essential.

To study why the step from 50 % to 60 % took so long it would help to see the chart of the ES contract at the time of the study. Du you still know the starting date for your study ?

We should make sure that there was no setback of the ES price after day 26, which might have caused the long way from 50 % to 60 %.

Best regards, Myrrdin

Each option month was started at about 90 DTE.

I am so sorry but that chart is wrong. I will post a correct chart as soon as I get it made.

EDIT: Amazing how a formula being off by one cell can affect so much of a table.

Here is the corrected table. I fixed the wrong Days Held numbers. I also changed the way I calculated MROI. Before I was using the settlement price on the day the option premium got below the required drop. Now I am using the percent drop. For example, if the starting premium was $100 and I am looking at a 50% drop, if the settlement was $40 I still used $50 to calculate the MROI. The old table used the settlement price.



The average MROI in the last line of the table are not the MROI you would get if you traded this way. They are just a simple average of each month's MROI.

Because of the timing of the contract, the ESV5 60 and 70% drops hit margin calls before hitting their exit point. If you remove the margin call negative MROIs then the averages for the 60% drop is 7.4% and for the 75% drop is 5.8%.

Interestingly, the ESX5 contract which started on 8/21/15 did not have a margin call. It was close.

I've attached the spreadsheet with all of the data. Check it to make sure I don't have any errors.

Waiting for a 75% drop lowers your MROI. And you definitely do not want to wait till the option expires (MROI 100% column)

Attached Files
Elite Membership required to download: ES MROI.xlsx
Reply With Quote
Thanked by:




Last Updated on May 26, 2022


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts