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 280,473 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

  #971 (permalink)
Calamari88
Henderson, NV, USA
 
Posts: 63 since Feb 2015
Thanks Given: 91
Thanks Received: 33


myrrdin View Post
I usually use the order of magnitude of a 100 % draw-down. I like having a strong support / resistance in the underlying, which I use as criterium to exit.

Furthermore I buy back an option in case fundamentals change significantly, or if I do not understand the price movement anymore.

Best regards, Myrrdin

Thanks Myrrdin, I've been working with a 5x multiple of premium as my exit point. While this allows for a high win rate when I do have a loser it wipes out a great deal of prior profits and takes much time to recoup. It also causes me amplified stress watching positions go against me. I very much appreciate your input as it gives me much to think about.

I'd like to set realistic expectations so I am curious - how percentage of your trades have a 100% draw-down?

Reply With Quote
The following user says Thank You to Calamari88 for this post:

Can you help answer these questions
from other members on NexusFi?
NexusFi Journal Challenge - April 2024
Feedback and Announcements
Request for MACD with option to use different MAs for fa …
NinjaTrader
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
ZombieSqueeze
Platforms and Indicators
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Retail Trading As An Industry
58 thanks
Battlestations: Show us your trading desks!
55 thanks
NexusFi site changelog and issues/problem reporting
48 thanks
What percentage per day is possible? [Poll]
31 thanks
GFIs1 1 DAX trade per day journal
29 thanks

  #972 (permalink)
rajab
westhills california US
 
Posts: 94 since May 2015
Thanks Given: 130
Thanks Received: 20


myrrdin View Post
I intend to sell an option with 90 DTE. Could be corn or coffee or an index. could be calls or puts.

My account size is $ 100,000.

The price of the option is $ 400. I intend to buy back the option at a price of $800 (or lower in case of a change in fundamentals etc.).

If I risk 3 % of the account size = $ 3,000, I would sell 7 options = $2,800. Risk would be 2,800 plus fees.

Best regards, Myrrdin

So do you Incorporated Ron's strategy in to this 3% rule or you do not use the 6 times IM at all? Because what comes to my mind is that with the 3% rule it is hard to stay fully invested at all time. I think its a great risk management strategy.

Thoughts?

Reply With Quote
  #973 (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



TraderGriz View Post
I think a key point, at least for me is if I no longer understand the movement. I have been in those situations an contemplate holding my position or getting out. Those are wise words myrrdin!

There are many trades that I exit (or reduce the size of the position) before reaching the stop loss (eg. 100 % draw-down) or the normal profit taking point (usually something between 50 % and 90 % of potential profit). Reasons can include (additionally to the reasons mentioned in the earlier post):

An important report is approaching,
there is a strong reversal in the chart,
the expiry approaches (eg. less than 30 DTE).

I am more inclined to exit trades if the profit target is almost met. I do not want to take a large risk for a few percent of profit potential.

I am a discretionary trader, who has some rules, but checks every trade on a daily basis.

Best regards, Myrrdin

Started this thread Reply With Quote
The following 6 users say Thank You to myrrdin for this post:
  #974 (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


Calamari88 View Post
Thanks Myrrdin, I've been working with a 5x multiple of premium as my exit point. While this allows for a high win rate when I do have a loser it wipes out a great deal of prior profits and takes much time to recoup. It also causes me amplified stress watching positions go against me. I very much appreciate your input as it gives me much to think about.

I'd like to set realistic expectations so I am curious - how percentage of your trades have a 100% draw-down?

It is not easy for me to give this answer, as in my reporting one trade can consist of a number of entries and exits. An example: This year I sold Cotton calls, and I was too early. I had to buy them back. Short time later I sold again at a higher strike and a later expiry, and could take profit of approx. 50 %. I sold two further lots, and could take profit somewhere around 50 %. Thus, the total trade was profitable. (When I roll trades the size of the new trade again is within the limits of 1 % for each 30 DTE.)

Looking back at my short option trades in 2017, I remember two trades that were not successful: One in the bond calls, and one in the Live Cattle calls. The percentage of these loosers is below 10 %, but remember: There are a number of trades with small profits or small losses.

Your statistics looks reasonable to me and is what I would expect.

For me the main reason why not to accept higher losses are, that it takes a long time to recover from a draw-down of 600 % (you have to make 12 trades with a profit of 50 % to compensate), and that my sleep is much better avoiding such draw-downs.

I hope this answers your question. If not, please feel free to ask again.

Best regards, Myrrdin

Started this thread Reply With Quote
The following 3 users say Thank You to myrrdin for this post:
  #975 (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


rajab View Post
So do you Incorporated Ron's strategy in to this 3% rule or you do not use the 6 times IM at all? Because what comes to my mind is that with the 3% rule it is hard to stay fully invested at all time. I think its a great risk management strategy.

Thoughts?

I sell ES puts, but I use my standard rules. As discussed with Ron some weeks ago in this forum, I would get very nervous seeing my account melting down, when the losses get close to 6 times IM. At this point, delta has increased, and a further severe move downwards of the ES would make it difficult to exit at 6 times IM. In such situations, my sleep suffers ...

My current stop for ES puts is at a break of support of the S&P index at 2400, as I consider this support an essential one. (Usually my stops are wider.)

My rule refers to the value of the options, as I trade with different brokers who have different margin requirements. Margin usually is a bit higher. Thus, you need approximately 10 open trades to be fully invested. (I assume to be fully invested at 50 % of the account value.) As I not only sell options but also trade outrights and future spreads, there is usually no problem to find enough trades. I currently hold 14 open trades, counting short options with different DTE or strikes for one commodity and spreads as one trade.

More important: It is not important to be fully invested. When selling options it is more important to have a small number of loosers. If you manage to have only two successful trades open permanently for the year this yields a profit of 24 % ...

Best regards, Myrrdin

Started this thread Reply With Quote
The following 4 users say Thank You to myrrdin for this post:
  #976 (permalink)
 manuel999 
Germany
 
Experience: Intermediate
Platform: TWS
Trading: Options on futures
Posts: 155 since Jul 2014
Thanks Given: 341
Thanks Received: 142


myrrdin View Post
It is not easy for me to give this answer, as in my reporting one trade can consist of a number of entries and exits. An example: This year I sold Cotton calls, and I was too early. I had to buy them back. Short time later I sold again at a higher strike and a later expiry, and could take profit of approx. 50 %. I sold two further lots, and could take profit somewhere around 50 %. Thus, the total trade was profitable. (When I roll trades the size of the new trade again is within the limits of 1 % for each 30 DTE.)

Looking back at my short option trades in 2017, I remember two trades that were not successful: One in the bond calls, and one in the Live Cattle calls. The percentage of these loosers is below 10 %, but remember: There are a number of trades with small profits or small losses.

...

Can I ask which percentages of your trades are selling options?
What else do you trade? Buying options/futures?

Thanks.

Reply With Quote
  #977 (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


manuel999 View Post
Can I ask which percentages of your trades are selling options?
What else do you trade? Buying options/futures?

Thanks.


Currently I hold 5 short options trades (often it is more), 3 outright futures trades, and 6 future spreads. Additionally I hold a very long term long future position in the Euro as a pure hedge for the US stocks in my stocks account.

I rarely buy options.

You find some information regarding my trades in outrights and spreads in the commodites section of this forum (eg. threads on Grains & Beans, Softs, Seasonals).

Best regards, Myrrdin

Started this thread Reply With Quote
The following 2 users say Thank You to myrrdin for this post:
  #978 (permalink)
rajab
westhills california US
 
Posts: 94 since May 2015
Thanks Given: 130
Thanks Received: 20

Anyone getting ready to sell Calls on Grains?

Reply With Quote
  #979 (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


rajab View Post
Anyone getting ready to sell Calls on Grains?

Not now.

Tomorrow is crop report.

And weather is still very important for MW, C, and S.

There will be enough time to sell calls when the crops are more or less made.

Best regards, Myrrdin

Started this thread Reply With Quote
The following 3 users say Thank You to myrrdin for this post:
  #980 (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



myrrdin View Post
Not now.

Tomorrow is crop report.

And weather is still very important for MW, C, and S.

There will be enough time to sell calls when the crops are more or less made.

Best regards, Myrrdin

What fundamental data do I currently look at before I sell options in the grains ? Corn as an example:

1. Tomorrow, Wednesday, an important report is published. No good time to enter a short option trade.
2. Pollination period for corn is usually in July. This year it is a bit late due to late planting, and might extend until the first week of August in the most important regions. I do not intend to sell calls until there are reliable weather reports for this period available.
3. Corn was planted a bit late this year. Thus, early frost could be a larger problem than in average years.
4. MW crop will be a desaster, but no-one knows how big the desaster will be. An exploding MW price could move corn price upwards.
5. COT data is not bearish. Funds have a lot of amunition to move corn price upwards if weather remains hot and dry.
6. I do not rely on seasonals in such situations. Seasonals are average values, but in weather markets deviations from the average can be huge.

Best regards, Myrrdin

Started this thread Reply With Quote
The following 6 users say Thank You to myrrdin for this post:





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