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I have been trying to come to terms with the idea of very deep OTM and 60-90DTE compared to the approach the I currently take (OTM and 30DTE) and have posted previously.
Ron and Kevin, would you be kind enough to comment on the following proposed CL Nov strangle, where the strikes are assigned, the premium, fees and the margin. My request to is try and further understand this approach. If possible would you answer the following questions from your experience.
1. It is my perception which (could be wrong and please correct me) that with such a large number of contracts and such a small premium that the value of the trade moves around significantly. Could you provide you view of how the value of a trade and margin over such a long DTE fluctuates?
2. Is the idea of such a Long DTE that it is more important to be deep OTM than to maximise time decay?
As you can see the posts in the group have sent me into a spin as I evaluate and question my adopted approach. This is a good opportunity for me to learn more about the key features of writing in terms of DTE and DOTM.
The ROI is very good on that strangle. I get 8.5% monthly ROI if you ride it to expiration. (Note I'm using $198 each for margin. That is the correct OX number. 20% over SPAN. Their system does not calculate spread option margin correctly.)
Tip. Option premium erosion happens quicker on CL puts vs calls. So I usually leg into the strangle by putting the puts on 1st and then later the calls.
Regarding legging in - if you were to leg in now on the puts how long would you wait to get the calls on? Would you wait for a price reaction or is it strictly based on time?
Thanks. I know you don't usually advocate doing covered trades but with the current situation in Syria could something like the following provide some extra protection at a reasonable cost:
Sell Dec 75 puts
Buy Dec 65 puts
Sell Dec 150 calls
Buy Dec 170 calls
Somebody left OX on Friday and never updated OX margins. They still have the margins from Thursday.
Using OX Trade Calc and having to do the margin for one set and then quantity of two and subtracting the two I get 208.56. But that is from Thursday.
Using SPAN I get 127 margin and 100 net premium. OX adds 20% to CL so that would make the margin 152.40. Using 4.96 for fees for each contract I get 7.0% monthly ROI.
This post follows a previous post. This chart compares XSP and USO 2013 to a 3 year seasonal average (2010 to 2012). I wanted to look at the index against USO following Ron's obserservation that the previously posted USO chart looked like the seasonality of the market. Well Ron was right. They look pretty much the same. I have also looked at the 15 and 30yr charts for CL from Moore which look quite different to the last 3 years. The purpose of this work is to try and better understand seasonality and how it might affect my approach to writing strangles on CL. All comments observations and or corrections are welcomed. (Please note that the chart is normalised so that the proptional moves of either the XSP or USO are based on a common datum.)