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Does not work in ES. Short calls in ES have very poor ROI.
For example, selling a July ES 2270 call, delta 0.0324, premium of only 0.85 and IM of 1599.
A July ES 1640 put, delta 0.0310, premium of 3.50 and IM of 692.
But does work in many other commodities. It would give higher ROI if you can do both.
You would lose the margin reduction of the strangle when you closed one side of the strangle.
But be careful reducing margin because then you have less excess to cover market moving against you. The premiums we sell for on the winning side don't cover much of the increase in margin and loss of premium on the losing side.
In my second example margin was increasing by $800-$1200 when ES dropped 115 in 5 days.
You said awhile ago you only use month to sell ES puts. Do you use weeklies to roll?
Could you elaborate on your technique on how you put positions on? You said you don't have them all on at once but if you're only using month contracts then you vary strikes? at different times of month?
My fear is the timing and losing on the position so I would have to close or roll. Your answer on the above would I hope help me understand how you accomplish this scaling method.
Having to roll happens rarely. If you keep the excess when you acquired the position for the entire time you have on the position, you should be covered for at least a 160-170 point drop in ES futures (depends on how fast it drops). That has only happened once since the recession. Once in almost 6 years. And that time (gov shutdown) was very predictable and you should not be holding short puts during that time. Same for the recession.
For example, if the IM when you acquire the option is $700, then you should keep $2,100 of your balance for that position the entire time you hold that contract. That is your safety net.
I keep track of that excess with my Access database. You could also do it in Excel or other spreadsheet.
Thank you.
I try to apply your approach to another commodities.
For example, HEN 15 (DTE = 90 day)
Put 58 at 0,175 (delta -0,03)
Call 104 at 0,15 (delta 0,03)
Premium = 0,325 (130$) less commissions
Margin = 124 x3 = 372$ (from Zaner platform)
Monthly ROI = 130/372*100/90*30 = 11,6%
Target (50% drop) = 75$
$248 excess is not enough to cover the market moving against you. If HEn moves down by 8 (happened in 2013) that excess is more than gone. The IM for a 66 put is 338. Plus the premium is $180 higher.
Thats mean that you are looking not only for low delta but also for such amount of excess than can cover a big move down (for puts)?
For example, HEn Put 66 witd delta = -11. IF HE drop for 8 p, Put 66 value will rise by 352$ (11% from 400 = 44 x 8 = 352$)
Thanks Ron for sharing.
Sorry I don't understand.
1: What is MROI?
2: "for the first day the option settled below that percent drop."
What is the percent drop? the percent of market drop?
Thanks Ron, one more question: Those numbers in red is the percentage loss of the whole account value or is it MROI when you exit the position with certain percentage of premium collected?