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I have been thinking about what will send the S&P 500 crashing. One thing could be Congress not being able to deliver the big corporate tax cuts everybody thinks is coming.
The GOP was thinking that they could pay for those tax cuts with a 20% border tax. But Goldman Sachs just gave the border tax a 20% chance of passing. There are many things wrong with it.
So if the corporate tax cuts are smaller than hoped for, I suspect that the S&P 500 will crash. Problem will be being able to time it.
My current strategy should make more money on the 2 longs than it loses on the short if the crash is severe and quick and happens not long after spread was entered. Just like Aug 2015. But that is many variables that have to happen correctly.
I'm think about adding a 3rd long that is lower DTE and a higher strike than the longs that are on currently. But priced so that the net spread position is still a credit. Doing that when it looks like market is about to crash. Problem with this is that you have a small window for this to work. If the 3rd long gets below 30 DTE then it doesn't do much.
If the market crashes the 3 longs will make far more than the short will lose. If the market doesn't crash the position will still make money. Just a lot less. But the chances of losing money on the spread are very small.
Just thinking out loud here. Nothing definite as far as strategy.
@ron99 I am thinking the same thing. I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings which caused the recent run up in the markets. If that doesn't happen the drop could be quick.
I was also thinking of better way to protect my put selling, but I was actually looking at it from the other side. My thoughts were doing a debit spread closer to ATM but much further out in time only because the theta would be lower. The disadvantage is of course is that the protection is limited.
I am not looking to profit if the market crashes. I just want enough protection that I will survive in decent shape that I can keep trading
I think the tough part is determining how much of your portfolio do you want to protect and balancing that with how much you want to pay to do so as any hedging eats into profits. But that is much better than getting wiped out the next black swan.
A thought about treating the tax problem and the unpredictability of Mr. Trump in a different way.
I would assume that a corporate tax cut is more important for the small and medium sized companies, as the large international corporations operate internationally and do not pay a lot of taxes any way. These large companies might profit from the possibility that they may tranfer money back into the US. This step is not as expensive for Mr. Trump
as a tax cut, and Mr. Trump seems to like to help the big companies.
If my thought are correct, it could be more interesting to sell puts for the Dow Jones Index instead of the S&P500.
A different approach would be to sell puts for a European index. There are elections in France soon, but afterwards the European markets might be quieter and more predictable than the US markets. Additionally, funds seem to be invested underproportionally in Europe compared to the US.
Just some thoughts. I did not check the availability of puts suited for option selling.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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He's also promosed that "Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class” but every plan the senate has proposed to date is a massive absolute tax cut for the upper class.
A book like this is the distillation of a veteran's knowledge, and it's one of the best options books I've ever seen. It's a highly practical perspective on options trading, but it also digs into the details. You'll find concrete advice for managing positions, alongside discussions of second order greeks like gamma and vanna, with thoughts about what volatility and greeks actually mean. I can see this book being a revelation for the new options trader, and adding to the insight of the seasoned trader. If you don't trade options, then the lessons of volatility, pricing, and risk management are still relevant to you.
I think about raising the profitability of my stocks account by selling OTM index call options. The account is a margin account at IB. As for principle reasons I buy stocks only for cash in this account there is enough margin available.
I think about selling ES call spreads with a delta of 6 – 8 % and approx. 100 DTE. Currently the ESM C2650-C2550. I intend to hedge 50 to 100 % of the delta of the stocks. Buy back and sell again, when the calls are at 50 %.
Any thoughts ?
Would it be preferable to sell SPX options ?
Would you use other deltas or DTE ?