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There is s good reason that volatility in the meat markets is high.
I sell close to the money if I have a clear opinion about the next move of the underlying. And I sell OTM, if I predict a more or less sidewards market, but I am not so sure about the direction. And in case I want to make use of a high volatility. Advantages of selling ATM: Less margin; smaller movement of option price (compared to OTM options) in case of large move of the price of the underlying. Advantage of selling OTM: They usually loose value quicker.
I prefer selling approx. 100 DTE, and to buy back at 50 %. Helps me to sleep better.
I hold the short NGX C3. This trade should be supported by seasonals and by El Nino. The probability of this phenomenon in fall / winter has been increased to 70 % recently.
Regarding Live Cattle, I just sold the LCZ P106. In my opinion, LC price should move upwards slowly for some weeks. But watch the ES future: In case it moves downwards severely LC often follows.
I am currently long wheat via the WZ8-WN9 spread. Weather in all wheat producing countries with the exception of the US does not cooperate.
I rarely sell Gold options. It looks almost like a currency to me, and my longterm results show, that I am not good in sellling options on currencies.
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I have a Real Vision subscription (well worth the money if you can afford it) and most of the people they interview have generally been bullish gold for a while now - just as it has slipped 15% in the last few months!
Used to be that X was the first month of winter with VX being nearly as wide as XZ. Now it seems that X is an orphan, not summer but not winter, which kind of makes sense given that first 2 weeks are often injections, while last 2 weeks withdrawals.
I don't understand selling options so close to ITM, which are now ITM. You might as well do futures. The chances of those trades being losers is so much higher than further OTM options.
I agree. Selling options ATM is close to trading futures. But in case of a high volatility it is sometimes advantageous to sell an ATM option than to buy a future. I found this to be true especially in the meat markets. But I do not see this situation in the current Gold market.
Thanks Ron and Myrrdin for your insightful feedback. The reason why I do this is because it suits my trading style, risk/reward tolerance etc. I do not worry in the slightest if my short spreads go ITM, as long as I have some time left before expiry - in fact, I expect them to go ITM, cos I sell so close to 50 delta for the shorts. These spreads fluctuate a lot as they are so sensitive to the underlying. And I like that. My ZWV8 560-580 short call spread was showing a loss last week, and is now at a healthy profit, and will probably show a loss again soon. These swings are tradable.
And yes, I could do this with futures (and will one day), but for now, I want exposure to commodities using a derivative that I understand and love. Once I get more familiar with the nuances and personalities of the individual commodities I will be exploring other ways to trade. I expect a year from now my trades will be very different to what they are now. I'm very much in the process of refining and fine-tuning.
Just today I closed a ZWU8 short call spread (550-570) - this went in the money for a while, but ZW is a great candidate for this sort of spread. Sold on 26-Jul for 6.25, and bought back today at 1.25 giving a 34.7% return on the max loss possible. I realise the monthly ROI is a widely used indicator on the forum, but it may not be very significant here as it a ridiculous 59.8%.
If you want to use ROI as an indicator you have to take into account the money you do not use in your account. Using Ron's trading style, almost all money is used as margin or as "safety belt". Using my trading style, often money is lying around in the account.
To be fair, I hope you will give examples of the losing trades too.
Selling options that go ITM and then hoping they end up being profitable doesn't sound like a great way to trade. Numerous things could happen to make those trades big losers.