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What made you break your rules and keep those options, after the jump in premium? In hindsight, it was a good decision, but at the time, it had to be a little scary to violate your rules and stay in a trade that could have gone a lot more against you...
Can you help answer these questions from other members on NexusFi?
This is the one issue that I am trying to determine if selling weekly options on the ES is a worthy prospect...not much premium for the OTM options and the inherent risk of a big drop in one or two days. Yes, risk is part of trading, but this might be too much risk. I have been thinking about 20 or 30 DTE and then waiting for a few down days in a row within those 20 or 30 days then sell....let the market drop and deflate itself somewhat so in the event this drop is the start of a larger move then a certain % of the total move has already happened.
I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.
So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.
Exactly.....I'm thinking look at the options listed every month. Wait for some kind of move down within the first 5 days??? to remove some downside (threat) action. If there is no move to the downside then wait until the next month.
Just kicking around ideas here .... suggestion welcome...
Fundamentals and the thinking that the drop from the report was overdone and the futures would rebound. Grain carryover to the next crop year is very low.
Looking at the May week 1 ES weeklies, if you go to 10 days before expiration, Apr 23rd, a .02 delta is 1465. It settled that day at 0.55. That was only 90 away from the futures price.
The margin on Apr 23rd was $2146. Monthly ROI is only 1.2%.
But if you look at my largest drop table for 10 days, there are several times in the last 5 1/2 years when the futures dropped 160-180 (ignoring Dec 2008) in 10 days. That puts this option ITM.
So the question is, can you get out and not have a large loss when the market goes against you? And do the gains more than offset the losers? And is the ROI good enough to do this vs something else?
I'd rather sell Sep 300 KC calls and make 6+% per month ROI. Far, far less chance of being knocked out of them at a loss than weekly ES. But some people get bored with that and that is OK.
The one key for me (and others that I know to be using this strategy) is to be patient and wait for ES to make a move. I definitely find myself frustrated during times of low volatility. There have been times where I've wanted to enter, but didn't.
ES typically balances no more than 3-4 days before vertical price discovery...that could be up or down. Volatility really expands a lot as price moves down, so much so that on 4/18, 1420 puts expiring on 4/30 (EOM) were bif for 2.00. On that day, ES was at about 1532...that's 110+ points.
While it certainly can happen, it's not likely that ES is going down in a straight line in 12 days to 1420 after coming from 1593. That would be a 173 point move in 12 days. But if it did happen, and I was in that trade, I would have been happy to take the loss on it. I'm fine with that.
It has been interesting to me to read through this thread and to hear of everyone's rules. I can see the advantages of just picking a delta and selling strikes that have that delta while making sure you have enough margin to account for 2X the initial margin upon entry...
While my percentage gains may not be as impressive as some others on the board, with my selective entries, in 8 months, my account is +23.76%...not setting the world on fire, but anything > 0 is a win.
I will be interested to see how this thread evolves through time and hope that people keep posting to keep it going.
1) Typically the seasonal turn is mid-May to mid-June.
2) Fundamentally demand spikes up during the 2nd quarter; however, prices are tempered due to heavy production
3) This year we have the smallest amount of production in 13 years.
August Live Cattle puts at 106 are 0.01 delta and are about 3% ROI. Thoughts?