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Trying to decide whether I should ride out this adverse move on my December 120 Cotton. I suspect today's premium increase is overdone based on the price; however, I wonder whether I may be trying to fight the seasonal trend here.
From a technical perspective the 92's are fairly substantive and if we stall here this would be a triple top. Should we push past the 92s the 100 area is the next level of resistance.
Fundamentally it seems the major concern is the less than expected production estimates in yesterday's USDA report and reports of hot weather in China which may increase their import demand.
This trade looked good a month ago when I sold them and was profitable until today. Probably going to have to figure out a place to bail.
My question for you: what exactly is your plan, if any, for trading multiple instruments? If you are able to sell 70 contracts, that margin will take up 25% of your account, not even considering the need for excess margin (Ron recommends 3x margin, so that would be 76% of your account).
If you plan on selling options in multiple instruments, 70 contracts might be high.
I personally aim for 3x margin positions of 10-15% of equity max, which means I can have around 7-10 positions in different instruments on. Right now, for example, I have 9 positions on. All but one are doing well, so even if I have to take a loss on one, I should be OK overall.
I guess it is a philosophy choice: concentrated big bets, or diversified smaller bets. Both have their advantages and disadvantages...
I like to spread my risk across five instruments, so I would allocate $70k / 5 = $14k to this trade.
I use 3x margin cover, so that's $14k / 3 = $4666 of margin.
Initial Margin at OX is $287.98 so that's $4666 / $287.98 = 16 contracts.
Kevin would probably do less contracts, because he likes to diversify across at least seven instruments. Ron might do more (or less) as he assesses the risk of each trade (see post #1881).
with respect to Rons' quote quoting goldman sachs equity analyst (still dont know how to quote a quote here), just thought I wld add this re 'Rules for Investing' (to inc' trading):
"Rule 16. Realize that Analysts Always Have a Stake in the Game
...Jon Stewart played back for Cramer a YouTube video of himself openly admitting to making up and disseminating rumors about about companies when his hedge fund was short them"
you think goldman wouldnt do this? well on a site i wont bother mentioning theres a well known 'fade the analyst' trade whenever a goldman analyst recommends to the public (not the paying clients) a trade & its success rate is, iirc >90%.