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Thanks for the excellent information. Just what I was looking for. So why have we settled on this exit strategy versus watching deltas for example? I studied several years of the RUT index options. I found when your delta doubles all of the sudden you better get ready to get out. If it triples you really need to close the trade. I think your trade example above shows the same thing I have seen. I did the study based on a .05 starting delta. If the delta jumps up fast it usually is signaling a strong trend against you. Most of the trades in the study I did, either hit the strike price or got to close for comfort.
I had one ES call I sold a few weeks ago with IB. The market kept going against the trade. The Delta more than tripled on me and I got out. Experience is telling me to get out at double delta. I did not see any margin change with IB. I'm glad I got out with delta on that one. It seems that IB doesn't change margin requirements much since they charge so much more than Span.
Can you help answer these questions from other members on NexusFi?
This agrees with what I have actually seen in a moderate sell off in the index products. You can expect your
maintenance margin to approximately double in a moderate sell off. So if you load up now with selling puts and
increase your MM in a very low IV environment you could have problems.
Exiting on Delta rise might be a valid exit strategy. Honestly, just about any exit strategy will work provided you follow your rules and give the trade enough room to work.
Having said that, I like the 3X IM method primarily because Ron's method is one where we are selling very, very low Delta options ( < 2 ) and if you exit when Delta rises to 4, you're exiting a trade that still has a very high probability of expiring worthless.
In your approach, you're starting at 5 Delta and looking to exit at 10 or 15 Delta where you have a significantly greater risk of getting into trouble compared to me at 4 or 6 Delta.
That's just how I rationalize following this exit method. Others here probably have better reasons for using 3X IM.
The good news is, you won't have to exit very often!
Finally, some action in Crude Oil volatility. Image contains today's preliminary settlements (actuals will be very close). Red underline = nearest standard month with 30 days or more to expiration.
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and wow did it hurt!
Nothing at all to do with options, but interesting that on a move this big the front of the curve wasn't stronger. Front month spread lost 3c, second spread only widened 3c (Hence the front butterfly actually dropped 6c and settled at -21c.). Largest spread move was Month 5 - Month 6 at 12c.
On yet another non-options related point, NG had a nice 5.6% move today, widening 25.4c to $4.526. March/April15 widened 9.2c to close over 50c.
I recently sold some OTM soybean meal calls and OTM soybean oil puts. It's been ages since I participated in either market and I forgot all about the inter-commodity spread credit that reduces margin.
Besides the soy complex, are these credits also available if someone sells options in two or more of the three classes of U.S. wheat? What about two or more of CL-HO-RB?
IV did spike, and for better or worse I sold some CLU4/LOU4 89 puts this morning with the OVX at 19.34 . Delta = 0.0189
That is a nice chart, but isn't Option Vue an expensive package??