Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
This is very interesting. You are basically staying delta neutral, and hopefully making gains while staying delta neutral.
"hold the other side as an "unrealized" loss waiting for the market to reverse direction"
On the average, how large has your "unrealized" loss become for this period.
Can you share how your performance has been over the last 8 years? How did things work during last weeks
sell off. What was your worst loss using this method?
Isn't your vega very large when selling ATM calls. Doesn't your vega move your position quite a bit?
Thanks for sharing.
Can you help answer these questions from other members on NexusFi?
Leinster: Thanks for the question. Options on some futures are open on the overnight markets but the spreads are wide and volume is low so good fills are a problem. The futures are also slow and wider during the the nighttime markets. So I rarely trade during that time but I sometimes put in a limit orderat my price and occasionally get a good fill. Futures are my preferred markets but I do trade stocks when they meet my criteria. In any underlying either stocks, bonds or futures I am interested only in larger priced underlying products. That is I prefer stocks trading at higher prices like NFLX, PCLN, GOOG rather than MSFT or WMT. Of course the reason for that is I want stocks that move and have Higher Premiums on the options.
Volatility always is a consideration on both options and futures. I like high vol, as then I collect more premium as an option seller. Plus it is a determinant for what strategy I employ.
As to using optionvue or other backtesting tools: I have not used these to backtest. I have enough "testing" from my own fairly sizable time trading this style or strategy. I have had a trial on optionvue and believe it to be a great tool but I don't need it as my platform has most of the same analytical tools that I found with optionvue and it is free. Optionvue, I believe, is pricey for the tools needed to trade profitably especially when you have a good free broker platform.
Datahogg, (love your handle) Re: "hold the other side as an "unrealized" loss waiting for the market to reverse direction" On the average, how large has your "unrealized" loss become for this period.
This is not a "fixed amount" but I determine how far to let this loss accumulate based on several factors: How much time do I have left till expiration, How do I now view the market from the standpoint of when will I again get a "two sided market" so that the losing side will now become a winning side. I have a good determinant for this but it is perhaps best shared with some pictures and I am not sure how to post those. If anyone could assist me how to post I would appreciate the help. Perhaps someone could either direct me to a place on this forum to learn or maybe skype me at "before618" on skype. Most markets I trade and not trending in one direction for very long and become cyclical. After-all the Black Sholes and other options pricing models are based on Random Market action and not on the belief that markets "trend".
If I must be forced to give a number I probably would say about $500 before I would consider taking some defensive action which is rather easily done without closing the position.
Hi @ticks the reason I asked was if ur selling put options on cl for instance and market as we know is not fully trade able with large spreads on option if ur future is gaining in price the spread on the option could be quote significant to mean the trade is in a losing position. If volatility spikes then the option u have sold gains value significantly how do u deal with that I'm very interested in ur method as I have seen on multiple occasions undervalued deep itm options relative to future or stock prices.
Just noticed I did not answer this question: "Can you share how your performance has been over the last 8 years? How did things work during last weeks sell off. What was your worst loss using this method?"
When I first started trading using this method I did have some losing trades. My biggest loss back then was $2700 and change. I made stupid mistakes that looking back now where due to a lack of understanding the greeks and my use of the trading tools that were part of my platform.
Since that loss I am reluctant to say that my losses are almost a non-event. That is if I follow my mechanical trading plan I will rarely have a losing trade and the loss would be tiny. I don't want to come off as bragging but my results are not due to some genius but lots of hard work and analysis. I do have the probabilities on my side as well as the math and science -- if that exists.
As to last weeks sell off in oil: It did not affect my trades or P&L. (Today is Sunday and I did go to Thank The Lord at church for His Grace in allowing me to be engaged in such a wonderful business of Self Directed Trading.)
Thanks
Looking at some positions similar (close to) yours on TOS, it looks like the largest risk factor is implied volatility (VEGA).
Since you put your positions on about 30 DTE, this helps a lot with VEGA. But still it looks like VEGA is about
3 to 8 times larger than THETA. It looks like the worst case scenario is to put on the position with a very low IV
and have it to increase dramatically as CL did last week. When DELTA does go some amount + or - do you
sell any far out of the money puts or calls to re balance? The ideal would seem to be put on this position when IV is
very high and have a significant gain when IV decreases.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
Thanks Received: 10,225
If you fully delta hedge an option portolio, and keep it flat all the time, you are effectively trading vega. If you buy an option and realized volatility is greater than the implied volatility you paid, then the profits on your dalta hedging plus options will be greater than the premium paid on the option purchases. This is how many option market makers manage their business.
Leinster: You are correct that options that are Far Out of the Money are not widely traded and therefore the bid/ask spreads on those options may be wider. Please note that I do not trade Far OTM options. I am usually close to the money, which almost always have narrow bid/ask spreads. Leinster, you are also correct that a large move in the future will, of course, in most cases increases the vega (implied volatility) which would increase the price of the options. How would that affect my trade -- well, the futures that I sold short would be losing money in your above scenario (short puts and short futures); at the same time the puts would be gaining value. So I sell the puts at a Profit and replace those with puts that are further out of the money to bring the trade back to a near delta neutral position. A big spike in volatility is usually "forecast-able" so if I was diligent in following my trading plan I may have prepared for that increase in vol.
If this is not clear please let me know so that I may give you some examples. Thanks Leinster.
Datahogg: You are right in what you say. Remember that the Vega is one of the Risk Perimeters that I must be aware of and take necessary steps to manage. As a seller of the options I am rewarded by the Premium for writing the options and therefore are collecting Theta. It is nice to try to have low ratios of Vega to Theta. Yes, you can ameliorate the "bad ratio" by selling some puts or calls. So far, I have not addressed my entry requirements as to whether or not I am selling volatility or buying vol. If volatility is relatively Low when I entered I may decide to buy rather than sell the options. I do monitor the OVX (crude oil vol index) as well as look at the statistical vol vs. the implied vol when entering the trade position. As you know, Volatility is mean reverting so a lot of my decision is based on how close to expiration I am. I am often reluctant to fore-go Theta -- so I need to be reasonably certain that vol will not go back to its mean during the duration of my trade. I can also hedge the vol in other ways to overcome the increase in vega. I sometimes do this by adding trades in other markets some related like XLE, XOP, QM or even further out Crude Oil Future contracts.
You are correct that: "The ideal would seem to be put on this position when IV is very high and have a significant gain when IV decreases." Lower vol has not, however, precluded me from entering this trade -- knowing that I am able to hedge the vega when necessary. I love the Theta too much to become a buyer rather than a net seller. This is in part a matter of each trader's preference for the type of risk he likes. Do you like to pay theta and therefore have positive Gamma and limit risk to what you paid for the options? For me, I do not mind the risk of the possibility of increased vega. You mention that Vega is the "largest risk" in your mind. For me it is the Gamma. To each his own. As the song says: "One man's Ceiling is another man's Floor." Viva la difference. That is what makes trading. I love it. BTW, last week I was not hurt by the increased vol which was dramatic.
Hope this gives some insight. I do respect your view. Thanks