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I agree with your points, although there would be virtually no premium further out, so any trade there would be fruitless. It is still picking up nickles in front of a bulldozer.
Cheers John
Can you help answer these questions from other members on NexusFi?
I have 3x the total cash in my account, thanks for that advice from your earlier posts. You're right about the margins, that's what's giving me heartburn more than anything else and I checked going as far out as the May calls but still had similar margins with OptionsExpress. I thought about buying a protective call and doing a "ratio spread" but didn't go through with it. Again, another mistake realized after the trade was done.
I agree with "high degree of certainty", poor choice of words there.
With regards to further out of the money the premiums pretty much dried up with almost no volume so I went with the $58 strikes. Maybe I'm wrong but I seem to recall a few authors I read stating that the min % out of the money should be 20%. When I checked the delta it came in at .04 so that passed the filter as well.
I'm trying to get a guage of how far OTM I should be as a starting point, thoughts?
For CL I usually stay at least 20-30 dollars away from current price. 20% with the current low price for CL is not enough cushion.
You could have sold May 80s for the same .08. But the SPAN margin is 72% less. So the monthly ROI is about the same with less risk. Delta of .0229 vs .0391 for your option.
BTW OX is charging 30% more for margin than SPAN minimum for CL because CL has been so volatile lately.
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There are people here who can give you much better advice on option selling than me. Obviously @Johno1 thinks the whole trade is bad, while @ron99 would have maybe structured it differently. I will say this though. If you think the trade is/was too big I would advice that you reduce it's size to a level that you think is correct, whether at a profit or a loss, as soon as you can.
As I pointed out earlier I wouldn't even be in the trade. Protection of my working capital is my number one priority, My trades have a positive expectancy therefore as long as I can put them on I am confident that I will continue to trade successfully.
Cheers John
I appreciate the responses, given this is my first trade what I'm trying to do is develop a sound process for entering a position and a process and for modifying and exiting it. The last thing I want to do is start drastically modifying my position after I enter a trade without thinking it through. My fundamentals seem right to enter the trade but the structure could be more conservative, as ron has stated.
- My first step is to modify the trade to add a protective call at $57.
- My biggest issue with the "size" of the trade is the margin reserve. I've already got my exit point in place and will pull the trigger to exit no matter what if it's reached.