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Excellent concept - thank you for sharing it with us.
When entering the short option trades, there are three possibilities:
1. Enter the trade on a fixed date each month,
2. Waiting for a drop in stock prices, which usually yields higher volatility, and, thus, higher premium.
3. Averaging over a period of time, eg. selling one option per trading day.
How do you proceed ?
Best regards, Myrrdin
Can you help answer these questions from other members on NexusFi?
I try, but don't always accomplish, to have about half of my positions going off at a time.
I used to try to wait for a drop in ES futures to sell options but half the time I lost out on premium because the price didn't drop. And if it did drop I didn't always make up the loss in premium if I hadn't waited. So now I just put them on and don't wait for a drop.
For me the reason why the futures are dropping tells me which adjustment to use.
If it is going down for no legitimate reason then I roll further OTM. If it is a legitimate reason, like a US government shutdown, I get out and wait for what I think is the bottom.
I would roll further out in time if the DTE of the option was getting below 80.
It's hard to give examples when each circumstance is different.
Here are the biggest gains and drops in ES since 2006. It has dropped more than 158 only once since the recession. Summer of 2011 during US government shutdown.
Thank you for the response and for the description of this approach. Are these approximate parameters?
1,384 Jan ES IM $968,000 Cash cushion $1,936,000
1,955 Feb ES IM $1,368,500 cash cushion $2,737,000
3,738 Mar ES IM $2,616,600 cash cushion $5,233,200
2,487 Apr ES IM $1,740,00 cash cushion $3,481,800
4,186 May ES IM $2,930,200 cash cushion $5,860,400
9,179 Jun ES IM 6,425,300 cash cushion $12,850,600