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I wanted to see what positions would still not be on margin call if you added them on the worst day. Aug 17th.
All IMx3 and IMx4 positions would be on margin call. Naked and spreads.
IMx5 has a few positions that haven't gone on margin call but they are close. All positions have a draw down of 40+%.
Some of the IMx6 positions have more room yet before going on margin call. The draw down is less but still in the 30s for the lowest ones. The ROI is still decent at IMx6 for some of the positions. I'm surprised.
Notes: the Mon ROI column is exiting at 50% drop in premium at 30 days held. The YR ROI column is not compounded monthly. Added 3-5% if you compounded monthly.
Notice how the options at about 60 DTE perform the worst. This is the same as every other backtest I have run.
I like how the 100 wide spread, IMx6 1600-1700, performs compared to the rest. The ROI is basically the same for the spreads with 100, 200 and 300 differences between the short and long sides. And since it is I would use the narrowest spread of those 3.
Is anyone selling more options with the high VIX? I wanted to on Friday but was at work at my day job. I managed to do it a few weeks ago when CL was going crazy after the first big drop and made up enough to cover loses, but I am only trading very …
I guess anyone following the Nicholas Taleb style of trading would have made off like a bandit. I would have to assume you would need a very large capital to even think of trading that style
True, I assume he has his algorithms scan for option chains that are at extreme leptokurtic so that any increase in volatility is likely to have a bigger impact
Buying an option for black swans is an asymmetric trade where the reward far outstrips the risk. This is the mark of a smart trader.
Selling options in a low vol environment is also asymmetric but in the wrong way, especially if you sell based on delta only and don't look at the environment.
For those thinking of selling naked because you think it's an easy 30% a year, this is a wake up call - 40% draw down and the market didn't even fall that hard. Imagine what your account will look like if a real crash like 2008 came around, you will owe money. The value of your sold puts will rise exponentially as they approach delta 1, the market makers will disappear so you can't close and your broker will probably go bust from margin calls that aren't being met. You will be absolutely amazed how much you could potentially owe.
I sell naked options, but I market time it, sell at the money for the most premium during elevated levels of vol, fully cash covered on stocks, never roll unless it's at the money and I get good premium for it and if it makes sense to do it. I don't roll hoping it will come back. I only do spreads on cash settled index. Only safe way to do it. Argue all you want but I've seen a lot of blow ups. The options game is littered with the blown accounts of naked sellers.