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So can one say that the spread with the lowest risk is:
Sell one option with the lowest strike between -5 delta or 20% below the current future price.
Buy one option to get to a delta of -3.
Have 5x IM
?
Can you help answer these questions from other members on NexusFi?
Your question prompted the idea of keeping the ITM margin constant (e.g. at 20%) and letting the short delta float. Here are some results: run 1 is short 1 at -5 delta and long 1 at -3 delta; run 2 is short 1 at whatever delta has a strike …
I would've said: sell one option with the lowest strike between -5 delta or 20% below the current future price, and buy one option to create a position with a net delta of 2. So for example, if the option sold has a delta of -3.5; you would buy an option with a delta of -1.5. Hold 5 x IM.
One thing to keep in mind is that sometimes to get a strike 20% below the current future price, the delta of the option sold is around -2; in those cases I modeled buying an option with a delta of -0.5. In other words, the option you buy cannot have a delta that is smaller than -0.5, even though this may create a position that has a net delta less than 2.
Given that August is seasonally a down month are you going to wait before you open your next position? I did that 1/2 spread on the 27th of last month and am still waiting it out.
Is historical seasonality of any interest now in ES?
I have the impression the market today is very different than the one 10 years ago.
(Or maybe I just read too much Zerohedge)
According to my experience, seasonals in the indices, financials, and currencies do not work as well as seasonals in the grains, beans, meats, and softs. Perhaps it is because often I do not understand the fundamentals behind them.