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I hope you also had a good trip/break! I was contemplating asking this question in the thread.
I understand you are doing mainly S and P Mini put option spreads. From my understanding these are credit spread's. But the sell being closer to the money than the buy (as opposed to Cordier's other way around). Is the reason to this because you want a higher Delta so quick turn around on option price decrease (get out at 50% as your plan is) ? and the put buy's are for protection? is this correct.
Also as you aren't doing fundamental's for these trade's how are you achieving such high success (the contract has unexpected dips in prices). Are you taking advantage of the overall increase in the contract?
thank you. Just looking for the psychology behind it. I know you mentioned commodities have been moving a bit randomly for your liking, is that still the case. As I understand you had a lot of success in earlier years in commodities, when that was your focus. Or is this a matter of whatever you prefer at the time.
thanks in advance.
Can you help answer these questions from other members on NexusFi?
The problem with calls in ES is you are not very far OTM so the chances of losing money are far greater than puts.
A 3 delta put right now for the April contract options is 2280 strike. Futures are at 2815. That is a 535 difference.
A 3 delta call right now for the April contract options is 3065 strike. Futures are at 2815. That is a 250 difference.
The June 2016 ES future had a 282.50 rise in less than 90 days. There are many more contracts with a 200+ rise in less than 90 days. Those short calls would have been in trouble many times.
Other than the Dec 2008 ES future contract when there was a 551.50 drop, since 2009 there has never been a drop in 90 days that was more than 269.
The dollar has gotten beaten up lately. Wondering when it might be time to get some long delta on DX? Unfortunately with ToS, there are no options on DX, but I do trade the Euro 6E often using strangles.
Also, gold seems to have a decent inverse relationship with DX right now, so looking to add some additional short delta on GC.
I usually collect 200 - 400 USD per OTM option. This seems to me to be a good compromize, regarding probability of getting in the money, reaction to a rise in volatility, relation of margin to premium, and fees.
"Today though … if that talismanic put-buying behavior is going away — and I think it is — then systematic volatility selling strategies won’t work as well going forward as they have in the past. That’s not a bold market call. It’s just a mechanistic fact of markets: sellers don’t get as high of a price for what they’re selling if you have fewer buyers. Volumes go down and margins are squeezed for traders, too."
I totally believe his statements considering that many (sadly) nowadays consider OTM (out of the money) options selling as safe.
Matt Z
Optimus Futures
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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