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Obviously the strategy has been affected. I am still hanging on to a contract I opened on Jan 22(DTE=115).. 73 days later still waiting. This strategy worked perfectly for 2017. Just what I have noted the first quarter of 2018. myrrids 3% diversified rule may be better, but it requires lots knowledge that I dont have. Any suggestions?
Thanks
Babak
Can you help answer these questions from other members on NexusFi?
Yesterday I closed the spread I have opened Jan 12.
It had quite a drawdown, but was never really in danger. Thus I see it as a confirmation of Ron's strategy.
Nevertheless, I started with the strategy end of 2016, and got used to the environment of a relentless low IV.
I am not yet mentally attuned to the new environment.
Normally I would opened a new spread today, but I will wait until next week.
I continue to sell options in other commodities. Currently I have sold Calls on CL 80 and ZW 600, and Puts on LE 90
Hi Babak,
I thought after 30 days you are supposed to exit as the premium for long option will erode faster. I did not have any trade then, so not sure how the premiums changed.
Regards,
Dilip
Actually the long options seem to have been doing well up until it hit the 60 day mark. The decay seem to have acceletated at 45 DTE. I know IV plays a big role in option decay not to mention all the other variables. The strategy for -2,+3 puts is as follows: Exit at 50% of premium for profit, or when the difference in (- premium) + maintance margin is greater than 5 or 6 times the initial margin(IM). In my case the IM is x10.
I don't believe anyone has posted that you exit after 30 days.
If you did exit at 30 days you would have many losing trades.
The strategy is selling 2 options for more than the cost of 3 long options. So as long as you don't have to exit because of a margin call, eventually this trade will be profitable even if you have to wait until expiration.
Thanks, Ron for pointing out my mistake. Yes, the rule says exit at 50% drop in premium.
I had made a note based on your Excel file that averaged days the spread was held were 27 days for one long at 1.5 delta and 2 shorts at 5 delta . Based on that I quoted wrongly that one has to exit after 30 days. I checked the file and other backtesting files and found that sometimes the spreads were held for more than 30 days up to 70 days too.
My apologies for quoting wrong exit criterion.
Regards,
Dilip
The spread I closed last week I held 83 days.
There were a couple of times in the last month when it was almost there, but then IV spiked again a bit, preventing me from closing.
The last two weeks I let it go a bit longer, since I was not sure if I would open a new spread, so I garnered some more time decay with the old spread. In the end I closed it at 70% gain.