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Thanks Ron for your comments.
I would like to ask you another question too. When you decide to stop operating put spreads because the market is dangerous, what parameters do you set? Is there any way to objectify that danger? I think for example in the VIX> x.
The same for when it comes time to start again with the put spreads. There is some numerical parameter that you use to adopt such a decision
ES futures have dropped 387 from Dec 3 to Dec 21. I wanted to see how the ES strategy would have worked with that huge drop in 18 days.
It worked better than I thought it would. It is only using 48.1% of account to cover maintenance margin. Far less than the 100% than would be required to put the account on margin call.
Yes the account is losing a lot of money. -$1,223.20. But you are still in it with the possibility of riding it out until it is profitable.
Here is how the ES strategy would have performed if you entered on the worst day, Oct 3, 2018.
From Oct 3 to Dec 3 it would have peaked at 64.8% of account used to cover maintenance margin. On Dec 3 the net premium of the position was at 51% or 49% drop. $81.80 profit.
If I had held it through all of that for 61 days, I believe I would have taken my profit on the position on Dec 3.
Now if you didn't you would have hit margin call on Dec 19.
When the strategy is below 40 DTE the longs are too close to expiring and too far OTM to do any good. I suggest never keeping the strategy below 40 DTE.
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After today's drop I believe the SPX is now 20% below its fall highs. Was having a discussion about this with some friends, so decided to post here just for info. Not 100% relevant, but probably interesting to all you ES put sellers out there.
Awesome info and totally relevant , just thought id add to it with recent exhaustive moves since 09 and the snap back after in a more visual sense . These deep corrections are commonly followed by 10% rise inside a month 'once' the swing low is in .
I'm glad you made these points about the earlier years of option selling because I have noticed the same things and wasn't sure if I was imagining it. I've been selling deep out of the money options since 2010 and back then it was much easier to find them with higher premiums. The last part of my selection process is to filter using a probability calculator to find options with a low probability of the market getting anywhere near the strike by expiration. In the beginning of my trading I was often able to find DOTM options averaging $30-$150 with a low probability calculator rating with very little DTE, typically <42 days. Nowadays to find the equivalent premium and probability calculator rating I have to go out 4-12 months. This makes the trades take much longer and the drawdowns have become bigger. My annual return has been shrinking as a result.
When selling out of the money ES put options, an amount of $ is received for their sale.
Is there an average percentage of the sold $ that are used to buy long further out of the
money puts for protection?