ron99 

What is your strategy and ROI for selling calls? You seem to be a pessimist. You are fearful of crashes, so you avoid puts. If that is what you are comfortable with, then that is how you should trade.

Ron

Which contracts did you sell 345 two by three ? Was it Sept.,with 102 days to go ?
Thanks

Adam82 

Ron Which contracts did you sell 345 two by three ? Was it Sept.,with 102 days to go ? Thanks

Adam,

If you like the idea of selling calls then I'd focus on individual equities rather than indexes. There's a much greater chance of finding overvalued stocks vs an overvalued index. Yes /ES is on a hot streak like we can't believe but a broad index decline of 10% or more isn't as likely as say Apple staying flat or Tesla dropping 15%. My brother and I talked about this strategy and he prefers it. Selling puts to buy the stock and then selling covered calls, weeklies, until it gets called away. Rinse/lather/repeat. He trades with Ferrari, Tesla, Netflix, and a few others.

The only drawback with this is using margin is a BIG NO NO. You get close to the money or even at the money and take the assignment if and when it happens. Just a thought...

/rsm005/

@ron99

When you have the chance can you please put up the instructions on your spreadsheet.

/rsm005/

Adam82 

Actually I'm not a general market pessimist. I sell OTM calls because volatility is generally overstated , and so even with the market moving up , they still make money. Yes I agree, not as much as your puts have earned. What happened the last couple years is so far removed from anything historically (just look at Ibbotson Associates or Bloomberg for the actual long term numbers ).. and there is mean reversion over time. So to sell hundreds of put contracts each month after an 8 year bull run is what I don't get. More precisely : according to you, 53 trades over 4 years is about 13 trades per year. And the return is around 12% annually from what I can discern. You must have missed the post that had the study. From 2013-2016 the strategy made 127.1%. 2013 20.4% 2014 18.4% 2015 22.6% 2016 32.8% ROI is lower this year because vol is down. I just see this as taking enormous risk for so little return (not that 12% is little, but You have to compare it to the risk...) I don't see that a strategy that probably only has losses in 4 months of the last 17 years as having enormous risk. A basket of higher paying dividend stocks such as T , etc., coupled with writing calls on the stocks can easily get you near that 12% without the black swan risk. That's all I'm saying. That basket lost a lot of money in 2008. I don't see how that is any less risk. It is probably more risk. Trust me I've learned a lot from you Ron on this forum , but what I'm saying is: the strategy you have is great for selling small amounts. Once you have size , there's the black swan again. I'm not nissim Taleb; but you have to be mindful of that risk. With a massive pop in volatility plus a big market drop , all backtesting can go out the window - the ask price on the index puts will simply skyrocket. A 10-20 contract position can be managed. Hundreds of contracts- forget about it. Again I like your strategy , I just don't see it feasible in size. And yes I know you did it for a couple years now , but bear in mind we are in unprecedented times.

I don't understand why you think 10-20 contracts can be managed but hundreds not. It all depends on your account size. There is plenty of volume in ES puts for 3rd week expiration.

The strategy worked fine during the Aug 2015 crash. It covers flash crashes. It only doesn't cover slow 20+% drops.

I'm not going to avoid trading a strategy that has 100% winners for years and years because just maybe 2008 might be happening sometime in the future. I trust my ability to see that coming.

Adam82 

Ron Which contracts did you sell 345 two by three ? Was it Sept.,with 102 days to go ? Thanks

Selling Options on Futures? I am going to use TFOpts's strategy for my new positions. I will sell two ESu7p1960 and buy three ESu7p1750. IM is $419. Friday's settlement was $160. I will use 4xIM. This could give me a 3.0% ROI if I exit at 50% drop in 30 days. Edit. I sold …

@rsm005,

I finally have historical results using protective puts. The scenario that seemed to work the best is to buy the puts when you reach about 50% of margin. Higher than 50% and the puts aren't protective enough, you're buying them too late; lower than 50% and you hit the buy button too often which drags down your overall returns.

Other assumptions used:

• 100% of initial premium is used to purchase the new put so that at best it's a break-even trade
• Buy one put with as much delta as you can afford
• If you buy a protective put, ride the option to expiration to get a 0% ROI

Here are results for naked puts. Note that from 2013-16 a -5 delta put at 6xIM would have worked 100% of the time. So I tested at 5xIM to introduce margin calls. Whether you have a protective put or not, losses can be disastrous (compound monthly losses of 99% of the account). The only protection you get from the additional puts is a marginal improvement in the number of scenarios that go on margin call (from 1.3% to 0.9%).


Spread results are below. Again, not much impact, just a few less scenarios going on margin call; but losses when a call is received are just as large or even larger because of the additional premium cost.


Overall buying protective puts may not be the most efficient risk mitigation strategy. When margins have increased by a factor of 5 and premium by a factor of 10, having one additional long put far OTM hardly provides any protection.

ron99 

I am going to use TFOpts's strategy for my new positions. I will sell two ESu7p1960 and buy three ESu7p1750. IM is $419. Friday's settlement was $160. I will use 4xIM. This could give me a 3.0% ROI if I exit at 50% drop in 30 days. Edit. I sold them at 3.00 or $150 on June 5th. This makes possible ROI 2.7%. I will also track how my old strategy of selling one ESu7p2050 and buying two ESu7p1830 performs vs new startegy. IM is $249. Friday's settlement was $90. With 6xIM the possible ROI at 50% drop and 30 days is 1.8%.

Which deltas where you using?
Thanks.

ron99 

I don't understand why you think 10-20 contracts can be managed but hundreds not. It all depends on your account size. There is plenty of volume in ES puts for 3rd week expiration. The strategy worked fine during the Aug 2015 crash. It covers flash crashes. It only doesn't cover slow 20+% drops. I'm not going to avoid trading a strategy that has 100% winners for years and years because just maybe 2008 might be happening sometime in the future. I trust my ability to see that coming.

Ok Ron I appreciate your comments and I see where you are coming from. That's what makes a market.

However , Long Term Capital Management also did 20% or so first year and then something like 40% the next year before blowing up later on. This was doing bond arbitrage with some of the smartest (or not so smart lol) minds.

Goldman and JPM would kill for the returns you posted above (between 20-32 percent per year). And so would all the billion dollar funds. Bill Ackman and others would solely employ this strategy.

I understand the backtest shows it works. I'm also familiar with the fact that Warren Buffet sells massive amounts of index puts going years out. However, you simply cannot compare it. Berkshire is in another planet with their billions compared to a retail trader.

And why did you say that 10-20 contracts can't be managed ?? It certainly can , especially with $100k-$500k account.
This is what I'm saying all along: you can easily sell 10-20 contracts for the 13 times per year or so that your study suggests is possible , while trading with a $100k-$500k account . This will certainly add a nice return to your account.

But going into the hundreds of contracts is not feasible. You simply can't scale up just because the bids are there Ron.

manuel999 

Which deltas where you using? Thanks.

Selling Options on Futures? This is a comparison of two strategies on ES. The best strategy proposed so far for relatively safe returns is 1 short ES put at -5 delta and 2 long ES puts at -1.5 delta with 6 x IM and DTE around 100 days, exiting when premium = 50% of initial premium. …

Adam82 

Ok Ron I appreciate your comments and I see where you are coming from. That's what makes a market. However , Long Term Capital Management also did 20% or so first year and then something like 40% the next year before blowing up later on. This was doing bond arbitrage with some of the smartest (or not so smart lol) minds. Goldman and JPM would kill for the returns you posted above (between 20-32 percent per year). And so would all the billion dollar funds. Bill Ackman and others would solely employ this strategy. I understand the backtest shows it works. I'm also familiar with the fact that Warren Buffet sells massive amounts of index puts going years out. However, you simply cannot compare it. Berkshire is in another planet with their billions compared to a retail trader. And why did you say that 10-20 contracts can't be managed ?? I never said that. Reread my reply. It certainly can , especially with $100k-$500k account. This is what I'm saying all along: you can easily sell 10-20 contracts for the 13 times per year or so that your study suggests is possible , while trading with a $100k-$500k account . This will certainly add a nice return to your account. But going into the hundreds of contracts is not feasible. You simply can't scale up just because the bids are there Ron.

Sure I can at my account level. Now if I was trading billions maybe I couldn't.

You disagree with me and that is fine. Let's move on.