I have been a so called "net seller" of option premium for many years. I have been profitable every year since 2003. The key is managing the losing trades, the winners will take care of themselves. Decide on how much you are willing to risk on your trade and no matter what do not deviate from your stop loss point. Of course, each trader's risk tolerance and account size is different so how much you are willing to risk per trade is up to you. If you are not sleeping well at night then you are risking too much.
I usually stay away from front month options. Yes yes, all the books say that options with 30 days or less until expiration has the best chances of time decay. While this is true, you would have to select strikes that are dangerously close to the money. Any rally or sell off will cause the premium to explode higher and you will probably be exiting for a large loss only to see the premium deflate in a day or two when the underlying goes back to normal levels.
I like to sell far out of the money strikes using farther months (60, 90, or even more days until expiration).
When I started selling options, I sold a lot of far out of the money, farther month ES ratio credit spreads. Sounds boring? Yes, usually they are very boring but profitable. Because of sky high margin requirements on ES these days, I have decided to trade something else to give me a better return on margin used.
I did very well recently writing August CL strangle. Back in early March when the media hyped the Iran threat and crude oil was trading at $110, I sold three August CL 140 calls for 1.21 ($3,630) and I also sold three August 80 puts for 1.11 ($3,330). My stop loss on this trade is if either premium doubles. The margin required for this trade was about $6,000 at the time. I exited this trade May 2 and booked a profit of $5,972.16. The premiums on both sides decayed so much that there was no reason to hold this trade until expiration.
In general these are the type of option writing opportunities I look for. I am fine with trading farther out months that offer higher time premiums. And I usually do not need to hold the position until expiration. A lot of times I can exit and book profits early.
Is this the "holy grail" of options trading? Absolutely not. I have suffered my share of losses trading this way especially when I do not follow my own stop loss parameters. But that is part of the learning experience.
Just my two cents worth. Hope this helps. And yes I will be there for the option sellers dinner or party or whatever you folks have planned.
I have been a so called "net seller" of option premium for many years. I have been profitable every year since 2003. The key is managing the losing trades, the winners will take care of themselves. Decide on how much you are willing to risk on your trade and no matter what do not deviate from your stop loss point. Of course, each trader's risk tolerance and account size is different so how much you are willing to risk per trade is up to you. If you are not sleeping well at night then you are risking too much.
I usually stay away from front month options. Yes yes, all the books say that options with 30 days or less until expiration has the best chances of time decay. While this is true, you would have to select strikes that are dangerously close to the money. Any rally or sell off will cause the premium to explode higher and you will probably be exiting for a large loss only to see the premium deflate in a day or two when the underlying goes back to normal levels.
I like to sell far out of the money strikes using farther months (60, 90, or even more days until expiration).
When I started selling options, I sold a lot of far out of the money, farther month ES ratio credit spreads. Sounds boring? Yes, usually they are very boring but profitable. Because of sky high margin requirements on ES these days, I have decided to trade something else to give me a better return on margin used.
I did very well recently writing August CL strangle. Back in early March when the media hyped the Iran threat and crude oil was trading at $110, I sold three August CL 140 calls for 1.21 ($3,630) and I also sold three August 80 puts for 1.11 ($3,330). My stop loss on this trade is if either premium doubles. The margin required for this trade was about $6,000 at the time. I exited this trade May 2 and booked a profit of $5,972.16. The premiums on both sides decayed so much that there was no reason to hold this trade until expiration.
In general these are the type of option writing opportunities I look for. I am fine with trading farther out months that offer higher time premiums. And I usually do not need to hold the position until expiration. A lot of times I can exit and book profits early.
Is this the "holy grail" of options trading? Absolutely not. I have suffered my share of losses trading this way especially when I do not follow my own stop loss parameters. But that is part of the learning experience.
Just my two cents worth. Hope this helps. And yes I will be there for the option sellers dinner or party or whatever you folks have planned.
That's a great post MJ haven't done a futures options myself but great to hear from other option sellers. We seem to be in the trading minority for sure as option sellers say "dull but profitable"
I'll forward your dinner invite
I have been a so called "net seller" of option premium for many years. ..
Sounds a lot like Cordier and his Liberty Trading stuff. Yeah it works, most of the time, and it may even be an okay idea on a smaller account that was not your main traing account.
When I do an option trade I always look at the risk graph. What is your max loss on the CL short calls? It isn't double the prem...
Sure most times you can get a trade off in time to null your risk, but what about a nightmare like you wake up Monday morn to find that Israel attacked Iran, other Arabs are joining the fight, most mid-eastern oil is embargoed, CL is limit-up for a WEEK, etc... Or something bad happened to the wheat crop, or China bought all the cotton, or... Goodbye account.
That may never happen, but open-ended risk will hurt you eventually.
I have been a so called "net seller" of option premium for many years. I have been profitable every year since 2003. The key is managing the losing trades, the winners will take care of themselves. Decide on how much you are willing to risk on your trade and no matter what do not deviate from your stop loss point. Of course, each trader's risk tolerance and account size is different so how much you are willing to risk per trade is up to you. If you are not sleeping well at night then you are risking too much.
I usually stay away from front month options. Yes yes, all the books say that options with 30 days or less until expiration has the best chances of time decay. While this is true, you would have to select strikes that are dangerously close to the money. Any rally or sell off will cause the premium to explode higher and you will probably be exiting for a large loss only to see the premium deflate in a day or two when the underlying goes back to normal levels.
I like to sell far out of the money strikes using farther months (60, 90, or even more days until expiration).
When I started selling options, I sold a lot of far out of the money, farther month ES ratio credit spreads. Sounds boring? Yes, usually they are very boring but profitable. Because of sky high margin requirements on ES these days, I have decided to trade something else to give me a better return on margin used.
I did very well recently writing August CL strangle. Back in early March when the media hyped the Iran threat and crude oil was trading at $110, I sold three August CL 140 calls for 1.21 ($3,630) and I also sold three August 80 puts for 1.11 ($3,330). My stop loss on this trade is if either premium doubles. The margin required for this trade was about $6,000 at the time. I exited this trade May 2 and booked a profit of $5,972.16. The premiums on both sides decayed so much that there was no reason to hold this trade until expiration.
In general these are the type of option writing opportunities I look for. I am fine with trading farther out months that offer higher time premiums. And I usually do not need to hold the position until expiration. A lot of times I can exit and book profits early.
Is this the "holy grail" of options trading? Absolutely not. I have suffered my share of losses trading this way especially when I do not follow my own stop loss parameters. But that is part of the learning experience.
Just my two cents worth. Hope this helps. And yes I will be there for the option sellers dinner or party or whatever you folks have planned.
What do you use as a stop loss?
I have seen all of the following suggested among others
- twice the premium
- three times the premium
- wait until it goes into the money a little
Also one has the alternatives of converting short legs to spreads, or rolling up the position.
Of course there is no one answer, and it depends on your bet size as a fraction of your account value, but I am still curious what different people use as their rule of thumb.
I have seen all of the following suggested among others
- twice the premium
- three times the premium
- wait until it goes into the money a little
Also one has the alternatives of converting short legs to spreads, or rolling up the position.
Of course there is no one answer, and it depends on your bet size as a fraction of your account value, but I am still curious what different people use as their rule of thumb.
For me it's generally twice the premium unless it's getting real close to expiration. If I think it's going to pin to a particular strike close to the money I may wait it out a little and let theta take it's course
