Why have you chosen 30% of account size for initial margin? Interactive Brokers will have Chicago pit traded futures and options by the end of the month apparently.
When/if these strangles get into trouble that reserve will come in very handy for my defense tactics. Excellent! I hope that's not one of those promises that's been floating around for years?
Are you going to delta hedge when the strike is hit? The IB rumour has only being floating around a few weeks!
When one side gains 50% of the initial premium I will buy it back at a loss and sell a new strangle with more total premium than I bought. This will leave the position unbalanced (i.e. 1 call and 2 puts) but I like it because it means I'm weighed in favor of an occuring trend, if it continues I keep buying back calls and writing new strangles and after a little while I can start closing the puts for a gain. If there's no trend or it reverses I'll just buy back the nearest put and write a new strangle so that the position is balanced again (2 calls and 2 puts) but by then the further OTM options usually have lost enough value to start thinking about taking profit. As you might guess this leads to nearly perpetual trading, but once in awhile both sides do close out or there are no new strangles worth selling and the entire position has to be closed since I do not want to hold naked calls or puts by themselves. $15.77 RT
Ankle, I came across this, and thought I'd share an experience. I sold some strangles on ZB last summer. And true to the word it can strangle you. It was in June last year I believe, ZB was 114-115 and I sold a 112- 118, thought it was safe for 2 weeks to expiration and no economic news. Out of nowhere, Bill gross went around all TV stations and mentioned his usual idiotic commentary that the US economy was weak, inflation is low, blah blah. Next thing you know ZB shot up to 119. Of course, had to take my loss. Best.
Thank you for sharing that, ClearWater. A couple of times I had similar losses during paper trading where the market blew through my stops. Trading strangles this way you definitely have to be comfortable taking losses (big and small) but stick to the plan. I was able to stay with my plan when paper trading, now I get the chance to see if I can do so with real money. I fully expect to get hit with a large loss sometime in the next month or two.
Day 4 January 23rd, 2006 Fills Bought 1 ECH6 1250 Call @78 Bought 1 ECH6 1180 Put @13 Open P/L +$30 Closed P/L -$325 Notes: I was unable to defend the EC position due to my broker's platform so I decided to close both sides and take my medicine. My trading and journal may be spoty in the coming days as I switch brokers.
While you are on a hiatus, maybe you should think about following. 1/Writting strangles or spreads on both sides at the same time is a losing proposition unless you have a knowledge of a riskarb or better and 200K account or better. I cannot be done with less then that. 2/Writting credit spread on one side only is the best way to go for your size account 3/Nobody can write profitably( long term ) without forecasting volatility or reversals. Unless 1/ applies to him.