yeah 5-1 as I look back seemed to be the start of the downturn the failure to move higher at that point seemed to set the downtrend in motion and it accelerated from that point. Hind site is always crystel clear lol
a brief introduction since this is my first post. I am an italian trader and I have been trading commodities options (Liberty style) for one year now. I have been trading since 2002 and selling stock options since 2009. I find myself very comfortable working with commodities options and I have a question for traders who are familiar with this area. I would like to improve my kwnoledge of commodities fundamentals and I would appreciate any suggestions about webs that offers good service in term of commodities fundamentals analysis. I already have a subscription to the Liberty newsletter and to MRCI. many thanks in advance for your help.
Whak kind of MRCI subscription is? I've got Liberty's newsletters. But MRCI is kind of paid information. Are you on paid subscription? Also I would highly recommend Hightower Report researches, both daily updates (huh, 20-30 pages every day of all commodities!) and newsletters twice a month. 2-week trial is free, you can create new with another email, but it worth the money! http://futures-research.com/
Do you do it, but you kind of hate it? It does nothing good for my nerves. I was brought to credit spread selling by a golf analogy. You can miss a put three ways. Left, right or short. To eliminate one, you always hit long to eliminate being short. You've got a 1 in 3 chance of winning. With credit spread selling, the underlying can do three things. It can go up, stay the same or go down. To win, the underlying can do two of the three and you win. A 2 out of 3 chance of winning My rationale, probably like most who do it, was hey, those are good odds... The problem is, the ONE thing it can do against you can really hurt you. I do it, but I hate it.
Great analogy. I do it too and hate it a little. I like to concentrate on that ONE thing that can go against you and "really" hurt you by managing it and not letting it "really" hurt you. Helps bottom line by a lot.
Hi All: I have been selling volatility for a couple years, and have formalized my strategy over the past couple of quarters. Since November 1st, I have earned .7% compounded on a weekly basis. A $1 investment has returned 23.87% vs. SPY's 5.41%. These returns are on a portfolio that is around $1.2M in value currently. I use IB with a portfolio margin account. Here are some assumptions I use: 1) Equity indexes do not crash to the upside. 2) Be paranoid of crash risk. 3) Avoid spreads of all kinds, butterflys, iron condors 4) Try to stick with options on indexes, futures for tax benefit 5) There is always more time and premium - it is your friend 6) Always make sure that I have 12 months without a need to withdraw capital to recover from any shifts in underlyings. 7) Volatility is a friend. 8) Understand fundamentals and technicals for ideas, but believe generally that most price action is entirely random. Here is some of what I do - kind of in a rambling fashion. Over the past couple of years, I have come up with a sophisticated chart of margin requirements for various underlyings. To avoid over leveraging myself, I only open up the number of puts or calls against an underlying such that in a worst case situation, I have enough margin to avoid a margin call and give me a chance to roll or move the position such that IB should never have to auto-liquidate. It turns out that the maximum margin required for a contract is ATM right at expiration. So, I have modeled a variety of commodities, indexes, bonds, etc. to find out exactly what IB's worst case margin requirement would be in a highly volatile market - assuming they don't change the margin arrays. Given some margin that I have allocated to a position, I can then determine the maximum number of puts and calls I could ever open up. Even though at the time I open the positions, I could open additional, I am looking at a situation where my excess liquidity approaches zero as the underlying moves towards my strikes at expiration. For example, I allocate about 50% of my margin to indexes, either SPX or RUT. RUT has a 9.32% margin array with IB at expiration. So, for an $800 strike, I would assume around $8000 / contract opened as my margin reserve. If I actually opened up $800 RUT calls right now for June 15th, the actual margin reserve would currently be around $5000, so I have $3000 as buffer. I then set a target for my returns. I look for around 1% / week return for my margin committed. I like to go 60-90 days out against my underlyings to give a wide range of movement. For example, right now I have Jul 19 RUT puts at $650 and calls at $850 opened. I tend to open these positions around 8 - 12 weeks away from expiration. If I am committing $8000 of margin to this position and there is 8 weeks til expiration, then I am looking to generate 8% * $8000 = $640 of income from the opening trade for 1 contract. Since I am paranoid about flash crashes and losing my portfolio value along with my belief that markets rarely crash >5% to the upside, I open up the maximum number of naked calls given my calcs and only open 20% of the puts. Opening about 20% of the available puts means that if I don't ever roll, I can sustain a 50% drop in the RUT before my portfolio value hits zero. And this assumes I never roll, earn any additional income, or reduce risk. In the case of commodities, I am more concerned with a price spike up - say an Iran attack on oil, so would be more cautious on the call side. Given the total number of contracts that I can open, I then seek out the right strikes and premium to achieve my 1% / week target. I can bias the strike selection based upon whether I believe the market is mid term bullish or bearish. If an underlying stays relatively range bound over the first 4 weeks of the trade, then I will have captured about 75% of the total profit in 1/2 of the holding period, close out the positions and move on to my next 8 week trade. If the underlying is trending, then either my calls or puts are under pressure and showing losses. I have a simple strategy, which is if the underlying gets within 5% of my puts, then I immediately roll out and down. Even at 5% margin of safety, I find that I can roll out a month, down 5-8% AND still pull in another month's premium. With calls, I will wait for a 3-4% margin of safety before I roll. Any time I roll, I tend to take 5% of the contracts off the table - just see those as losses as a way to free up some more margin and to breathe more easily at night. Even though I didn't roll 5% of the contracts, even after the roll with the additional premium, my cash position has increased and I am still earning good income. I have backtested these philosophies against 2008 - 2009 and would have been able to ride the wave down. There would have been a significant draw down of capital for about 6 months, but would have broken even after around 7 months, with the remainder of 2009 showing some strong gains - with the two years combined generating around 15% compounded. I apply this method to a variety of underlyings. Right now I have oil, silver, cattle, TLT, and the dollar index. I also reserve about 5% of my portfolio for high IV equities such as GOOG, AAPL. I do about 50-60% of my margin on RUT / SPX, 5% on cattle, 10% on bonds, and blend the rest. I never - ever - ever do spreads. There are a number of reasons: 1) 2x the commissions. 2) Rolling ITM spreads almost always costs a debit, vs. rolling ITM naked calls / puts earns income. 3) It can be hard to roll a 4 legged order to get a fill - but rolling naked puts / calls is only a two legged order. Important in case the market is moving fast. I tend to find that simpler is better and more profitable... Enjoy and stay profitable....
Hi guys, Empirically its well documented that index implied vol is at a premium to its realized vol, and so there is an opportunity to systematically short say the ATM straddle each month to try take advantage of this. There's lots of papers from the big banks etc showing back-testing results how despite '08 crash, systematic vol selling is generally positive returns in the long run (upward sloping equity curve). I personally suspect that that equity risk premium is usually not 'enough', and selling naked straddles each month will generally have you in trouble in the long run. Am I wrong in my assessment? or am I missing something in those research papers?
1) No, but you write combos, 2x the comms. 2) Say whaaaat? 3) Refer to #1 I will wager that I can improve (with a spread) on any naked position you're trading.