I think you should turn this into either an iron condor or a bull call spread + vertical put spread the more I think about it. It's not worth it to hedge with the underlying and roll. Cuz the underlying delta is too high in case if the market actually goes your options' way, you will be screwed by the underlying and your short options won't help you and roll won't help you much if the steamroller really comes along. And plus you can only hedge with the underlying on one side. When you hedge with options, you are hedging both sides. And like I said your strikes are quite close to support and resistance levels so you just need a bit protection and plus you have 3+ months to expiration, so theta will impede you much when the hedging kicks in. Even if you get whipshawed, it would still help you as long as you are able to execute it trades well and that you have to do that anyway even hedging with underlying. Strangles is good but only when you can REALLY milk it with outrageously fat premiums on BOTH sides and when you are really confident that they overcompensate the volatility otherwise it's really not worth it. I've done it a few times during earnings on couple of stocks and lucked out but that's when the premiums were really ridiculous that I thought people were really overpaying for the volatility even given that it's earnings time. Most of the time it's not worth it. The most you should do with naked shorting is one side only. Hope this helps! Really good luck!!
I was thinking about one other option (hehe). Currently this spread constisting of 4 x 43 feb puts and 5 x 62 feb calls, all together valued and approx 11.000 USD, but most of the value comes from puts (7.200 USD) and only 2.800 from calls. Anyway I think I fucked up mostly by rolling the whole thing which I had opened with 30 days till expiry and when panic selling happened I rolled it to feb, thinking I should get more time for it to work out. Now I see this was a mistake becuase my current position has a vega of -400 and theta of 200 so this is why I am loosing so much on this IV spike and theta does not help much. If I roll this whole spread back to january, now with only 19 days till those options expire and take some loss along the way, I can sell 3 x 44 put and 3 x 57 calls for about 6.000 USD. I take a hit of 5.000 USD but out of those 5.000 USD only 2.000 USD is reall loss, the other 3.000 usd would be profit. I started with 81k before this trade. So this 3 x 44/57 strangle wit 0.2 delta on both sides (similar to what I have not in feb in terms of delta) would give me about 6k if it expires worthless and I could just move it up and down in case of big moves. Also this lowers my open position from 9 options I currently have down to 6 and margin req would also decrease from 10k to 8k, not that it makes much difference. I think theta of this position would help a lot where as now when I still have 54 days to options expiry in feb it does not help much and vega is killing me.. In case CL falls to 45, I would just roll down 57 call to 52 or something, collect a hefty sum of money and maybe even let puts sit at 44 and have futures delivered to me at about 40, when deduction premiums from calls and put. At 40 I would be wiling to go long anyway or I still have an option to then roll puts down to February. At that time feb theta will be much larger and it would make more sense.. The way I see it my mistake was rolling way to soon and going in feb meant not much time decay and vega kill, but in jan things are much nicer, theta is really big on those options and even during the weekend position gains a large sum due to time decay. What do you think? Or am I just delusional and again making another mistake I copied your replies to notepad and will go through them tomorrow to see your suggestions compared to what I wrote. I am probably not seeing some points again, but I really think a big mistake was to roll this shit to feb. I also do not want to be nervous for 2 more month, 19 days I can probably manage hahaha.
I hope you haven't rolled the calls yet. The CL's price is now at 53, cutting it pretty close to the call strike of 57 that you were looking at there. LOL One thing you need to know about theta is that they only work for you when volatility stays low. Once the volatility rises or god forbid to "rogue wave" levels. all thetas go out of door. Even if an option is expiring tomorrow, you would still be f***ed especially if you are shorting a call. And rolling to a closer expiration date and a lower strike at the same time for calls is basically giving up delta for theta. Is it worth it? That depends. And it's going to depend largely on how volatile CL is going to be for the next 2 months. If CL is usually very quiet with not much action going on until Feb., then you might as well let them ride to Feb. until they expire worthlessly. I mean if nothing is going to happen to them, why take on extra losses just to increase the theta when theta is going to increase nicely on its own as times goes by anyway? And especially at the expense of increasing delta. If something is to happen, you would be subjecting yourself to higher chance of getting assigned or losses due to the lower strike on the calls (and remember shorting calls is unlimited risk when price goes up - remember James Cordier's mistake) while at the same time theta is going to disappear even if it's expiring one month earlier. So to me, rolling to a closer expiration with closer strikes at the same time is really taking on losses unnecessarily when there is no rise in volatility but getting f***ed even more should a "rogue wave" hit. If you think volatility is going to be low for the next 2 months then you just tough it out to let theta take its course and you don't need to do anything. You want to sleep better at night to protect yourself against any potential "rogue waves"? Buy some calls and puts to hedge. If you were going to take some losses anyway, it's better you spend it on hedges. My opinion. Good luck!
Hi JSOP, I closed the position - realized a loss of 4.500 USD, immediately sold 2 puts at 38 without any calls because I expected a price to normalize and OPEC doing everything to stop the slide and at 38 I would be willing to go long 2 futures anyway. It worked out ok because IV felt from 55 to 40 in a few days and when CL went from 50 to 54 I closed them for 50 % profit, then on the slide sold one put at level 40 which I closed for 50 % profit 2 days ago and all in all I am now without any position and with a loss of 3.000 USD. Almost all profits from this year gone so I will finish the year with like 1 % portfolio gain haha. Lessons learned, hope someone else can learn from my mistakes. All in all I am just happy I only gave profits back and did not loose my hard earned money Yeah it still stings but then I just have to remember Cordier etc to see that I still did ok playing with CL strangles when it was at 77 and "only" loosing a few % when it was down to 50.. What saved me was having only 1 and the 2 and at the end 4 contracts opened which in account of almost 100k USD was not being overly leveraged.. If I started with 4 when price began to slide and I tried to double down all the way to 50 I would have suffered a loooot bigger loss. Live and learn
Oh ok you did well. I would've personally held the short calls until expiration to have them expire worthless or close them out closer to expiration for bigger profit and meantime buy some calls to hedge just in case but I guess you never know. The put side is at least protected if you are cash-secured. Well now you can sleep well at night and have a relaxing Christmas!! A new year is another year!! Well done!!
Yeah, now that I look back I could actually come out with about 3k gain instead of 3k loss had I not panicked and held 4 puts and 4 calls till the end, but you know how this is... At the time it looked like a world is coming to an end looking at crude and when I checked the price action from a few years ago it was not unreasonable for crude to go as low as 25 which would be a disaster for my position. It would also send IV some 20-30 higher from already high level.. I was not sleeping well with open position and would nervously check CL when I woke up and then during the day at work etc.. So yeah, as soon as I took a loss and opened much smaller position to recover half of it I slept much better Thanks for help and kind words JSOP, wish you a nice Christmas and relaxing holidays.