Es Otm

Discussion in 'Options' started by asdfghj7, Apr 26, 2009.

  1. I'm pretty certain most would agree that deep otm put options in the ES s&p futures are extremely unlikely to ever be hit. These would include 3 to 12 month expiring options, with strike price for puts at 600 and below. You could also go farther out with leaps on SPY if you wanted even higher time premium. I'm currently brainstorming for a strategy that takes advantage of these $100 to $500 premiums that close otm each and every month for the past number of year. In the past few weeks, I have come up with numerous ways to trade this idea. However, they all pretty much equal each other in risk and reward. However, my goal is to devise a strategy that allows me to use the 'MOST' amount of leverage possible Recently the ES plummented all the way down below 700. I don't believe many were expecting this, and I'm pretty sure that traders who currently used a strategy similar to mine, got eaten alive if they didn't plan for catastrophy. I believe that this can be avoided if the worse case scenario is the basis for the entire trade. I mean serious serious serious worst cast. I'm talking so serious that my trades would cause losses even in your account. With that said, how would you trade this type of strategy to get the most leverage taking worst case scenario as your basis. Selling 2 to 3 ES puts OTM every 3 to 6 months is nice for some people. I want to know which methods would have the highest leverage of all trade ideas.
  2. Yeah, and what happens if the S&P falls to 500?
  3. The method would take 500 and any other price below 500, into consideration prior to getting in. The trade would take absolute worst case scenario prior to our getting in, so 500 isn't low enough to devise our strategy around.
  4. I think you just invented selling deep OTM puts.

    I say go with it and leverage it as much as you can. If anyone talks to you about the fact that IV exploding back to 50 or above on another spike lower blowing out your account and margin, just ignore them since despite the fact that happened several times last year, you probably already took that into consideration and fully understand how IV works on options.

    Yes... I am being sarcastic :)
  5. '..... the worse case scenario is the basis for the entire trade.'

    If the above is true, then not only price, but volatility levels prior to the trade and hypothetical future volatility extremes or stagnet movement after the trade is initiated, would be considered prior.
  6. C'mon, this is simple arithmetic. Vega will not be your primary concern at SPX 500. You'll be staring at a >20x loss on premium.
  7. Would you please provide an example?
  8. this is retarded, you want to sell otm puts to pick up some pennies, and you want us to tell you a magic way to protect against blackswan.

    talk to madoff, maybe he has some ideas.
  9. SPY at 86.66. SPY Jul 70P at 1.20. SPY at 50.00 = SPY Jul 70P at 20.00 + premium on Jul 70C.
  10. I've been following your posts for awhile now and you are always searching for something new. That's not a bad idea.

    But why maximum leverage? Don't you recognize that comes with maximum risk.

    I get it - you want to bet against an event so unlikely that there's essentially NO CHANCE it will happen. There are two things wrong with that scenario.

    1) If it's that unlikely you will not be able to collect much premium.

    2) I don't have the exact numbers, but when we had the meltdown in October 1987, people wanted to know how likely that event was - obviously worried that it could happen again. Here's what I remember of the attempt to explain it to the layman:

    If the stock exchanges had been open and if trading had begun on the day of the big bang, and if we had been trading every day since then - with no days off, then the probability that a decline of the size we had that day was still very much against the odds. But, it happened.

    Why would you want to risk your entire financial future on that possibility? Do you really believe you can earn enough money to take that risk?

    But better than that, why do you believe some broker is going to allow you to take them under when you get destroyed? Why would any broker allow you to own such a position?

    And if you are using maximum leverage with MTM accounting, what are you going to do when the market declines just a little and you get a margin call?

    Your decisions, but my questions.

    #10     Apr 27, 2009