Discussion in 'Journals' started by Sweet Bobby, May 18, 2016.
OP, how much does SPX has to fall for you to get wipedout?
You are getting comments from people who know exactly what your strategy is about. Selling short premium is something many option traders here are very familiar with and also it takes a basic knowledge of greeks to understand the strategy even if one is not trading it. Greeks are theoretical anyway, not accurate measures of real risk in being short vol and gamma. This strategy works in specific market environments until it doesn't and then you have to find another strategy. So just look at it as the strategy du jour, not the new discovery for long-term trading profits. Vix is relatively low and this strategy can work well for a while but then it doesn't. It is a strategy to use for specific circumstances, not month to month blindly no matter what is going on in the market.
What is unrealistic here is that you may not be fully accounting for commissions and taxes to net out what your real actual return would be versus simply buying the index and that is where you really learn how good or bad this is. As I said finding the spots to go in and when to stay on the sidelines is the edge, not imaginary greek measurements.
This is why brokers lover monthly premium selling strats...
Daal, that's not really how I look at it. I stress the account for an up 15% move and then I stress it down by 20% with a 30 point increase in volatility. I don't perform a wipeout calculation.
Correct. This strategy is only viable in low volatility environments and would never survive something as volatile as Brexit.
But wait . . It did survive Brexit! Snap!
A wipeout number is meaningless. Let's say the number is 40%. What are you supposed to do with this number? Stressing as Bobby is doing with 15-20% moves seems more appropriate.
Brexit is a one day blip, not a a volatile market.
But you claim you are up 12% since April which is 8.4% after taxes since this strat is inefficient for tax purposes. (all short-term capital gains)
As of yesterday's close, Nasdaq is up about 9.1% since April 5th.
Oh SNAP! You got beat by a buy and hold index return!
^ Because returns on the Nasdaq are tax free? LOL.
I agree. The 87 move was like 21% or so. Although I don't expect such a drop, I like to know approximately where I'll be if such a move occurs. You simply have to assume some risk with this strategy and I fully accept the risk. I really do my best to minimize risk the best I can upon entry. I maintain negative deltas and I don't want to use more than 30% of my buying power. I even attempt to limit my losing trades to a loss equal to 2x the initial credit received. So far it's a well running machine. I'm no fool. I know there are significant risks.
They do not generate a taxable even until closed. His positions are open and closed generating commissions and returns. C'mon, everybody in finance knows that...index returns are measured long -term buy and hold for comparison if you just held and did not generate commissions or taxes what return woudl you get versus a strategy with high turnover. You need extra returns to make that strategy worth it versus the buy and hold.
How much additional risk is being put in to basically come in around the same as buy and hold. Selling premium is an event specific strategy not a month to month blind open and close approach. I made money with it picking the right opportunities to get in and knowing when to stay out. That is the edge. Not imaginary greek numbers.
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