Option Income Portfolios

Discussion in 'Options' started by xtrhvydty, Sep 2, 2006.

  1. Searched but found no discussion on this topic -

    1. What is your annual composition of option strategies? For example, do you trade 20% butterflies, 20% calendars, 20%short verticals, 10% exotics, 15% diagonals, keep 15% in cash etc.

    2. What is the approximate % revenue attributed to each of your strategies?

    3. What is your basic option trading philosophy? IV trader, theta scalper?

    4. What have you specialized in? What have you learned about this strategy?
  2. Come over to the SPX Credit Spread Trader thread where we disucss credit spreads on SPX and diagonals and FLYs, as well as on other indexes. Lot of us making income month to month and you will get good varying answers to your questions..
  3. I'm a directional trader.
  4. Thanx you guys - I have been following all of your posts and have learned much of risk management and trading strategy from you. But I am curious as to the actual breakdown of the portfolio composition for option income traders. For example, based on my limited trading experience and exhaustive what-if scenarios with the spread simulator, this is my current gameplan:

    $20k account
    Conservative end estimates:

    1. ES wide Butterfly: 1.5k debit, .5k gain x 2/mo =$1k mo
    [Vega negative, limited loss, wide range, little adjustment]

    2. NQ Batfly: 1.5k debit, $2k gain x 1/mo=$2k
    [Vega negative, limited loss, wide range double butterfly]

    3. ES put calendar: 1.5k debit, $1k x 2/mo=$2k
    [Vega positive, limited loss, attention sensitive, tight range]

    4. ES DOTM ratio credit spread : 1.6k credit: $1.6k x 1/mo=$1.6k
    [Vega positive, fixed gain, loss only @ 60 points OTM, 1.4:1 call ratio, 100% max loss possible with IV spike, most scenarios benefit from IV]

    VIX backmonth options to hedge vega risk when spreads 3, 4 closed: Nov, Dec: $2k

    Net spread debit at any time: ~ $.4.5k
    Net monthly income estimate:
    $6.6k/mo max x 50% uncertainty= ~$3k/month

    1. There is also the possibility of another $3k+ in the first 3 spreads. I diversify the sweet spot on spreads 1.-3.
    2. Assuming 2 annual disasters @ 4.5kea=-$9k. If these are consecutive I still have ~$10 in the account.
    3. For business as usual, delta/gamma/vega risk is contained and timely adjustments are possible.

    Comments/criticism/personal shots always welcome.

  5. definetly no need for personal shots...
    xt , you are wasting your own time , man. Your business plan shows a monthly return of 15% in the low risk environment. Ask yourself if this suppose to be so easy ? What about all those hedge funds that specializing on derivatives than ? Why they having such a hard time to hit a low double digits ?
    I went briefly thru your strategies and I see just a lot of trade offs , nothing else. Edgeless . Anyone of them carries certain risk/reword , odds and probs. Nothing more , nothing less.
    Good luck , xt
  6. Don't trade w/o a directional or volatility bias. Keep it simple with few legs. Sell delta straddles if you want to short gamma and take a directional bet. There are thousands of traders who have become rich with a simple short gamma strategy.
  7. frame it , B. Can be a bestseller as it is , just add "The End"
  8. I was about to highlight his response and say "even I understand it":D

    Totally agree you HAVE to have either a directional or volatility bias because those are your risks to make money. And X I think 20K is too little to actually make money in options. Not saying it can't be done but highly unlikely because when you need to adjust a strategy you have to have extra cash. To properly allocate your $$ your number of contracts have to be so small that even IB commissions would eat you up.
  9. 100% short puts based on the WTF chart study.

    coach, being up at 10am on a Sat morning is just wrong. Wait, i forgot you have kids..LOL
  10. Great replies and many thanx - if I''m not being too nosy may I ask what are your bread 'n butter spreads?
    #10     Sep 2, 2006