That's more or less in-line with other skilled vol sellers assuming a relatively conservative model. How did you do in August 2011 and in February of this year?
August 2011 was a very small gain. I had not yet deployed all my capital and when I started only a small fraction was on SPX. I thought at the time diversification was key and had strangled on gold, oil, currencies, cow, and probably frozen concentrated orange juice. The profits were solid but it was too hard to run the strangle system across a diversified set of assets. I eventually realized that trading one asset where you can gain price behavior intelligence was less effort and equally profitable. February was a massive gain month for me this year of close to 6 percent but this is after January was a loss of 5 percent. The q4 and January melt up left me with dozens of naked ITM calls that I had been adjusting and digging out. February gave relief and put a bunch of puts ITM after I dug out all my calls.
You essentially shorted strangles and your Sharpe is __? Anyway, a 25% CAGR for over 7 year is impressive in any book. I have another question: If you are non directional your profit should not depend on whether the underlying is up or down so why are you losing money in q4 and Jan but made money Feb on?
I need to learn vol selling if the average skilled sellers are making on average 25% per year with a relatively conservative model! Have been studying flies and condors from the fly treads and done some simulations. What is your opinion on the 231P flies? Thanks.
I used to track my sharpe ratio but it hasn’t been updated in a couple years so the data would be useless at this stage. It was generally a little better than buying and holding spy, which was my comparison benchmark. My system has adjustments if calls or puts go ITM, which happens frequently. In q4 the market was a relentless move up and I was floating 100 naked ITM calls for a number of months. My adjustments have them roll out, roll up and using put premium being sold slightly OTM to pay things down. During December and January I took losses as the calls got deeper ITM. When Feb came around and the market corrected all my call losses became profits and then had some puts ITM. The losses on the outs were a fraction of the calls and then repeated the process of digging out puts with selling aggressive calls OTM. Eventually the market settled down and everything was OTM and expired. When that happened - all that time premium that I had been collecting eventually turned into profits. I am willing to let anything go into the money because I can dig it out with enough time. I can absorb a 50 percent stop in the market and a 20 percent rise before my first adjustment.
good for you. Sounds like you've done your research and tested your systems. the 100 ITM naked calls must have been nerve-wracking. To withstand that, you've got to have faith in your systems!
The ITM calls weren't as much nerve-wracking as they were tiresome. I never had any fears or nervousness that I was going to permanently lose the money. Whatever goes up with price in SPX eventually comes down. It's just annoying to see the market continuously meltup for a few months and you are waiting for the eventual correction. While that is happening I just sell a lot of ATM puts waiting for the correction where the big money is made.
spoken like a true veteran. love it! i guess you're selling ATM puts because those will gain the most when the correction does occur? (and then offset the losses on the calls). i.e. as opposed to OTM or ITM
If I have 100 calls that go ITM, then I am selling roughly 60-80 puts ATM because that is maximum theta and income collection. I use the income to close some calls. I just never let my cash decrease. All of my adjustments of rolling calls or puts is to increase cash. And then I use some of the cash to reduce risk from ITM calls. When the market corrects, my puts and calls will be ITM, but the number of puts going ITM is fewer than calls. When the calls were OTM (and it happened fast in february), then I opened up 60 or so calls that were 2-3 % OTM to start working off the puts. And kept repeating this until everything was cleaned up. And eventually all that cash that I had been collecting from adjustments expires OTM and becomes profit.