Selling delta 3-5 ES Puts with 40-57 days left

Discussion in 'Options' started by tradelosses, May 20, 2016.

  1. very easy money. Up on all positions despite market falling 3% in the past month

    One strategy is to to sell puts while delta heding by shorting SPY. Selling 10 ES contracts at delda 5 gives delta 50 which means you short $50k of spy to stay neutral. This works for the first 1% decline. Odds are the market will stay flat . Simple strategies like these make good $. Out of all the strategies I have done , this seems to be the only one that works. Predicting the direction of stuff is too hard because markets no longer trend like did from 2009-2013 or from 1982-2000
  2. 1245


    How well did you do the 1st week of Jan 2016 or mid August 2015? Not so easy.
  3. such events are very rare. I have begun doing this a month ago so I woudn't know but I imagine it would be bad. In such an event, after the market is down 2% or so (in a single day), I would close the position and move the puts out to 120 days

    It's actually riskier selling naked calls on the SPX because you have much less wiggle room on the upside due the skew. To get delta neutral selling calls you have to sell at a much lower percentage than when you sell puts
    Last edited: May 20, 2016
  4. newwurldmn


    I did a study on this about 10 years ago. You are better off selling puts naked in smaller size than selling them delta hedged in bigger size. I scaled the two positions to have the same pnl in a -10percent shock.
    cjbuckley4 and 1245 like this.
  5. ktm


    You should do this quite a bit more to get a feel for how it will work in all markets. I run a series of spreads that benefit from the same type of market conditions. In the past few months, making 20% to 30% per month has been like falling off a log. There are many other times - and many other types of market behavior - that result in far different outcomes.
  6. Maverick74


    Are these threads real or just trolling? Look at the guys name. LOL. The safest way to sell premo is ATM. By faaaaaaaaaaaaaar the safest way. Selling 5 delta puts and earning less money then what's in your coach and loading up on margin with the underlying? Come on guys....
    Chubbly, kcgoogler and i960 like this.
  7. Remarkably naive...Did you start trading after last August? On Aug 24th (if you can find the data), take a gander at what those 5 delta puts were trading at just 1-2 days prior...You would be looking at 50 fold losses...Sadly, there are many people who become addicted to this type of trading because, like you've noticed, it always "win's" until it explodes spectacularly...And the other problem is that when it does, the bid x offer on those puts is a mile wide.
  8. 1245


    ATM option selling requires work and paying attention. You can't do that while you spend 40 to 50 hours at your job. I've known many "traders" that can sell the 5 Delta options part time. If it were me, I would focus on the 25 delta options. You don't sell as many to get the same credit, and don't have the same tail risk.
    Chubbly likes this.
  9. Maverick74


    Nope, quite the opposite. Selling ATM options means you can afford to sit and be patient. The market is paying you handsomely for your risk. You don't have to react to every up tick and down tick. As the market moves away you lose gamma which is what you want. Gamma is your cost of action. As gamma goes down, you do less, not more.

    The opposite is true for the DOTM seller. He/she has gamma explode in their face when the market moves down. As gamma gets larger, they HAVE to act, their margin will require them to. Imagine being in a meeting at work and you get a text from your broker...add more capital now!!!!. LOL. Hey it happens man. OTM gamma is impossible to manage.

    Sell the ATM straddle and sit on it. No need to over react and trade up a storm to hedge. Get out an excel sheet and run the numbers, hell I'll do it later if I have time. I'll show you that the excess p&l you build up during the quiet market pays off in spades vs the nickels you make selling 5 delta junk then getting market correction in your face where you give up the house.
  10. coolraz


    I'm curious how you manage ATM puts? Yes the theta is very high but your delta to start is .5, so if market trends against you it will go ITM and your theta disappears?
    #10     May 20, 2016