I wish to report a new short straddle for the MAY08's. This time I did an "unbalanced" short straddle. I sold 3 P1385 at $26.75, and I sold 2 C1385 at 25.50. Total premium received: $6562.50. Initial margin for the trade: $17,296. My profits will improve if the ES settles near the extremes of the straddle; if the ES settles closer to the strike, then the balanced straddle will have better profit. Based on two and a half years of data, I decided that there would be a slight upward bias this period. The VIX, at the time of trade, was 20.47, and it appears to be trending downward. As of Friday, 4/25, the ES settled at 1397. The P1385 settled at 19.10 and the C1385 settled at 31.20, giving me a weekly paper profit of $568.50. Current maintenance margin: $13,758.00. Again, I will report on this trade weekly.
If I were you, I would have made it balanced as in what you did in the past, and the repeat the process until I am 82 years old
It's based on my prediction that we are towards the end of the current bull run and heading down again in may. That's why i wrote the call spread first, as the es drops to the next support which is 1360 i will leg in the put spread at 1 level lower at 1330/12XX to make it an IC. I work full time so cannot monitor this all the time intraday, my trades are based on the target price at expiration, and not a quick in/out every few days. Last month when i wrote the IC, es was in a pretty balanced state at 1300, now it's definitly on the high side. And volatility is significantly lower, so cant write 100 pt otm options anymore. Just think it's too risky right now to write the put spread and seal off the floor.
JWcapital, It seems to me that your risk is tremendous. If the ES breaks from a trading range. You will lose an insane amount of money. Am I wrong on that assumption? Why not sell the straddle then buy the far away Out of the money calls/puts to limit your risk? Any comments?
How does that reduce risk? You will need to increase your position to receive the same premium as the cloes atm contracts he wrote. If the es does break out of the range like you said, your otm will quickly getting closer to atm, and now you are losing even more money due to the position size. The furthest otm you can realistically write is 1440 - 1320 range at 5pt each, hardly a "safe" range. He will needs to increase the position size by 5X!! to receive the same premium he did with his straddle. Every trade is risky, jw likes to write small position atm straddles instead of otm strangles/ic. It's just 2 different plays /shrug.
I also have a sliding stop loss that I use each week. During week 1, it is 50% (of the total premium); week 2, it is 40%; week 3, it is 30%; week 4 or week 5, it is 20%. So, in other words, suppose the total premium received is $6,000.00. I am willing to risk $3,000.00 to make $6,000.00 during week 1, etc. The market basically has to move 4% in either direction for me to just break even this period. I am willing to incur some risk; hence the sliding stop-loss. The VIX is an important factor in determining the extremes. Obviously, when the VIX was around 30 (recent peak), the move would have to have been a 7% move in either direction for me to break even. Even when the market dropped from 1330 to 1260 on MLK's B-Day, that was only a 5.2% drop. Remember, the VIX doesn't go from 10 to 30 in one day. It trends like anything else.
This is an excellent comment. An IC comes with more insurance and less profit and more margin requirement; a short straddle comes with less insurance, more profit, and less margin required. I have done strangles, but no Iron Condors. I didn't do well with them, especially when the market approaches the strikes. The added insurance from the long options helps, but they cut into the profit. I found mark_nyc's comments about the long options eating into his profits educational, to say the least. Correct me if I'm wrong, but newguy does repairs and exits losing positions as warranted. In addition, he uses technical analysis to determine his moves. All I use is the VIX, its trend, and the total premium available.
ES finally broke 1400, currently at 1411 on weak volume. This is the last big push i see getting the bulls on board before the selloff at the beginning of May (by next week). If it hits the 200 MA at 1420ish, i will be selling ATM calls with both hands. Will worry (adjust) in the unlikely event if the market gaps pass the 200MA on strong volume. Shorted 2x ESM8 at 1412 AH
Would you sum up your positions and when they were placed as of Friday, May 2? It would be easier to follow your progress and thinking. On Friday, the high for the ESH8 was 1427; so, I assume you did place some ATM calls. Did you go with naked calls or did you do a bear call spread? Do you have any naked puts or any bull put spreads? Thanks.
Week 2, May08 short straddle update. The ESH8 closed at 1415.75. The P1385 closed at 7.25 and the C1385 closed at 38.00. My maintenance margin is $12,108.00. To date, the straddle has gained $1,666.00. To recap, I am doing an unbalanced short straddle--3P:2C.