i traded similarly this year to you; but with some differences. i would of course be interested in others who share these experiences. i traded er2 naked. 12% to 15% otm. i spent 5% to 10% of each months earnings buying debit spreads just above shorts and more recently long qqqq puts(which i am leaning toward because i can buy a large amount for little and have a major impact) er2 gives 1pt to es .5 for the same margin. i took out my earnings (70k) and plan on paying taxes. this year (2007, but started in dec2006) i will exclusively do spreads the same distance out, trying to credit 1pt plus for each. i generally will have some more longs than shorts in the spread, and hedged with long qqqq's. the margin requirement is very , very small, so to answer your point about adding to the position with earnings....yes i do. i am confident that reducing the chances of needing to manage the position by being wotm is one of the only ways to generate actual , reliable income. with or without the hedges in place i have and will continue to roll another 7% otm if necessary. that would mean a 19% to 22% drop before i start to lose money. with more long puts than short, this is all possible. i will add; i have been doing this for 12 years fine tuning all along the way. i have seen and endured the big drops, it take very clear thinking. one cannot over emphasize management. also, it was nice to see riskarb posting on that other board. if anyone knows where he may be active; i would appreciate a pm. thanks
End of Year: 1.Pretty much given up on IC and credit spreads. I just don't get it. 2. Learned about TOS, calendars and DD, an acquaintence of vega and volty. 3. Gradually decreasing my trading losses. 4. Learned a painful lesson in following "expert" on specific trades -- attended virtual trader seminar and got clobbered on the trades. 5. Made improvements in trading plan and style. The new year, I will focus on 1. understanding and implementing: Position size, Positive expectency -- risk/reward, probability. 3. Continue my small lot trading until I feel comfortable with the new trading style. 4. Expand and improve my trading plan. Thanks to all for your help and advice. BTW, here is a link for a FREE 64 mb usb flash drive http://www.maniaplay.com/giveaway.php
Excellent journal. Out of curiousity, wanted to know whether options on futures provided larger premiums than their index counterparts. For example, does the ES 1500 call yield the same amount of premium than the SPX 1500 call or are the premiums lower or higher? I do not currently trade options on futures but would like to do so for 2007. Unfortunately, I cannot compare premiums myself as ToS does not offer this as of yet TIA.
Best idea is if a particular trading stlye does not fit or match your trading personality then move on to something that does! Good Luck!
Found this post earlier in the thread (July 2006). If anyone has a link to this article or point me to where I can locate it, it would be much appreciated. Thanks
Option prices are similar between the futures options and index options. If there was a real price advantage to one or the other, it would quickly be arbed away. You will see different prices in the scenario you asked about below. ES is the SP500 emini futures contract. The futures contract has a premium over the SP index itself. So to compare the SPX 1500 call, you would need to look at the ES 1505 call (or thereabouts, depending on PREM). Not a big difference, but just to be clear... Which is not to say there aren't significant differences between trading ES and SPX options. Keep reading (or search) the thread and you will come across multiple discussions on the topic.
The article mainly discussed the difference between span margin and reg-T. It said you can get higher leverage and lower commission trading future options.
Jeff, 1. I think we just have to be aware of the underlying futures based that the options are priced especially if we are trading time spreads. 2. Future options are settle with future contracts except at future expiration month. Please let me know what else we have to consider as I am moving to trade future options this year too.
CME has some great mini-Brochures on the e-mini futures and options on futures. I think just a quick read through one of those is enough to highlight any significant differences or lay out its basic characteristics.