Now that June options have expired, I have a question on the point at which we start looking at adusting positions. Coach, I believe you've been advocating a distance of about 15 points between a short strike and the SPX price to consider pulling the trigger on an adjustment (I hesitate to say start considering an adjustment, since I think you need a plan well before this point). But, I'm wondering if this distance (15 points) should be a function of volatility (maybe the VIX). So maybe 15 points works well in a low volatility environment but a higher number should be used in a higher volatility environment. Just to throw this out, maybe 1 strike point for each VIX point. So if the VIX is at 15, then 15 points difference. If the VIX is at 20, maybe 20 points. I have no basis whatsoever for assuming that this might be linear. And, regardless, maybe the minimum needs to be 10 to 15 points. Any thoughts on this?
Just realize that the premium 200 points OTM is just as scarce as it is in the SPX. Despite the better SPAN margining the pricing approach still holds. For July, 1130 or so put spreads will yield only $0.15 to $0.20 and that is just over 100 points OTM.
I think that is too random to be consistent. Use your technical analysis and market conditions to decide if an adjustment is needed. In a quite market with dips, a 15 - 20 strike OTM is a good general guide for adjusting. However if the market is more volatile and brekaing support or resistance, depending on how much time to expiration, you may need to adjust sooner. For example, in my positions I adjusted 30 points OTM given the large drop and the CPI numbers coming out. To be honest I have tried to give a general approach with the 15 to 20 point benchmark, but in all honesty, each adjustment comes based on the market circumstances and perhaps it is just my experience that I rely on. Others may adjust when the premium hits a certain point or the index breaks a key support or reversal. I tend to use a combination of all these factors as best as I can.
Hey, Coach. You still up. Are you practicing for the coming event. I guess once the bundle of joy arrives, we'll be able to look forward to a lot of late-night posting Yeah, I need to look at the quotes. Do you think the liquidity and pricing are better selling a single option (i.e. naked call position) then the spread (similar to the SPX). Also, do you think the SP is more liquid than the ES?
Yeah alone in the house practicing the late nights lol.... I found decent liquidity so far in ES. Selling a single naked options may require less margin but it does not change the risk really. The SPAN may allow you to sell more naked calls than you would call spreads so you might take in more premium for the same initial risk but of course naked options have no cap on that risk. It is hard to talk about recommending naked ES options since they could hurt but markets do tend to rise slower than they fall- usually. The beauty is that you can go long futures if it gets close and is moving stronger but of course that adds another layer of risk. My advice is to play them with spreads first before testing the waters with naked calls. With respect to ES v. SP, I can only make my own ignorant assumption that with ES being electronic it might be easier to get in and out of position than the SP but I someone said SP now has electronic trading so not sure anymore. I would stick with ES for now since the numbers are smaller. Maybe you can demo IB and play with the ES options as paper trades...
Thanks, I just want to be clear. I would only consider naked calls on futures options, if and only if, I can go considerably more OTM than I would on my normal SPX credit spreads for roughly equivalent premiums. For me, it's not a question of being able to potentially put more money at work because of SPAN (it sounds good and maybe in the future but certainly not now). However, it is true that I can only even consider such a strategy because of the much lower margin requirements of futures options versus SPX options. I think I'll start following the delayed quotes during regular day hours (not much happening right now at this late hour). Then if I'm still interested, I'll try your suggestion of demoing with IB.
Now that June positions have expired and margin is free is it possible to collect some premium selling end of the month expiry on ES?Thanks for the replies
Now that June positions have expired and margin is free is it possible to collect some premium selling end of the month expiry on ES?Thanks for the replies