Want to make 1k / month on 100k, selling options.

Discussion in 'Options' started by Tomaz26, Feb 26, 2018.

  1. Tomaz26


    Do you think this is doable with limited risk, or should I look elsewhere to get that return? Trading futures, etc..? I had quite a success in 5 months selling iron condors and strangles on commodity options, but I think I was taking too much risk. I managed 70 yearly ROI by selling far OTM calls on natural gas before it tanked and on some crude oil futures options. But I was lucky not to experience any dramatic moves. I learned a lot during those 5 months and found out that my strategy is just disaster waiting to happen. I can collect 1k usd per month in premiums until some dramatic move in the underlaying happens and I loose all my gains and then some..

    I want to be able to live off of about 150.000 USD in 5 years (currently at 100k). Before thinking if I am crazy, let me explain that I live in Slovenia and that our average salary is about 1500 USD. I was also thinking about moving to Asia or some other even cheaper location.

    So should I continue with selling options on commodities but diversify more, not to take too much risk in any one of them? Should I do this each and every month or wait for huge moves when IV get really high and take advantage of it? Until now, I just sold another strangle when previous one expired and did not wait for any IV increase, but this last time I was a week to fast, so when CL tanked my position was hugely underwater (sold strangle with 76 and 51 legs). I had a feeling CL will bounce back so I just waited keeping fingers crossed and I exited my position last week with some small profit.. I figured if I only waited one week more I could sell hugely inflated puts after this move down and take some nice cash. But on the other hand, those moves are rare so if you wait only for those, you sit mostly in cash.. Not sure I can make enough returns this way..

    Also I was selling only 25 to 40 DTE and deltas of 0.02 to 0.03.. I see most guys that do this successfully rather sell further out like 90 to 120 days and with bigger deltas, where you can then close the trade with 50 % profits after 30 to 60 days. The way I way doing it I almost had to wait until expiration, because commissions were huge.
    Just for example, I did one trade where I sold CL spread for 0.02, took in 1.200 USD in premium and paid 550 USD commissions on IB :)))).. I do not want to think what would happen if CL would increase dramatically that time.. I used 20 % of capital, but still..

    So how would you go about it if you wanted to make about 1.000 USD on 100.000 USD capital. Stick to options where you do not need to guess which was the underlaying will move and still make money or do more directional plays with futures etc..

    thanks for help guys

    best regards

  2. cvds16


    nobody can help you with these kinda general questions ... you have to come up with a system yourself and trade appropiately. Your system will tell you what your best way is to go about it ... I'd advise you to papertrade for the time being cause you seem only at the beginnerstage of a really long journey ...
    bone and d08 like this.
  3. Tomaz26


    I think I am one of those people who discovered selling options and thought I found the holly grail :) Looks good on paper and while markets are normal, but you can never predict black swan event and boom, there goes 10 years of savings :)

    Also when I say I want to make 1k a month, I do not mean month after month but lets say 12k a year. I would only transfer money from IB once a year and try to live of off that.. I know that because of variance and drawdowns I would not be able to just earn 1k each month..
  4. cvds16


    ok, seems you know allready a few things by now ... but going from here to devising a systematic approach could take years ... I speak from first hand experience ...
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  5. Tomaz26


    Yep. On top of that I am fairly risk averse.. I know this may sound contradictory when someone is trading options, but.. :) It goes hand in hand with thinking that when you are selling options that far OTM you are sure to take small winnings forever. And if those small winnings are enough to support you.. But I guess I was just underestimating the probability of disastrous move. Doing it on 10 instruments at the same time should be better from risk perspective though.. Unless correlation on all goes to 1 because of some unforseen even :)
  6. cvds16


    OK, I like the way you are thinking ... the 10 instruments would need to be fairly uncorrellated idd, you can't for example do this on 10 stocks that would be asking for a disaster to happen. You'd also would need to look at historical implied vol to get some idea if you are selling expensive vol or not ... but this is as far as I can help you. After a disastrous month of october in 1998 I only buy options anymore. Selling: thanks but no thanks ... the tailrisk is too big for me ... I am not saying it can't be done but I prefer to sleep safe and sound at night ...
    Zr1Trader and d08 like this.
  7. Maybe I dont get what you are saying here at all if you take in $0.02 on a spread for a total of 1200$ premium you were in for 600 options? If we take the oil price at 63$ you were trading the equivalent of 3.7M$ of the underlying which is way more than you should do with an account your size. Its low probability but at some point you will get hit mid-ship and lose your shirt. Whatever you were doing there dont do it again if it is close to what I outlined above.

    As to your main question - there is no fail safe way to make 1K on a 100K a month, if there was a sure fire 12%+ return a year dont you think everyone would be doing that?
    spindr0 and cvds16 like this.
  8. Tomaz26


    I see your point exactly.. It might work also if you take money out and always trade the same size. What I mean is that if you have 100k and make 30 % yearly returns, after 3 years you would double your account, take out 100k and trade with 100k again. If after 10 years disaster happens and wipes you out, you "only" loose 100k, but you still made 300k.. This works only if tails are very very rare. And if you are lucky not to encounter one during first years :)))
    And yes, I was thinking of having diversified commodities options portfolio. No stock at all. I think you get more diversification this way, because some commodities are on top while others are at the bottom etc. Ok they do move together if they are priced in USD and there is big move there, but still I think you get much more diversification this way.

    This I think could work, now I just have to figure also if it is better to just have open positions all the time or wait for high IV, measured historically. For now my experience is that waiting for those huge moves is not worth it. Firstly because they are rare and second, there is no insurance there will not be even bigger move in the same direction even after the first one. I sold 7.1 calls on NG , one month out while it was at 3.5 a few weeks ago thinking it is impossible to it to make another 100 % move to the upside. But after looking at historical graphs more closely, I guess this was not impossible at all :) I also discovered they call it widow maker, wonder why.. :)))
  9. cvds16


    Man, you like to play with fire when I see your reasoning ...
  10. cvds16


    There are old traders and there are bold traders, but there are no old bold traders ...
    #10     Feb 26, 2018
    comagnum and d08 like this.