20-Delta Short Strangles

[swingtrader123]

I will give you one hint: frequency of occurrence.

 

[qlai]

How I achieve it is my secret sauce, but i mainly has to do with stock selection and trade management

Ok, that I can believe. If you pick your spots, then it’s more of market timing trading, not volatility trading per say. Also, I would not consider CMG low IV stock, I was thinking PFE.

May. I ask why using only 5% of capital then?

 

[qlai]

I will give you one hint: frequency of occurrence.

I will assume the frequency is low, so maybe a few good trades a year? No?

 

[swingtrader123]

I will assume the frequency is low, so maybe a few good trades a year? No?

Frequency is high; multiple trades per month. I don't hold to expiration; I enter when volatility is peaking. When volatility starts to drop, I exit my strangle. I don't hold for max profit. I know based on past experience how much profit I should expect out of a trade. Risk 5% capital to reduce my chance of blow up. It also allows me to implement other strategies along side my short strangles.

 

[yc47ib]

I actually started trading this account on 8/12/21, and added some cash this weekend so it starts at about 10k NetLiq:

It comes into this week with these open trades:
AMD (3) 17Sep long 190 calls, currently valued at 0.015 each. If AMD turns around and those become worth something, I'll withdraw the profit. Because I want this to be strictly a 20∆ SS account from here on.
FSR (1) 27Aug 11.5P/14.5C SS for 0.38
PDD (1) 27Aug 60P/85C for 3.04
RBLX (1) 3Sep 75P/90C for 2.51
SOFI (1) 27Aug 13P/15C for 0.30
SSYS (2) 27Aug 20P/20C, a Short Straddle which started as a SS but I've had to roll it. Total credit 1.04.

New SS orders staged for Monday 8/23:
APPS (1) 27Aug 45P/52.5C at Natural price of 0.90. BP 614.
CLF (3) 27Aug 21P/25C at Nat of 0.45. BP 265.

TDA is crediting me the 5k I deposited over the weekend, but it's not showing up in Option BP yet. When it does I'll put on new trades to get to 80% invested. My next update will be after tomorrow's close, with a screenshot of EOD NetLiq, and info on any trades opened or closed.

A good list, only thing I would advise (not that I am an expert), is to try to shun away from Chinese ADRs like PDD, the number one thing you want to avoid is black swan, and Chinese ADRs tend to have that very often due to domestic political struggles. Best of luck!

Added: I replied to your original post before finish reading the whole thread, now I learned you have suffered from PDD, to the upside. That is why stock market never ceased to amaze me.

 

[Windlesham1]

Hi all. I came here to Elite Trader on July 16, 2021 and started a new trade journal about selling short strangles at 10-delta (and also 20-delta). At the time I was trading PAPER MONEY (PM) in TD Ameritrade's (TDA) Thinkorswim (ToS) platform and getting mind-blowing results using mostly meme stocks. So much so that people were saying it wasn't possible to replicate with REAL MONEY.

And that turned out to be true. Mostly. I finally got Tier 3 options approval from TDA to sell naked options (they'd first denied me and I had to wait 60 days to re-apply.)

So I'm going to run a 20-delta Short Strangle strategy USING REAL MONEY, logging my trades here daily.

After getting Tier 3 approval I found that TDA jacks up the Buying Power/margin requirement/collateral on highly-volatile stocks. Makes sense, I just wish they'd modelled PM to do the same; they got me excited that crazy returns like doubling in a month with 20-delta (20∆) short strangles (SS's) was possible. Comparing trades in the real-money account to a PM account, names like AMC, FCEL, GME, MARA & UVXY have 8 times the margin requirement. BBBY, MVIS, NEGG, & TNA are 6 to 7 times higher. KODK, MVIS, & VXX are 3 to 5 times higher. No wonder I was making crazy-high returns: PM wasn't accurately modelling the margin requirements.

After going through my whole watchlist, only 18 of 69 symbols I'd been regularly trading had the same BPR with real money as with PM. So about three-fourths of the returns I'd been getting in PM can't be duplicated in a real money account. But there's some good news: 8 other symbols have margin requirements 2-3 times higher than PM, but they still offer ROIs of 5% or more per week (the arbitrary metric I use). Some are actually quite high: WISH has 3x the margin requirement, and yet a 5DTE 20∆ SS priced at 0.28 Natural price against BP of $272, for a one-week ROI of 9% if held to expiration (I don't do that, but use it as a way to evaluate trades).

A little about me, then the ground rules of the strategy in the next post. I'm 58, male, married, an engineer by trade and disposition. I've been trading stocks, mutual funds, and ETFs since about 1993 with mixed (mostly positive) results, but very interested and active in the market (401(k)s, Roths, TSP, etc). Messed with options a few times not knowing what I was doing, lost money, stopped doing that.

January 2021 I decided to learn options. When I decide to do something I tend to go overboard (ask my wife). Bought and read books by Hull, McMillan, Cohen, Wolfinger, and probably some others. Watched a lot of TastyTrade stuff, read a bunch of forums, watched a lot of Youtube videos, training courses through CBOE, Fidelity, and TD Ameritrade (TDA), etc.

After trying a lot of different things I've found that I like selling strangles. So some rules in the next post.

I show real trades on my blog but there are only about 19 retail options traders in the UK!

 

[Windlesham1]

I paper traded strangles on the S&P from 2001-2003 then it just got silly as Dubya's people went postal with Iraq and QE

 

[morganpbrown]

This has been a good thread. Good intentions all around, low sarcasm/mockery level, and great expertise shared. And a happy ending to boot - the OP isn't going bankrupt.