er2 naked future option journal

[jeffm]

I have read that you can buy software from CME that will let you calculate SPAN margin. But if you let the lack of an easy span formula keep you from moving to futures options, you are missing out.

Open a small account with IB and put on some trades. You'll figure it out soon enough.

Quote from yip1997:
I still haven't started trading future options because I don't understand span margin. I don't have the formula for it.

 

[polpolik]

hey domestic, i hope you don't mind continuing to post after you've taken off 70k off the table. I currently am planning on starting with a 30k account for options trading specifically for small income generation.

Also, what do you mean by "closer to the market" or "further away"? The strike price or the expiration date?

Also, in almost every trade you enter, do you sell a call and a put?

Quote from domestic:

my return this year has been about 10 percent each month. again, i feel that in doing spreads you are placing your bets closer to the market to receive that tiny premium. i am further away than spreaders,i receive a greater premium, and i can manage a position gone bad better...imo. again, to reiterate; with the last runnup many people lost money because they were closer to the market with very small premiums so the loss was in many cases multiples of the premium received. i had no problems. if my short was to go from say 2.5 in value to 5 or 6 , i will close the position. that is a 2:1 risk reward; not unlimited.
starting in january, i plan on going further out for a 6 percent return and remove approximately 70k from my account and work with 30k. i will still make a nice income.

 

[smilingsynic]

Quote from jeffm:

I have read that you can buy software from CME that will let you calculate SPAN margin. But if you let the lack of an easy span formula keep you from moving to futures options, you are missing out.

Open a small account with IB and put on some trades. You'll figure it out soon enough.

I sell ES options on occasion, as well as other options, and have decided not to buy the software to calculate SPAN. Here's the way I look at it: those who worry about margin are probably justified in their worrying, probably because they're using too much leverage.

You're right: open an account on IB, and one will figure it out soon enough.

 

[yip1997]

Quote from jeffm:

I have read that you can buy software from CME that will let you calculate SPAN margin. But if you let the lack of an easy span formula keep you from moving to futures options, you are missing out.

Open a small account with IB and put on some trades. You'll figure it out soon enough.

Jeff,

I understand that. My trading strategy depends on the forecast of future risk. IB calculates SPAN for me but doesn't tell you what-if scenario.

 

[yip1997]

Quote from smilingsynic:

I sell ES options on occasion, as well as other options, and have decided not to buy the software to calculate SPAN. Here's the way I look at it: those who worry about margin are probably justified in their worrying, probably because they're using too much leverage.

You're right: open an account on IB, and one will figure it out soon enough.

Jeff and you are right. I will open an IB account soon to compare span margin with other leveraging method.

BTW I just opened a TOS account for ICs and DDs because they charge only 1-leg margin.

Sometimes having too many accounts will confuse myself when adjustment is required.

 

[domestic]

Quote from polpolik:


Also, what do you mean by "closer to the market" or "further away"? The strike price or the expiration date?

Also, in almost every trade you enter, do you sell a call and a put?

i am just saying that i write short options "further" away from the underlying than most spreaders do. imo, a spread is really a naked bet anyway.you never ever want the movement to come close to your short, even with that hedge. most expectations when the trade is initiated are that the underlying does not breach the short. if you are closer to the underlying, your chances are greater you will lose money, and you had to sell more spreads to get anything worthwhile because your long cost a debit. i just find my way easier to manage. the big thing is management. i close all my shorts when money is made, and when money is lost also. there is an art and disipline to doing that.

most months i have both puts and calls.

 

[yip1997]

Quote from domestic:

i am just saying that i write short options "further" away from the underlying than most spreaders do. imo, a spread is really a naked bet anyway.you never ever want the movement to come close to your short, even with that hedge. most expectations when the trade is initiated are that the underlying does not breach the short. if you are closer to the underlying, your chances are greater you will lose money, and you had to sell more spreads to get anything worthwhile because your long cost a debit. i just find my way easier to manage. the big thing is management. i close all my shorts when money is made, and when money is lost also. there is an art and disipline to doing that.

most months i have both puts and calls.

Domestic,

I just did a quick check. These were my rut ICs for nov.

rut 810/820 call @ a credit of 0.6, covered at 0.15
rut 720/710 put @ a credit of 0.95, covered at 0.15.

A net profit of 1.25 on a margin of 10. So my return on margin is 12.5%.

It seems that we can achieve similar return with spread leveraging.

If I can achieve similar return by spread leveraging (my terminology), are there any other reasons I should switch to trade er2 options using span margin?

 

[domestic]

Quote from yip1997:

Domestic,

I just did a quick check. These were my rut ICs for nov.

rut 810/820 call @ a credit of 0.6, covered at 0.15
rut 720/710 put @ a credit of 0.95, covered at 0.15.

A net profit of 1.25 on a margin of 10. So my return on margin is 12.5%.

It seems that we can achieve similar return with spread leveraging.

If I can achieve similar return by spread leveraging (my terminology), are there any other reasons I should switch to trade er2 options using span margin?

yip, good question. i am sure there is no right answer. i am just more comfortable being naked....

some things to note..

my short calls were 805,815 and 820 for nov. with a net average credit for the same.6 or so. closed in the .05 to .10 range.

my puts were 625,640 and 680 with credits ranging from 2.38 to 1pt.

here i was much further out and received large credits. i believe that extra distance separates the winners from the losers. we are all in a journey here. i think it continues to be interesting to see how each person trades and their respective strategies.

 

[spreadn00b]

Quote from domestic:

yip, good question. i am sure there is no right answer. i am just more comfortable being naked....

If I could just convince the missus of the above statement ....


One real question though and maybe it was asked previously ... are you ever concerned about a "black swan" event? I think this would really only ever be a big issue to the downside. To the upside, it seems like you usually have enough time to get out before your short strike is breached. But if the RUT lost 10% in a day, would that put you out of the game? Is taking your 70K off the table at the end of the year your "risk management"?

Thanks for the journal, it's a great read.

 

[domestic]

Quote from spreadn00b:

If I could just convince the missus of the above statement ....


One real question though and maybe it was asked previously ... are you ever concerned about a "black swan" event? I think this would really only ever be a big issue to the downside. To the upside, it seems like you usually have enough time to get out before your short strike is breached. But if the RUT lost 10% in a day, would that put you out of the game? Is taking your 70K off the table at the end of the year your "risk management"?

Thanks for the journal, it's a great read.

my short puts are 10% out right now; if a move like that happens in one day, or 3 days(it happens fast, i know) i have buy stops on all shorts thus ensuring that i have enough of margin to roll down and out. honestly, it would be interesting to see. i rehearse that all the time.
taking the 70k off is part of my self created risk management. i started with 30k at the beginning of the year.