ES Options - capturing decay every week

D

DisciplinedHedg

Example:

Today Friday - sell 1 ES put at the money that expires next Friday

Next Friday - if out of the money, premium is pocketed and repeat. if in the money, you will be long, so sell 1 ES call in the money that expires next Friday.

Following Friday - if in the money, your 1 ES position will be called away, so sell 1 ES put at the money that expires next Friday again to start over. if out of the money, sell 1 ES call again for next week.

Anyways, you get the idea. Do the more experienced options traders here have an opinion whether the gain from capturing the decay every week would outweigh the loss from holding the ES contract?
 
Quote from DisciplinedHedg:

Example:

Today Friday - sell 1 ES put at the money that expires next Friday

Next Friday - if out of the money, premium is pocketed and repeat. if in the money, you will be long, so sell 1 ES call in the money that expires next Friday.

Following Friday - if in the money, your 1 ES position will be called away, so sell 1 ES put at the money that expires next Friday again to start over. if out of the money, sell 1 ES call again for next week.

Anyways, you get the idea. Do the more experienced options traders here have an opinion whether the gain from capturing the decay every week would outweigh the loss from holding the ES contract?
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Are you asking if it's better than a passive-long in ES futures? It will certainly have a better hit-rate. I would choose the short put over the long futures, but I wouldn't take a passive position in either.

I see that you're asking if shorting ATM puts is a viable strategy. Sure, until we trade 100 lower. In simple terms, the hit-rate should compensate for the poor R/R over sufficient trials, but you may not survive the first significant DD.
 
agree with Atticus...I trade the ES options.....very carefully. The problem is over leverage and margin changes which can put you in a bind. Ex. You are short the weekly put ATM. Market drops 50 pts (happened in 2 days last week) you can't roll down without losing money. So basically what I do is try and keep delta's evenish and sell the straddle then hedge with the cash.
 
Historically a strategy like this has beaten the market by about a percent/year, not accounting for taxable events - of which there are many in this and none in a buy and hold index fund.

BXM index (CBOE Buywrite) is a similar strategy but uses monthly options.
 
I would sell a strangle, cash-secured, outside of the straddle range unless you're specifically looking for correlation. Passive long strategies give me the heebies.

The June monthly 1270/1360 outside strangle is 14.50 mid and has long D implied by the skew. The individuals are ~9x5 favoring the put. Do that small, very small, and my guess is that it will beat the ATM over a one year trial.
 
Quote from atticus:

...In simple terms, the hit-rate should compensate for the poor R/R over sufficient trials, but you may not survive the first significant DD.
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Let's assume you can survive the DD because you have a 100k account and are only trading 1 contract to it.

My focus is on what you mentioned. Why do you believe the hit-rate would compensate for the poor R/R over the long haul?
 
Quote from newwurldmn:

Historically a strategy like this has beaten the market by about a percent/year, not accounting for taxable events - of which there are many in this and none in a buy and hold index fund.

BXM index (CBOE Buywrite) is a similar strategy but uses monthly options.
More...

Only one percent a year? In that case, it doesn't sound very attractive given that you would have to go through some deep DD's. For 1%, it doesn't seem worth it. I thought the return would be greater without using too much leverage.

I've seen some buy write funds up more around 5-10%. Are they taking excess leverage?
 
Quote from DisciplinedHedg:

Only one percent a year? In that case, it doesn't sound very attractive given that you would have to go through some deep DD's. For 1%, it doesn't seem worth it. I thought the return would be greater without using too much leverage.

I've seen some buy write funds up more around 5-10%. Are they taking excess leverage?
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1% over the market. So while you would take drawdowns, you would suffer similar drawdowns in a buy and hold.

The buy write funds sometimes do leverage (1.5 or 2x) and they generally do single stocks where they get more premium. They might be a little smarter than just doing the index. My experience with them hasn't been that positive.
 
Quote from DisciplinedHedg:

Let's assume you can survive the DD because you have a 100k account and are only trading 1 contract to it.

My focus is on what you mentioned. Why do you believe the hit-rate would compensate for the poor R/R over the long haul?
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Decay. But you have virtually unlimited risk on the naked put. Free lunch comes to mind. Anything carrying underwriting risk MUST have a good hit-rate. JPMs CDS index exposure comes to mind. If you're not geared-up (1 lot = $66k notional) you can't go broke.

What you're suggesting is more than an attempt to capture stat-vol, it's long ES. Sell both sides if you want to capture a declining fwd-vol.
 
Quote from atticus:

I would sell a strangle, cash-secured, outside of the straddle range unless you're specifically looking for correlation. Passive long strategies give me the heebies.
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Atticus do you mind elaborating here? I'm a strangle/straddle seller so this interests me.

Why the strangle over straddle? Skew? Also why "outside the straddle range"?

Thanks.
 
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