Averaging into a buy write fund during DD would seem like a good idea in getting better returns from that fund. Most buy write funds that I've seen suffer primarily 1 or 2 DD per year if that. But the more infrequent they are, the deeper they are it seems.
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ES Options - capturing decay every week
- Thread starter DisciplinedHedg
- Start date
Averaging into a buy write fund during DD would seem like a good idea in getting better returns from that fund. Most buy write funds that I've seen suffer primarily 1 or 2 DD per year if that. But the more infrequent they are, the deeper they are it seems.
Quote from Strangler:
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.
Rule-based. ATM straddle at ~55 so you chose strikes 55-points OTM for the strangle. What I would define as excess premium as the straddle would be delta1 at those strikes, yet the strangle would be an ATM risk.
I don't do this, but it's what I would look at if trading a cash-secured passive strategy. It's as much of a skew trade as a play on realized vol. The straddle is simple as the skew would be far less of a consideration than in the strangle.
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.
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.
Interesting idea.
Quote from DisciplinedHedg:
Averaging into a buy write fund during DD would seem like a good idea in getting better returns from that fund. Most buy write funds that I've seen suffer primarily 1 or 2 DD per year if that. But the more infrequent they are, the deeper they are it seems.
That's a different topic: entering into the market at an opportune time.
Quote from RichardRimes:
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.
What would be the margin requirement for a short ATM ES straddle?
with my broker its ~the same as short one side. Margin of course shifts when the market moves significantly away from the strike.... so about $5700 per straddle. You can buy a waaaay OTM P & C to lower the margin cost creating an iron B-fly but then of course you give up some premium.