Finding the best Strategy; Condors, Lizards, Butterflies

M

motterpaul

I am somewhat new to the multi-leg, premium-selling style of using options. But the more I do the less I seem to like it.

I started out with a lot of Iron Condors because they seemed the safest, but I have a really hard time picking my legs. If a stocks moves very far in either direction you can find an option you thought was inconsequential starts losing a lot of money. But I was trying to sell premium.

So, if you are trying to sell premium, you want to get a credit with every trade. But I am finding it is very hard to find a balance of legs where I can collect premium and also not get hurt pretty badly if a stock moves too far. You have to pick your directions and hope for the right move.

For the people using multi-leg options - what are your favorite strategies for collecting premium but also for not getting too deep in trouble when the market makes big moves against your chosen direction? (aka your delta bias)
 
motterpaul,

I've posted this a number of times before. I doubt many believed me when I say this process is backward, that is why it does not work. You can't just want to do a spread, pick one and expect that you will make money. You are basically saying current option prices are wrong all the time and you can find excess returns but doing a random spread.

You need to have a process in place to have an expectation that a stock or index will or won't trade in a range. Once you determine that, you look at the available options and determine what best fits your expectations and risk criteria.

I hope that helps.

Bob
 
motterpaul said:
I am somewhat new to the multi-leg, premium-selling style of using options. But the more I do the less I seem to like it.

I started out with a lot of Iron Condors because they seemed the safest, but I have a really hard time picking my legs. If a stocks moves very far in either direction you can find an option you thought was inconsequential starts losing a lot of money. But I was trying to sell premium.

So, if you are trying to sell premium, you want to get a credit with every trade. But I am finding it is very hard to find a balance of legs where I can collect premium and also not get hurt pretty badly if a stock moves too far. You have to pick your directions and hope for the right move.

For the people using multi-leg options - what are your favorite strategies for collecting premium but also for not getting too deep in trouble when the market makes big moves against your chosen direction? (aka your delta bias)
More...

Google Lee Finberg and see how he does it. His website is SaferTrader.com
 
Robert - are you familiar with the tastytrade web site and their options interface? Basically, they do "sell" the idea that you can make money just selling premium, BUT the problem is that you need a high VIX and it has been stuck in the low teens far too long. (it is finally moving some).

I do agree with you, though, you can't just pick one strategy, you do have to test a few strategies and see which one seems best, and it is truly even better to have some idea of directionality.

Their approach is to make a LOT of small but very high probability trades, 2 standard deviations out, where you wait 20 days to collect $200, right? It's not enough even if you have 15 positions, it's too slow (plus some are not going to be profitable, plus they recommend selling at 50% profit).

It is getting easier for me to use options profitably (up or down market), but I am just starting to form a working strategy flow. Basically, no matter what strategy you pick you can't really stick with your first guesses, you have to see how it performs and then maybe adjust a leg or two to get them in line. There are other trades where you also just want to go naked put or call, fairly high delta, which is still usually safer than buying stock.

But do you have a "goto" strategy you look at first? Or any that you avoid?
 
motterpaul said:
Robert - are you familiar with the tastytrade web site and their options interface? Basically, they do "sell" the idea that you can make money just selling premium, BUT the problem is that you need a high VIX and we have been stuck in the low teens far too long. (it is finally moving some).
More...

I know who they are. I have never watched an entire video, just a small part. I prefer not to comment on their show or their method. I will comment on the statement " the problem is that you need a high VIX and we have been stuck in the low teens far too long." Honestly, that is BS IMO. I traded through a large number of cycles. I watched a few very good traders buy very high vol in 2008/2009 and make 7 figures per month, as the 200 vol they bought was less than the actual vol that occurred in bank stocks. I've watched traders sell massive premium is slow times and make 6 figures every month. Summary, sometimes high vol is there for a reason and same with low vol. What matters is having a process to predict what will or won't happen vs expectations of the market.

If I could teach you one thing, it would be to trade the market in front of you, not the one you want.

"But do you have a "goto" strategy you look at first? Or any that you avoid?" -No. Keep an open mind.
 
Not options trader, but I think a good question to always ask is - why would in a such competitive environment there would be an "easy" edge to be found? It sounds to me that all the premium selling advocates take advantage of peoples desire for instant gratification. Catering to people with small accounts also fits nicely with these strategies.

There are many people here who claim to be successful at this, so I hope they can share some of the concepts that makes it work for them.
 
Premium sellers tend to be larger accounts as they need PM. We no longer cater to them as the risk is not worth it. We allow selling just not to the same scale as before 2013 where it was typical to earn as much as 5% to 10% per month for the most aggressive sellers.

I used to refer to this as margin arb. A few retail clearing firms allowed this while the ML, GSEC and ABN AMROs that cleared market makers did not. The MM were forced to hedge their downside index options with buying worthless OTM short term puts at $0.05 to hedge their entire book which was often short the $1 to $5 options.
 
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