My goal is to make at least 30% per month
- Thread starter marsman
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This has to be the silliest comment ever... drawdown is irrelevant... hahaaa tell that to your risk manager.
No they will not, because their MM-branch Timber Hill is probably slightly more advanced than @marsman and not as stupid to just sell strangles all the time with unlimited risk.
This strategy isn't that exclusive and sounds more like a brain fart with no regards to risk.
So, you mean the MM rises the Ask and lowers the Bid?
Then people who entered positions some days/weeks ago will be happy....
It doesn't sum up, man!
I can guarantee you this (what @jo0477 says) is correct. MM's will lower IV on the Friday.... Usually the Friday end of day straddle/strangle value will be the same or higher as next Monday morning in weeklies, not so much on monthlies. MM's set the prices, they are called Market Maker (ps. I used to be one)... not Market Taker!
If you enter a position because you want to 'take advantage' of that vol down shift a few days ahead, you'll be trading short gamma and taking on extra risk on events like NFP, Rate decisions, beige book... everything basically. So... no, you can't just be happy that way, because there is no free lunch....
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One last thing, this strategy will be unscalable at one point, which is sooner than you think. If you think you can get 3 million dollars worth of short OTM premium in weeklies on illiquid high IV single stocks you're dreaming.
You can get that easily in Index options, but then you'll be selling IV if 10 in way smaller strangles, which might actually be a better strategy, and is basically this 'Karen the SuperTrader'-shit....
You can get that easily in Index options, but then you'll be selling IV if 10 in way smaller strangles, which might actually be a better strategy, and is basically this 'Karen the SuperTrader'-shit....
Here's an example:
position is say down 8%, you increase the position so that the DD halves to 4%.... you can manipulate DD as you will, best done intraday so that the worst DD doesn't show up on the list which is usually generated only at/after EOD...
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Hello,
I simplified my explanation of margin requirements (and the amount you can purchase on margin) to keep that part of the explanation simple. Since the core of the trading strategy is independent of the margin you can get. Margin only effects how much money you can generate and the efficiency of your trades.
But the two key points you have indicated:
Your profit is based on net asset value not buying power (to use IBs terms). Which means your 30% is not 30% return on the investment, but 30% increase in portfolio value (which is quite different). I think all the futures/forex traders here will be able to add input on how they can easily increase their NAV by 30% due to a small move in their futures/fx position. (That is the power of leverage).
The second key point is regarding the possibilities: "Regarding the probabilities: these are just guestimates based on experience and expectation, not an exact science."
Yes, you are making an educated guess on the probability of your bet turning out in your favour. Therefore, the efficacy of the trading strategy depends on your ability to make 'guestimates'.
So far, no one is known to continuously make educated guesses that always turn out in their favour. Eventually they guess wrong. Which means they take a loss or minimizing their profit potential in the next trading period. And when you are dealing with leverage, a bad guestimate could have serious consequences.
The trading strategy you outlined will work fine so long as you are able to guess which direction the stock moves (but this can of course be said of *any* trading strategy). The strategy will fail you should you guess wrong. And since you are dealing with leverage, you could get hurt a lot.
You perceive that you are 'safe' because you have a wide trading area that the stock can move in, and you further believe the risk is warranted because of the high premiums you collect. This makes sense, but you also need to understand that the reason you can collect high premiums is that there is a sizable market that believes it will move a lot more than the short trading area you are expecting it to stay within.
Therefore: Your Risk:
You guestimate wrong and end up eating a high loss that significantly offsets your premium collection.
Additional notes: This strategy is a different version of other premium collection strategies, such as naked put, bull put credit spread, and even covered call. Most premium collection strategies can net sizable returns on an annual basis. The amount of course depends on your willingness to use margin and how much risk you take. With the short strangle, a big risk is if the underlying skyrockets and you have to cover your short call position (now selling TSLA at 220 when it hit 250 will hurt).
Before you go further with this, it might be worthwhile to do some backtesting to see how your strategy would have held up under different market conditions. You might find some situations where it just doesn't work. Then you can update your strategy to accommodate these risks.
Btw, when you say 'margin', do you really mean:
I have a Margin Account which means IB will let me sell naked. But any settlement will be done with my own cash (as opposed to cash borrowed from IB).
In which case this is not 'really' using margin (in the sense of buying on margin), but rather using leverage (which options allow you to do).
If you are mainly focused on the aspect of leverage and can cash settle any assignments, then you do not have to worry about margin calls which makes the trading strategy safer.
However, you still have the risk:
TSLA @ 200
Write naked TSLA CALL @ 220.
Musk Tweets Super Master Plan Part 3 on Friday 3pm
TSLA @ 280
You're assigned - 60$ loss (6000$ / contract).
I believe you referred to them as low probability events -- but these are the types of events that wipe funds out.
I have a Margin Account which means IB will let me sell naked. But any settlement will be done with my own cash (as opposed to cash borrowed from IB).
In which case this is not 'really' using margin (in the sense of buying on margin), but rather using leverage (which options allow you to do).
If you are mainly focused on the aspect of leverage and can cash settle any assignments, then you do not have to worry about margin calls which makes the trading strategy safer.
However, you still have the risk:
TSLA @ 200
Write naked TSLA CALL @ 220.
Musk Tweets Super Master Plan Part 3 on Friday 3pm
TSLA @ 280
You're assigned - 60$ loss (6000$ / contract).
I believe you referred to them as low probability events -- but these are the types of events that wipe funds out.
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