I am a young trader...I have traded the last 3 years following a very simple strategy. Selling OOM puts in ES. Delta is between 0.10 and 0.14 with 50 days to expiration. Returns are exceptionally good (considering these years weren't the best for vol sellers. Specifically, +61%, -22% and +77% respectively. I don't want to brag about anything, I am just getting a little nervous. Do I take too much risk. Is the risk of blowing up, or sustaining a very big loss too great? Needless to say, I adjust the position if things turn out badly (roll over to a lower delta), but what about w/e? What about if anything quite unexpected strikes? I would appreciate any thoughts
Option selling. Too good to continue?
- Thread starter draft730
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If you're selling premium, sell puts in a rising market, sell calls in a declining market, sell strangles/condors in a ranging market.
Literally step 1 is decide if you're long or short the market. Then sell premium accordingly.
Literally step 1 is decide if you're long or short the market. Then sell premium accordingly.
Dude, return on margin is meaningless. You're not returning 77% selling 50-day 10D puts... but please keep at it!
365/50. Seven trading periods. The 50-day Feb is 12 debit at 21 on the vol-line.
$4,200 per year at 21-vol in ES premium on a one lot.
Now tell us why you think it's unsustainable with ATM vols <12%.
I weep for our future.
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If you are able to generate 77% returns by selling 0.1 - 0.14 delta puts, then yes, you must be selling a lot of puts and taking a lot of risk. Surprised that you only lost 22% in 2018. I'm guessing that you really cut back on exposure in October - December.
I do (77%). I roll over the position when overall delta drops behind a specific level relative to the liquidation value. So, the average holding period of the positions in 2019 was something like 15 days.
Also, bear in mind that I use all the available margin IB allows (almost always pay exposure fee)
Also, bear in mind that I use all the available margin IB allows (almost always pay exposure fee)
You did 77% on the initial req.
Short more. The idiocy of asking if it's "too much risk" is an outlier... even for ET. ATM vol is at 12. We've not had ATM vols under 10% for more than a month or two, historically.
You should be fine if you are trading OPM and have "Karen's" lawyers. And if you have a large collection of silver to sell! 
I never cut back. I lost 30% percent during this period, but I was a bit lucky during the VIXplosion. I lost almost half of what I "should" back then, because I closed the position just before the options prices "dissappear" and was unable to roll over, as I surely would do. That helped a lot that day
I don't get the "you made 77% on the initial margin req". Sure, you can't make 77% without leverage... But 77% is 77%...
I think vol was quite low for an extended period during 2017. VIX was even below 10 if I recall. I don't remember ATM vol though