Option selling. Too good to continue?

[taowave]

Non direction is an implied market call...

You are betting that you are as fast as the market...

At this vol,ill bet that the market is faster than you

With that said,I think you are hoping to understand options well enough to choose "optimal"

positions for the given vol environment..

Why?

My dream is to be able to trade non directional and make money.

 

[draft730]

I probably should have been more clear...

IMHO,in this vol environment,the market has taken away the "easy-er" money..That being selling puts,straddles ,aggressive ratios,and most definitely selling index upside...

The sale of 10 delta puts in this vol environment affords you no wiggle room...

The OP's returns sounded too good to be true,and if you dug a little bit,you discovered he was taking a very very large bet with massive downside risk..And that was in a higher vol market..

My main point,which you brought up is, he could have done almost as well employing option strategies that didn't mortgage the farm and then some.But you would need to make a directional call..

Notice I never said go long theta,but thats a discussion to be had after your butterfly homework is complete

As for #2,see Marty Schwartz..Not just newbies

Looking into my results more seriously, I now realize that I could have made the same profit just buying the ES future in the beginning of the year at 2450. I would have made (3240-2450)×50=39500 almost the same. The leverage in that case in a 49k account would be 2450×50=122500/49000=2.5/1 which is far far less than the leverage I used... That means something...

 

[lems]

When VIX hits 25 your puts will be so far up your ass in the red and blown up you will choke on them.

If you sell a put and VIX goes through the roof, why does that make u blow up? because of margin requirements? As long as you don't close the position, won't you just be negative the amount you got assigned for?

 

[drcruz]

Looking into my results more seriously, I now realize that I could have made the same profit just buying the ES future in the beginning of the year at 2450. I would have made (3240-2450)×50=39500 almost the same. The leverage in that case in a 49k account would be 2450×50=122500/49000=2.5/1 which is far far less than the leverage I used... Than means something...

Yes, but even with trend trading, money/ risk management is key to survival. I'm currently reading Market Wizards and Ed Sakota says don't bet more than 1%, win rates of 30 to 40% (but "one good trend pays for it all"). We (you and I) have decided to pick up nickels in front of the steam roller, trend traders are death by 1000 cuts

 

[drcruz]

If you sell a put and VIX goes through the roof, why does that make u blow up? because of margin requirements? As long as you don't close the position, won't you just be negative the amount you got assigned for?

Yes it's the margin call. In high volatility the T-0 line collapses. You can adjust and pick up the T-0 line using long options

 

[Wheezooo]

Non direction is an implied market call...

Funny, I thought of it as arbitrage. I've oft-times referred to myself here, as a non-directional trader.

... but because of you, I asked myself. Self, if you were going to trade again, (and that will never happen) what would you do? So I thought for a moment, and then I answered... Self, I think I would play the term structure. That was always my favorite place to play. Seems no one likes that stuff, as in seven months, I have yet to see it discussed here. Not arbitrage in its truest sense, but non-directional and close to risk neutral.

 

[ironchef]

Stop banging your head against the wall - not good.

@ironchef don't know if you're interested, but steadyoptions.com does non-directional long straddles and calendars price-earnings.

The theory for the straddle is that prior to earnings IV climbs and helps minimize theta decay and hopefully there's enough movement in the stock to make a profit

Admittedly I couldn't make it work, but if I stuck with it, CMLviz might have been a service to help find stock candidates to increase the probability of success with the long straddles. Also, Kim gives a full list of his trades to make up a good watch list

While you want stocks to move for the long straddles, the long calendars was a good counter when the market wasn't moving. The pre-earnings kept the back strike stable-ish. Using a service like www.chartaffair.com helped use historical option pricing to pick inexpensive calendars. I was starting to get the hang of trading the calendars.

I quit steady options because my head hurt from the head banging

Thank you for your suggestions.

Short answer is been there done that on straddle and calendar.

Long straddle prior to earning did not work for me. Essentially I paid twice for the move: Long a call and a put. Most of the time the outcome was already priced in. On the other hand, guessing the direction and long call or long put did work for me, sometimes, when my guesses of the directions were correct.

As for calendar, I bought Terry's book and visited his website (Terry's Tips). Tried that, didn't work either.

For me, the only thing that worked since 2013 was a simple directional bet based on my opinion of the directional of the equities I own.

Regards,

 

[taowave]

Your problem is you are too smart,and it appears you were never a knucklehead like the rest of us

In the embryonic stages of development,guys love to sell those wings...thei idea of adjusting isnt delta hedging,its roll down in larger quantity or maybe if they are cagey,down and out..

I wouldnt call that arbitarge,i.e implied vol vs realized vol...More like playing in traffic and leaping the F%^k out of the way when the cars are about to pancake you..

Funny, I thought of it as arbitrage. I've oft-times referred to myself here, as a non-directional trader.

... but because of you, I asked myself. Self, if you were going to trade again, (and that will never happen) what would you do? So I thought for a moment, and then I answered... Self, I think I would play the term structure. That was always my favorite place to play. Seems no one likes that stuff, as in seven months, I have yet to see it discussed here. Not arbitrage in its truest sense, but non-directional and close to risk neutral.

 

[Windlesham1]

My worst trade after 5 years full time? -watching short puts go to 300.
I could have closed them out for 3 the previous week. I must have paid somebody's college fees for 3 years. That's a lot of 3s!

 

[drcruz]

Thank you for your suggestions.

Short answer is been there done that on straddle and calendar.

Long straddle prior to earning did not work for me. Essentially I paid twice for the move: Long a call and a put. Most of the time the outcome was already priced in. On the other hand, guessing the direction and long call or long put did work for me, sometimes, when my guesses of the directions were correct.

As for calendar, I bought Terry's book and visited his website (Terry's Tips). Tried that, didn't work either.

For me, the only thing that worked since 2013 was a simple directional bet based on my opinion of the directional of the equities I own.

Regards,

No surprise. I actually was starting to get the calendars, but I got tired of managing a large watch list. And while at work it's kinda a pain to watch and trade positions