Paranoid about selling Options?

1% Theta is a lot.

Calculated some numbers for those who don't find things obvious, such as myself. This isn't even a playable trade for me. Just using it for perspective.

50,000 account value

a position of 23 SPY June 11 195P, 1.6% away from spot

theta is at $91 or 50,000/$91 = .18%

So you need an exposure of 5x in notional value to get to about 1% Theta trading weeklies at market level risk.
 
benjjj6 said:
OP mentioned that they are running a DELTA hedged SHORT PUT option strategy. Can someone explain how it is possible to blow up when you are delta hedged?

Assuming you are Short Puts and Short Stock, I can only see 3 ways:
- You are short Vol so if Vol very quickly goes through the roof you lose
- Large Gap ups which are far rarer than large gap downs.
- If the market falls quickly gamma causes delta to increase faster than you can rebalance the delta hedge which would cause a loss since you are longer than you would like to be but you are still short stock so I don't see how this would be a blowup

What else am I missing? What else would cause this strategy to lose?
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Those are it. Delta hedged just coverts an ATM put to a straddle at half the size.
 
I sell strangles on ES and NQ for about a year now with great results (up 30%), The big issue concern however is what would be the appropriate adjustment if the market goes significantly up or down. Up until now, I adjust my positions once the options reach a 0,30 to 0,35 delta. Do you think this is a good approach or I should look for a more complexed strategy, that include other greeks maybe? Any idea/suggestion would be really helpful
 
draft730 said:
I sell strangles on ES and NQ for about a year now with great results (up 30%), The big issue concern however is what would be the appropriate adjustment if the market goes significantly up or down. Up until now, I adjust my positions once the options reach a 0,30 to 0,35 delta. Do you think this is a good approach or I should look for a more complexed strategy, that include other greeks maybe? Any idea/suggestion would be really helpful
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It will help but really any "adjustment" helps in one situation and costs you in another.

Bottom line there is no hedge for being short vol when things get raucous.
 
I think this is not actually about hedging. It is about employing the ideal strategy in order to minimize the loss. I think that readjusting the probabilities when delta touches 0,35 ensures that you will not suffer a loss greater than 5% of your capital.
 
draft730 said:
I think this is not actually about hedging. It is about employing the ideal strategy in order to minimize the loss. I think that readjusting the probabilities when delta touches 0,35 ensures that you will not suffer a loss greater than 5% of your capital.
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You can't minimize the loss except to trade smaller.

For a given expected return all you can do is shift the max pain scenarios around.
 
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