I haven't traded options for a long while but when I was selling premium I found that 45 - 15 DTE was optimal for theta decay and avoiding the gamma risk less than 15 DTE.
Ratio Spreads
- Thread starter Swole15
- Start date
I think I have an idea of what you are saying, as I have sold many puts in the past, and know all about taking on more risk than one should!
This dreaded "volatility" word appears to have a lot more involved in it than one thinks, and I would imagine that the retail investor has to become fully aware of the intricate workings of the financial markets in order to trade volatility correctly!
E.G. - up to recently I did not even hear about variance swaps, but as I investigate trading "volatility" I am discovering how important options on variance swaps are, and how they can affect the market - it appears "the devil is in the detail" yet once again!
The big picture is always hard to see "correctly", but if you don't even know the right place to start looking, then you have absolutely no chance competing against those who have deep pockets and employ the best brains in the industry!
Onwards with the learning curve, as, "once bitten, twice shy" !
Very interesting stuff I must add, which in itself is good for the mind as one gets that little bit older
J_S
been trading FTSE (UK) put ratio spreads for several years now. I typically look for spreads where the risk is about 6-7% OTM. I only trade the index as there is no risk of early exercise (European style) and I love running to expiry, as in the last 8 days or so your trade will go to a credit to close out- the last two I have come close to getting the max difference between strikes-there is no set rule for closing out- expiry is random( or not if you are a big bank who can buy the index ) My last trade I opened for a credit of 10 and closed out for a credit of 40. Had I not been ill I would have run it to espiry for a whopping 150. August, again I closed out for a good profit but could have got a lot more in expiry week-there is just no way of knowing and you have to count unrealised profits as real money-so perhaps close out half the trade and leave the fun bit to run to expiry. Expiry week is often fairly stable- DYOR. But I traded this as a strategy and got burned- the 3% move that should not happen....it happened!
I don't mess with calls I think they stink and you cannot sell further out strikes for a worthwile premium-there is not much of a vol smile with calls,and I have been caught short too many times- look at the mental action after nonsens farm payrolls on Friday-the proverbial monkey in charge of the elevator. I make about 2 trades a month-and the more I trade the luckier I get. My Sept trade was the dumbest I have ever made- a boredom trade that nearly hurt me-but I love this strategy- so many possibilities with adjustment. I make 10-20% per month but only trade a modest size, margin required=about one quarter of my account. I will also take a zero cost trade the Thursday before expiry week if prices are ok-theta works hugely in your favour. A better trader than me would make a lot more than me with this strategy, I'm Chicken Little!
I don't mess with calls I think they stink and you cannot sell further out strikes for a worthwile premium-there is not much of a vol smile with calls,and I have been caught short too many times- look at the mental action after nonsens farm payrolls on Friday-the proverbial monkey in charge of the elevator. I make about 2 trades a month-and the more I trade the luckier I get. My Sept trade was the dumbest I have ever made- a boredom trade that nearly hurt me-but I love this strategy- so many possibilities with adjustment. I make 10-20% per month but only trade a modest size, margin required=about one quarter of my account. I will also take a zero cost trade the Thursday before expiry week if prices are ok-theta works hugely in your favour. A better trader than me would make a lot more than me with this strategy, I'm Chicken Little!
We will talk more if you like, traded FTSE puts back in 2007, made gud money, lost most of it as I did not know then what I am learning now - and yes, you got it correct, someone with adequate funding can make big money with FTSE puts - and what is even better, do it right and you can't lose!
J_S
If you don't mind I would like to hear some specifics about your strategy like:
- What is your entry trigger?
- What is your exit trigger?
- Do you hedge in any way?
- What specific ratio 2 -1, 3 -1?
- How do you adjust your position if price starts to go against you?
- What is your time frame?
Thanks in advance!
Hi Rob,
Just wondering did you miss my post as per above, especially the OI part, you can ignore the bit about SPX v.s SPY options.
Also, is there any way to determine who is long/short with OI figures, for e.g., if say we have OI at 51k at one Put strike, how can we tell who is net long/short - how many are the MM's short and the rest long?
If this data is not available, is there any reason why, and if it is, where can one obtain it?
Thank You,
J_S
You're welcome