Selling delta 3-5 ES Puts with 40-57 days left

[ironchef]

Maverick74, newwurldmn, i960, optioncoach and others,

What you folks discussed here about ATM vs OTM/DOTM made a lot of sense. Thanks for the discussion and coaching.

One question: If you read books, especially watched tastytrade, they all said "sell OTM puts/calls gave high probability of profit". Tastytrade ran their own simulations and every time selling options mechanically were profitable irregardless. I watched Karen the super trader on tastytrade, she sold DOTM options and made tons of $$$? Care to comment?

By the way, I tried selling calls mechanically like they said and really did not do that well.

Regards,

 

[Maverick74]

Maverick74, newwurldmn, i960, optioncoach and others,

What you folks discussed here about ATM vs OTM/DOTM made a lot of sense. Thanks for the discussion and coaching.

One question: If you read books, especially watched tastytrade, they all said "sell OTM puts/calls gave high probability of profit". Tastytrade ran their own simulations and every time selling options mechanically were profitable irregardless. I watched Karen the super trader on tastytrade, she sold DOTM options and made tons of $$$? Care to comment?

By the way, I tried selling calls mechanically like they said and really did not do that well.

Regards,

Those guys don't really trade, trust me. I've met them both. They are former MMs who now push their service. Karen, and there are a lot of people like her out there, has benefited greatly from the vix crush. A 2008 would wipe her out. People on here talk about the selloff we had last August, that was nothing. Shit I hardly noticed it. A 10% drop is nothing. A 30% to 50% drop would wipe most of these passive premo sellers out. But you can't tell this to people because they need to learn the hard way. Believe me I tried. BTW, probability of profit is the biggest scam going, you need to calculate net expected value which multiplies the probability times the expected value to get the net expected value.

 

[lawrence-lugar]

very easy money.
Simple strategies like these make good $.
Predicting the direction of stuff is too hard because markets no longer trend like did from 2009-2013 or from 1982-2000

Predicting the (far out) future is kind of like really gambling, even though it's a strongly trending market.
Try to guess or follow or trade and manage the daily chart instead -- everything after this is just noise and afterthoughts

 

[trilogic]

I model volatility. If it's cheap, I buy it. If it's expensive, I sell it. That's it. I hold for 3 to 5 days, 10 days tops. I don't like the idea of rolling because it's really a brand new trade not trying to "repair" an existing trade. If a trade is not working, get out. Don't roll it into a bigger mess. Just move on. Occam's Razor.

What about OTM spreads although not too deep, maybe .20 delta net spread spreads, with stop on underlying or delta, I.E. delta gets to certain size or underlying reaches a price stop your out of the spreads

 

[tradelosses]

I guess this is really another manifestation of the implied "Fed put"...Heck, there is a famous fund manager (not going to name name's) that has had, ummm "difficulties" on three (maybe more) occasions doing this exact trade...Years of market experience, tons of mathematical ability and yet it's bitten him multiple times...It really is never a matter of if, but when with this style...The addiction must be intense.

lol I know who it is...he sued the CME too

Some people are posting about delta exploding from 4 to 40...I don't think it's quite that bad, nor do I think an astute trader would get caught in that situation. Victor was very aggressively selling weekies with 4-5% max downside which was breached during that one fateful week in 1997. 57-day options 15% OTM have more wiggle room.


Consider I start delta neutral (selling teenis and shorting SPY)..and then the market being to plunge. I would set a 'target delta' of maybe $40k on a $40 account. So I would cover the 10 teenies, which are no longer delta neutral, but have a total delta of maybe 20,000 and sell them at another strike and time to keep the delta and differential neutrality the same . the math behind it is complicated but I think I have it figured out. The August scenarios assume that you do absolutely nothing, no rolling or anything.

But obv. as others have pointed out, there are huge potential risks. ATM selling can also be risk if you do not adjust. If the SPX falls 300 points, the 100 pt cushion won't do you much good.

Come to think of it, another idea i like is selling a 200-day ATM call on ES and delta hedging by going long 250 SPY, while buying a far OTM ES call to prevent infinite losses in the unikely event of a huge bull market. Assuming a $6000 credit, the call must be bought at 2280 or so

 

[baggerlord]

You might as well get on a bitcoin dice site and make a high probability/low payout bet. Martingale on losers of course. Your expectation will probably be "higher" as the house edge is lower than bid ask spread and commissions. And you can make your "returns" much faster.

 

[tradelosses]

Those guys don't really trade, trust me. I've met them both. They are former MMs who now push their service. Karen, and there are a lot of people like her out there, has benefited greatly from the vix crush. A 2008 would wipe her out. People on here talk about the selloff we had last August, that was nothing. Shit I hardly noticed it. A 10% drop is nothing. A 30% to 50% drop would wipe most of these passive premo sellers out. But you can't tell this to people because they need to learn the hard way. Believe me I tried. BTW, probability of profit is the biggest scam going, you need to calculate net expected value which multiplies the probability times the expected value to get the net expected value.

Mav, the size of the drop does not matter, it's the acceleration . The 2000-2003 bear market was actually good for deep out of money money sellers because it took 3 years for the market to fall 50%.

 

[El OchoCinco]

Maverick74, newwurldmn, i960, optioncoach and others,

What you folks discussed here about ATM vs OTM/DOTM made a lot of sense. Thanks for the discussion and coaching.

One question: If you read books, especially watched tastytrade, they all said "sell OTM puts/calls gave high probability of profit". Tastytrade ran their own simulations and every time selling options mechanically were profitable irregardless. I watched Karen the super trader on tastytrade, she sold DOTM options and made tons of $$$? Care to comment?

By the way, I tried selling calls mechanically like they said and really did not do that well.

Regards,

Think of fixed income world...high probability of profit = small tiny profits. Highest probability of profit in the U.S. are t-bills (100% probability of profit haha)= teeny tiny profits. Only way to make real money investing solely in T-bills is already being super rich with millions of dollars and investing in T-bills in the 80s. Safe and sound and nice returns versus the risk.

30-year treasuries are also 100% probability of some profit assuming you buy and hold for 30 years. Most people don't and 30 year treasuries offer higher return though. Not just obvious time-value pricing factors which is most of it but also slightly higher duration/interest rate risks (especially if not holding for 30 years). So slightly increased interest rate risk equates to higher return compensation to take on that risk.

A-rated corporate bond, probability maybe in the 90%-tile but still higher returns do to relatively more risk.

BBB -rated bonds....even higher returns but probability of earning those full returns is much lower and risk of loss is greater.

Brazil bonds - double digit potential returns from fixed income product....much lower probability of making your money.

Options work the same way in a sense. You can spend your whole life investing in t-bills with little money and at the end of the year you will have little money but your % probability will be high. Or take on some manageable risk such as high rated corporate bonds and reduce % probability of success slightly and make more money etc.

Now where options truly differ is deep OTM options are not like t-bills or treasuries where high % probability guarantees profit... Now we add the additional factor that deep OTM options can move against you exponentially which would not happen in fixed income example with same high probabilities.

SO what is the long-winded point? % of profit alone is only magical in fixed income world, in options it only tells a part of the story and actually leads to poorer results in the long-term if you follow it blindly .

 

[i960]

Consider I start delta neutral (selling teenis and shorting SPY)..and then the market being to plunge. I would set a 'target delta' of maybe $40k on a $40 account. So I would cover the 10 teenies, which are no longer delta neutral, but have a total delta of maybe 20,000 and sell them at another strike and time to keep the delta and differential neutrality the same . the math behind it is complicated but I think I have it figured out. The August scenarios assume that you do absolutely nothing, no rolling or anything.

http://www.surlytrader.com/gamma-hemorrhage/

 

[Maverick74]

What about OTM spreads although not too deep, maybe .20 delta net spread spreads, with stop on underlying or delta, I.E. delta gets to certain size or underlying reaches a price stop your out of the spreads

Why? Look, the first question every trader has to answer when they think about putting on any position is "why" am I doing this? What is my edge? What do I know about this particular structure on this product at this time that NOBODY else knows. You need to answer these questions.