The EDGE of premium decay

[justrading]

Market is liquid , you can sell most strikes , so at 10650 sold 10600 = 50 intrinsic plus 190 premium.

These are monthly , this is monthly

bought 10550 put for 35 ticks weekly option as protection

Trading Education Buyer said:
Buying dax 10650 stop 10350 , selling 10600 call for 240 , till end of this week

You were talking about weeklies sunshine, not monthlies.

Anyway, first point, stipulate that 240 is points. You talk about weekly profit in dollars, and don't qualify the numbers for trades.

Secondly, if you really want to attract a following, as said by someone before me, you need to explain more. The logic of buying a futures contract and selling an ITM call escapes me. If the market moves against you, the call will mitigate your futures loss, to a point, by diminishing degrees. Your sold call is about 0.50% ITM, well within the realm of possibility for a single days move. If it moves in your favour, convexity of the ITM option means an ever reducing benefit from the move as delta increases.

If you have confidence in direction, why run the race with one arm tied behind your back? If you don't, why not, and why that particular choice of call?

As suggested, you really need to explain more.

If you'd like a great example of how to explain, here is one.

https://charmandcolor.wordpress.com/2016/12/09/inner-workings/

I don't mean to be patronising, but I believe many who read this don't trade options. The title of the blog, charm and color (gawd, I hate that, I spell it colour), refer to second and third order greeks.

Read and enjoy.

 

[Buy1Sell2]

With this strategy I am buying the weekly options a stop /protection , buying futures and sell calls or sell puts and sell futures , just in case trend breaks out I am covered and if weekly volatility is good , I can take 50 points a week .It is a new strategy I am working on.It fits in fine with my other strategies , where I don't have to buy down side protection.Usually I am buying supports and selling resistances.

That last trade was below selling support 10650 at 10600 , s/be 10750 sell , a mistake that resulted in losses.

If you are spending money on premium, you may as well just buy a straight option and forget about trying to hedge a position with an option.

 

[Trading Education Buyer]

If you are spending money on premium, you may as well just buy a straight option and forget about trying to hedge a position with an option.

Good point .I have another strategy , where I buy calls when price oversold , but you have to pick calls at oversold levels or trending mode.

 

[galvinlee888]

And that sir is where you lost me.

Now let's start with the fact I know sweet buggerall about the DAX. I actually thought the options were European options, for the benefit of those who don't trade options, no early exercise. I had to look up the Eurex contract specs to see they are actually American style options.

Take your post #51 on page 6.

If I understood, you bought the DAX futures at 10650, stop 10350, 300 "ticks", (sic).

You wrote that you sold a 10600 call for 240.

What? A call is the right to buy. You sold a call 50 POINTS ITM, the DAX contract specs say a point is €25, in increments of 0.5 at €12.50. Yes, the tick is 0.5, the point is 1, so you might want to start by using the right terminology.

A call 50 points ITM would have an intrinsic value of 50x€25, plus time premium.

You sold it for 240?

That is precisely where you lost me.

I believe he never has a proper trading account with any REAL broker. He is using some blood sucking bucket shop that normally use "point" instead real tick.

I will let him figure out himself in the hard way why bucket shops are blood sucking, especially trading Options. LOL

 

[justrading]

I believe he never has a proper trading account with any REAL broker. He is using some blood sucking bucket shop that normally use "point" instead real tick.

I will let him figure out himself in the hard way why bucket shops are blood sucking, especially trading Options. LOL

Well, I just checked on my iPad, I can get a DAX option quote, so the chains should load on my PC. The next time he comes up with weird and wonderful stuff I struggle to understand, I can model it and see what price band he is being optimistic about.

 

[Trading Education Buyer]

I believe he never has a proper trading account with any REAL broker. He is using some blood sucking bucket shop that normally use "point" instead real tick.

I will let him figure out himself in the hard way why bucket shops are blood sucking, especially trading Options. LOL

Agreed:Bucket shop are blood sucking , with the wider spread on buying and a much hefty closing price , of 5 to 12 points for highly decayed options that are almost worth zero.

The advantage is you get instant fill , in non trading hours and at all strikes .I don't like interactive broker platform and automatic rolling into futures .

I will post in the DAX journal ,this method I am refining in a few minutes , the purpose is to get you guys to comment.This is actually a method not worth laughing it , it may give you a good 30 points a week , with managed risk.

If we can all bang our heads , we might strike oil . with an orignal method , that could be highly profitable.

 

[justrading]

Agreed:Bucket shop are blood sucking , with the wider spread on buying and a much hefty closing price , of 5 to 12 points for highly decayed options that are almost worth zero.

The advantage is you get instant fill , in non trading hours and at all strikes .I don't like interactive broker platform and automatic rolling into futures .

I will post in the DAX journal ,this method I am refining in a few minutes , the purpose is to get you guys to comment.This is actually a method not worth laughing it , it may give you a good 30 points a week , with managed risk.

If we can all bang our heads , we might strike oil . with an orignal method , that could be highly profitable.

If you want comments and a reasoned discussion, then, as you were asked in your journal, explain your logic for structuring trades the way you do.

What you are doing is posting in shorthand the most bizarre trade structures I've seen in a while. What is there to discuss? Laugh yes, discuss?

All the heroes who want to profit from premium decay selling options look at how many standard deviations away they will sell the options.

You sell one 0.5% from the money and expect to profit from decay. If I could have such confidence in price and be correct, Soros would look like a pauper next to me. To begin with, I wouldn't muck about with the pennies from premium, I'd do straight directional trades, leveraged but within reason. As suggested, buying vanilla options is one way you could do it.

Get real.

And Galvin, great job identifying the bucket shop thing.

 

[Trading Education Buyer]

If you want comments and a reasoned discussion, then, as you were asked in your journal, explain your logic for structuring trades the way you do.

What you are doing is posting in shorthand the most bizarre trade structures I've seen in a while. What is there to discuss? Laugh yes, discuss?

All the heroes who want to profit from premium decay selling options look at how many standard deviations away they will sell the options.

You sell one 0.5% from the money and expect to profit from decay. If I could have such confidence in price and be correct, Soros would look like a pauper next to me. To begin with, I wouldn't muck about with the pennies from premium, I'd do straight directional trades, leveraged but within reason. As suggested, buying vanilla options is one way you could do it.

Get real.

And Galvin, great job identifying the bucket shop thing.

This is not a premium decay strategy , it is volatility trading ranging strategy.Check it out.

technical analysis dax signal

Give me some constructive improvements , and I know you guys can help.How can I get more benefit from premium decay on sold options?

 

[justrading]

This is not a premium decay strategy , it is volatility breakout strategy.Check it out.

technical analysis dax signal

Give me some constructive improvements , and I know you guys can help.How can I get more benefit from premium decay on sold options?

Yes, I've looked at your post there already. As noted, not all the trades you've put on follow the two plays you detailed.

Anyway, without modelling actual trades with IV of the options, it is senseless to comment.

There will presumably be a band of profitability if the numbers have been worked correctly, so probability, R:R and reality will have to be looked at.

At least now that you have outlined your thinking, people can look at your trades in relation to your desired outcomes.

 

[Trading Education Buyer]

See if you guys can make some comments on this

https://www.elitetrader.com/et/threads/option-trades-with-managed-risks.305070/