What strategies do you guys use?

[Betapeg]

Quote from JSHINV:

This strategy you can win most of the time; but when you lose you can lose big. If you're making good money on selling wings, that means you are probably selling a number of contracts. Even if there is little time left to expiration and it moves way big against you, there can be a lot of negative gamma to cover. Having said that, you can still be a net seller by doing a ratio write, which will mitigate the unlimited risk somewhat. Or you can sell a credit spread - which has a defined risk. Now, I used to say I would never sell naked. There may be situations where I'd do it (I haven't for years). But, to make a living selling OTM options, scares the heck out of me. This forum and the well respected books on options are replete with examples of famous traders that got killed that depended on this strategy for their bread and butter. But even then, maybe there are traders out there who have done this strategy for decades and have risk management procedures in place (possibly buy or sell stops on the underlying futures to hedge a major move), that can win doing it. It just scares me to try to depend on this strategy - to sell wings.

Futures options allow much less margin requirement for the premium received. You can easily sell 30-40% OTM and still receive a good premium, unlike equity/index options, which require you to sell close to the money and for a large margin requirement. This goes without saying, risk management is key. Cut the losses, let the winners run. Since being short on options means knowing your maximum profit, you know ahead of time what you are going to make. Setting up a double premium mental stop loss cuts all losses to just that. Double premium.

In my opinion, honestly I feel the strategy I use is far safer than anything I have ever done, be it stock investing, stock option trades, forex, or futures trading. There is no other security I can think of which allows me to be wrong and still make a profit.

I hardly pay attention to the greeks as they just give me some stats on what I am getting into. They do not determine anything for me. I do keep delta and theta on my position interface, however.

Your positive theta strategy can be crushed by a big move against you and a corresponding increase in negative vega even with a fair degree of time left to expiration.

This may be true for stock options, no doubt. But with futures options, I haven't looked at vegas at all, because it seems a lot less sensitive to volatility, so much so I don't bother with it.

Also, being short on options means you are NEGATIVE THETA. Not positive.

 

[nfamousyoungest]

Real talk, it's not far safer, it's just higher probability than punting underlying without edge. That doesn't speak to the real risk in selling the pennies. Just keep your fingers crossed for a low vola environment for the foreseeable future, and CASH OUT! Regularly.

 

[atticus]

Quote from Betapeg:

Futures options allow much less margin requirement for the premium received. You can easily sell 30-40% OTM and still receive a good premium, unlike equity/index options, which require you to sell close to the money and for a large margin requirement. This goes without saying, risk management is key. Cut the losses, let the winners run. Since being short on options means knowing your maximum profit, you know ahead of time what you are going to make. Setting up a double premium mental stop loss cuts all losses to just that. Double premium.

In my opinion, honestly I feel the strategy I use is far safer than anything I have ever done, be it stock investing, stock option trades, forex, or futures trading. There is no other security I can think of which allows me to be wrong and still make a profit.

I hardly pay attention to the greeks as they just give me some stats on what I am getting into. They do not determine anything for me. I do keep delta and theta on my position interface, however.



This may be true for stock options, no doubt. But with futures options, I haven't looked at vegas at all, because it seems a lot less sensitive to volatility, so much so I don't bother with it.

Also, being short on options means you are NEGATIVE THETA. Not positive.

-theta = pay the decay
+theta = earn the decay

30-40% otm and good premiums? Wh wh where?! Seriously, I'd really like to know.

 

[JSHINV]

Short out of the money options are positive theta.

Quote from Betapeg:

Also, being short on options means you are NEGATIVE THETA. Not positive.

 

[Betapeg]

Quote from nfamousyoungest:

Real talk, it's not far safer, it's just higher probability than punting underlying without edge. That doesn't speak to the real risk in selling the pennies. Just keep your fingers crossed for a low vola environment for the foreseeable future, and CASH OUT! Regularly.

Selling 0.01 deltas is far safer than selling 0.50 deltas any day, any time, any where. It's impossible to sell that kind of delta in stock options. Futures options is the only venue where you can do this. Since I started selling futures options, I never took another look at vegas or volatility again. Stock and futures options are two completely different species.

Quote from atticus:



-theta = pay the decay
+theta = earn the decay

Ha, you're right, it's positive theta. I was looking at my deltas which are all negative. My bad!

30-40% otm and good premiums? Wh wh where?! Seriously, I'd really like to know.

Futures options.

 

[Betapeg]

Here is the best possible explanation of the strategy I employ. They provide examples too.

http://www.libertytradinggroup.com/strategy.html

 

[atticus]

Quote from Betapeg:

Selling 0.01 deltas is far safer than selling 0.50 deltas any day, any time, any where. It's impossible to sell that kind of delta in stock options. Futures options is the only venue where you can do this. Since I started selling futures options, I never took another look at vegas or volatility again. Stock and futures options are two completely different species.



Ha, you're right, it's positive theta. I was looking at my deltas which are all negative. My bad!



Futures options.

Please don't offer any advice on the subject. The 0.01 delta comment is ridiculous. We don't need to address the theta comment again. I would suggest you demand a refund if you paid money to the clowns on that site.

 

[Betapeg]

Here is a screenshot of a portfolio of far OTM futures options.

www.betapeg.com/P0sitions.jpg

Look at the strike prices of these options and then look at the "mark". My oil contracts are more than 30% OTM. My natural gas is more than 40%. Corn moved against me but is STILL 10% out of the money with 17 days left so the trade is still very much on. My soybeans short strangle has one leg 15% OTM, and the other more than 20% OTM. My wheat position is 50% OTM!!

You'll see all these options are far OTM but I still received on the order of about $1,000 per trade ending in less than 2 months (when I put these on). Margin requirement at the time these trades were put on was about 30-40% of total capital. The rest is nothing but cash. I will be receiving $5,000 of premium within 1-2 months which is a 5% return on a $100,000 portfolio. Annualize that and you'll get a reasonable estimate of at least 40% or 50% as an annual return.

None of this is "pennies", "scalping", or "grabbing nickels in front of a bulldozer." With the proper risk management rules, it's actually safer for the return than anything I have ever seen. How I can be making $5,000 of premium in less than 2 months using just 20-30% of my capital and that be called "pennies in front of a bulldozer", I have no idea.

 

[atticus]

Quote from Betapeg:

Here is a screenshot of a portfolio of far OTM futures options.

www.betapeg.com/p0sitions.jpg

Look at the strike prices of these options and then look at the "mark". My oil contracts are more than 30% OTM. My natural gas is more than 40%. Corn moved against me but is STILL 10% out of the money with 17 days left so the trade is still very much on. My soybeans short strangle has one leg 15% OTM, and the other more than 20% OTM. My wheat position is 50% OTM!!

You'll see all these options are far OTM but I still received on the order of about $1,000 per trade ending in less than 2 months (when I put these on). Margin requirement at the time these trades were put on was about 30-40% of total capital. The rest is nothing but cash. I will be receiving $5,000 of premium within 1-2 months which is a 5% return on a $100,000 portfolio. Annualize that and you'll get a reasonable estimate of at least 40% or 50% as an annual return.

None of this is "pennies", "scalping", or "grabbing nickels in front of a bulldozer." With the proper risk management rules, it's actually safer for the return than anything I have ever seen. How I can be making $5,000 of premium in less than 2 months using just 20-30% of my capital and that be called "pennies in front of a bulldozer", I have no idea.

The 20-30% is simply initial req. I've never heard anyone correlate haircut and profitability. Does Chuck E Cheese accept that $1,700 in demo gains?

You sold CL calls at 9 cents.... that NG trade is too retarded to mention further.

 

[nfamousyoungest]

LOL, does everyone selling otm juice think they can start a firm? Please make HowardCohodas head of risk management. He's got a recommendation letter from Jack Hershey.