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Writing options for a living
- Thread starter torontoman
- Start date
ktm,
We've exchanged posts on another thread and I found your advice to be excellent. You described how you create "profit zones" within a spread or iron condor by say, selling a put spread 70 points out and buying a fewer number of put (debit) spreads (say for $1 which can turn into $10). I have a couple more questions if I may:
1) This strategy of buying a close-to-ATM debit spread to create a profit zone works well for the put side of things,... but is too expensive for the call side. How do you handle the call side? A call fly?
2) Do you hedge deltas with ES/SP?
Thanks-in-advance
We've exchanged posts on another thread and I found your advice to be excellent. You described how you create "profit zones" within a spread or iron condor by say, selling a put spread 70 points out and buying a fewer number of put (debit) spreads (say for $1 which can turn into $10). I have a couple more questions if I may:
1) This strategy of buying a close-to-ATM debit spread to create a profit zone works well for the put side of things,... but is too expensive for the call side. How do you handle the call side? A call fly?
2) Do you hedge deltas with ES/SP?
Thanks-in-advance
Quote from ktm:
??? I think many of us write options due to our confessed inability to predict underlying direction. Maybe you aren't defining the word "adjustment" as others do. From your implication that option writing puts you in a hole as a matter of course, I take it you don't highly regard the strategy. Some of us have made it work quite well, with adjustments being a necessity at times.
Quote from andysmith:
ktm,
1) This strategy of buying a close-to-ATM debit spread to create a profit zone works well for the put side of things,... but is too expensive for the call side. How do you handle the call side? A call fly?
2) Do you hedge deltas with ES/SP?
Thanks-in-advance
It's usually about $1 more to buy the call spread, over the put spread. That can get pricey to be sure. That is one option, another is to use futures. If your ratios are right and you have a decent trend following indicator, you could go long futures when the indicator is pointing up. I like to consider futures on the upper end for several reasons: 1) you need something that is going to travel with you dollar for dollar as the market moves up 2) the cost of acquiring futures is commision only, unlike with calls where you are paying premium 3) with puts, you will be paid to roll farther away in a dropping market as the vix rises - with calls the opposite happens and the premium comes in as we launch upward - futures can reduce or eliminate the amount of rolling needed to the upside.
ktm,
I'm guessing you hold the futures overnight, perhaps for several days, as long as your trend-following indicator is pointing up?
If you go long the futures and want that to travel with you dollar for dollar as the market moves up, you'll have to keep adding more futures to offset the exponential loss from the call spread?
Do you have an active stop loss on your futures? Fear here is a sudden reveral since the futures have a potentially unlimited loss ...
I'm guessing you hold the futures overnight, perhaps for several days, as long as your trend-following indicator is pointing up?
If you go long the futures and want that to travel with you dollar for dollar as the market moves up, you'll have to keep adding more futures to offset the exponential loss from the call spread?
Do you have an active stop loss on your futures? Fear here is a sudden reveral since the futures have a potentially unlimited loss ...
Quote from ktm:
It's usually about $1 more to buy the call spread, over the put spread. That can get pricey to be sure. That is one option, another is to use futures. If your ratios are right and you have a decent trend following indicator, you could go long futures when the indicator is pointing up. I like to consider futures on the upper end for several reasons: 1) you need something that is going to travel with you dollar for dollar as the market moves up 2) the cost of acquiring futures is commision only, unlike with calls where you are paying premium 3) with puts, you will be paid to roll farther away in a dropping market as the vix rises - with calls the opposite happens and the premium comes in as we launch upward - futures can reduce or eliminate the amount of rolling needed to the upside.
Quote from andysmith:
ktm,
I'm guessing you hold the futures overnight, perhaps for several days, as long as your trend-following indicator is pointing up?
If you go long the futures and want that to travel with you dollar for dollar as the market moves up, you'll have to keep adding more futures to offset the exponential loss from the call spread?
Do you have an active stop loss on your futures? Fear here is a sudden reveral since the futures have a potentially unlimited loss ...
You would roll the calls as you go up. I would also suggest "split rolling". If you have 100 calls to roll up, maybe you roll into another 100 and sell 30-40 puts below the money to offset a continued runup. Getting a few bucks from the puts plus your futures profits can offset the beating the calls will take.
I do not add more futures, but I do maintain a stop loss to reverse or get out of the long position.
Quote from sle:
out of curiosity, while we are at it - what's a good broker for writing index and single stock options? let's say one wanted to trade 100k in total.
IB w/o question. $.75 or less for size. Ability to fill complex spreads and combos on multiple posts with a guaranteed fill on the spread/combo. Nobody comes close.
I'm very green when it comes to options, but if your writing naked options, why not go long or short the exact amount in stocks as the amount of contracts?...would this help hedge the option writer?
Quote from sle:
out of curiosity, while we are at it - what's a good broker for writing index and single stock options? let's say one wanted to trade 100k in total.
If you do 100k contracts/ month you will pay $0.40 to $0.425 with Simplex leveraged trading. you use an institutional front end develped by thinkorswim with superior analytics and fills. $0 front end or remote fees. They have rediculous apps and algos for whatever you need, all fully customizable.
Obvs, the big tradeoff would be fund security... vs. SIPC insurance that retail shops offer.