Option strategies

FWIW:
Sold 5175Jul Calls at 18 (currently 15-16). I am rubbish at calling market tops but I might scale in if we continue to rise,on the basis that 5150 is a huge Fib level . On the other hand,if we see another 100 point drop on Monday I'll be selling puts. I really would NOT want to be long this market,as option prices are saying we are headed south. As usual the market confuses,frustrates,delights,but ultimately puts food on the table.

Windlesham...

I've also been writing FTSE Calls for July. I wrote some 5125's last week which paid 22 and then I wrote some 4925 Puts (during weakness earlier this week) which paid 18. Today I wrote some 5175 Calls but did so a tad early and only got 12.

Very strange today on FTSE if you ask me.

Steve.

Wind, Steve,
You 2 guys are brave in writing naked so close to mrkt levels.
I'm xpecting a pull back, for this reason i bought some julys 4925 puts at 9 pts. [they are now showing 13 to buy] I say this cause I believe the mrkt is ripe for profit taking.

Fc,
I like your catastrofic stops Hows the margin doing on those shorts? May i suggest a small tip? dont add to ur shorts just BUY some july puts insted, there is no margin to pay at all.

Fantastic week end to all!

Bull

Bulldozer....

Yes, we are quite close to market levels with those Calls but I've personally got a 40 point premium when you consider the Puts which I've also written. I also play the futures intra-day in a roughly corresponding size. Today was good as I managed to scalp a further 23 points on the upside move. This means that 'psychologically' I now see my breakeven level up at 5188. If we didn't happen to get that high then I would 100% hedge the Calls and then write some further Calls for a higher level again.

I would suggest that your Puts are rising in value because the implied volatility is rising. FTSE has been a bit of a sleeping dog of late so a 50 point intra-day move was always going to push the price of all options higher.

Have a good weekend,
Steve.

stevespray said:

Bulldozer....

Yes, we are quite close to market levels with those Calls but I've personally got a 40 point premium when you consider the Puts which I've also written. I also play the futures intra-day in a roughly corresponding size. Today was good as I managed to scalp a further 23 points on the upside move. This means that 'psychologically' I now see my breakeven level up at 5188. If we didn't happen to get that high then I would 100% hedge the Calls and then write some further Calls for a higher level again.

I would suggest that your Puts are rising in value because the implied volatility is rising. FTSE has been a bit of a sleeping dog of late so a 50 point intra-day move was always going to push the price of all options higher.

Have a good weekend,
Steve.

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Steve,
Thanx 4 ur reply.
What u have is in fact a Short strangle [naked] very close for comfort. This is not so bad if ur doing just a few, i hope u dont have too many.?
If mrkt drops by more than 80 pts u'll be on margin call, if it continues to drop the marg will get more heavier [larger] if this happens i supose u can always convert into a Put bull sprd by using the prem's uve taken and close out the calls for peanuts.
Why not do a short naked strangle far out [say 3-4 mths away] with the strikes far OTM for more prem's and less stress and hassle with less adjustments and a saving on commissions and with less marg and more contracts = more profits and more free time to enjoy life away from the mrkts.
Just my opinion 4 what its worth

Bull
Let the theta work for you while you enjoy life. Milk the THETA and STRANGLE the MM

At last -some sensible option players. vol has been as low as 7% on P&Cs I have a long put spread,as I see support at 4900 and massive support at 4800. hoping for a good week for selling puts,but happy to sell more calls. I just trade what I see,but if I were asked to comment on this market,I'd say this is panic buying,and those champions of the losing trade, the fund managers, have been told to 'Get on with it' . Volatility is much better on SPX,but of course margin is so much higher,to discourage the small players.

dozer: Never write far dated stuff-it'll bite yer bum. You can adjust near month,and generally roll up/down/and take in premium-eg sell 5 near month and they go against you,sell 10 or more in next month and so on -it's all a question of who has enough margin. Sadly for us there are now too many option writers-I've been doing this for some years,and watched many players get blown up,and survived a few horrible times myself. Happy trading.

========================================================
Your quote Steve,
I also play the futures intra-day in a roughly corresponding size. Today was good as I managed to scalp a further 23 points on the upside move.
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It seems to me that ur using ftrs as a form of hedge on ur options positions, if u make a loss on the ftrs this will wipe away all the profits generated from the Options strangles and your back to square one again with the broker as the real winner having pocketed all those commissions.

Just my opinion 4 what its worth

Bull
Let the theta work for you while you enjoy life. Milk the THETA and STRANGLE the MM [/QUOTE]

Windlesham1 said:

dozer: Never write far dated stuff-it'll bite yer bum. You can adjust near month,and generally roll up/down/and take in premium-eg sell 5 near month and they go against you,sell 10 or more in next month and so on -it's all a question of who has enough margin. Sadly for us there are now too many option writers-I've been doing this for some years,and watched many players get blown up,and survived a few horrible times myself. Happy trading.

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Wind,
Writing far dated OTM Strangles is more safer than the near dated ones. If ur near dated go ATM or ITM ur marg will go thro the roof and in most cases u will NOT be allowed to adjust until the marg has been settled first.
Are u aware that writen puts on NEAR month carries more marg than a far dated at same strike? You will be surprised that MANY Option players DONT know this fact! even my broker cant xplain why this is. You will only get that answer from the MM.

Bull
Let ur hedge be ur edge :cheesy:

I'd make two points here....

1) If you get into writing options then it is very important that you are well margined. I generally do just a few contracts at a time. Doing it this way you get a good balanced feel for the market. If things dont quite go your way then there is plenty of scope for adjustments / hedging etc. The key is to remain relaxed and not under pressure.

2) I find that my trading personality is hugely bias towards psychology. On that basis I like to look at things as simply as possible. This is why I am drawn to writing strangles. Firstly you have the protection of the range and then you have the further protection of any scalping / hedging you can pull off. When I manage to scalp a few points I psychologically add these to my premium and thus my profitable expiry range generally gets bigger and bigger.

Bulldozer - You are correct, I am using the futures to hedge the exposure on the At The Money Calls. What you have stated isn't entirely correct. A loss on the Futures positions does not wipe away ALL profits, it erodes profits as far as the future moves against me (if we are inside the expiry range) and it 'locks' my position if we are outside the expiry range. This is another benefit of trading the way that I do - as my profitable expiry range grows, the point at which I will need to be hedged will move further and further away from the strike price of the Call / Put. This means that there is far less chance of getting a nasty whip.
In reality, and based on experience, I am always prepared to lose as much as I stand to gain. So, given the example of a strangle on FTSE which has paid me 40, I am prepared to drop 40 before I get any kind of desire to hedge the whole position out - again this prevents whip. At the end of the day it's all down to personal psychology and how you decide to look at your trading / positions. Obviously, at present, the strangle writers will technically be showing a loss simply because the volatility is rising and therefore there is a blanket increase on the value of all the short (written positions).

Steve.

Steve,
If both prems = 40 pts and ur ftrs hedge loses 40 pts ur back to square one! Plus the ftrs Delta is greater than the Options Delta. Also if one leg goes deep ITM ur marg will be increased. Does ur broker allow U to adjust/convert position without first settling the marg issue?

Bull

Windlesham1 said:

dozer: Never write far dated stuff-it'll bite yer bum. You can adjust near month,and generally roll up/down/and take in premium-eg sell 5 near month and they go against you,sell 10 or more in next month and so on -it's all a question of who has enough margin. Sadly for us there are now too many option writers-I've been doing this for some years,and watched many players get blown up,and survived a few horrible times myself. Happy trading.

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Wind,
How do you come to the conclusion that far dated OTM short strgls will bite ur bum? If this position bites my bum? i would hate to think what an ATM short near dated strgl will do I think it will swallow ur whole account and bite ur neck :cheesy: Especialy if it goes ITM

Surely you must agree that the Far dated OTM short strgl is much safer than the one ur suggesting? and it carries LESS marg.
The Delta will be working against you on the near dated position cause ur already ITM and my position has not become ITM. [my strgl position is far dated and far OTM]

Far dated strgls can also be adjusted in the same way as u've suggested! there is no difference whats so ever between the two. Infact my ones dont need as much adjusting as they were far OTM with plenty of time left than yours and I'm saving on commisions too.
Would ur broker allow u to adjust before you settle the marg?


Just my honest opinion guys :cheesy: Just take a mo and think pls.

Bull

bulldozer said:

Wind,
How do you come to the conclusion that far dated OTM short strgls will bite ur bum? If this position bites my bum? i would hate to think what an ATM short near dated strgl will do I think it will swallow ur whole account and bite ur neck :cheesy: Especialy if it goes ITM

Surely you must agree that the Far dated OTM short strgl is much safer than the one ur suggesting? and it carries LESS marg.
The Delta will be working against you on the near dated position cause ur already ITM and my position has not become ITM. [my strgl position is far dated and far OTM]

Just my honest opinion guys :cheesy: Just take a mo and think pls.

Bull

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Hi Bull (John)
Presume you wouldn't let far dated strgls run to expiry if they start to look suspect?
Or would you hedge using something else ?
I've tried to convince a pal to write OTM further out in time, but he seems perturbed by the prospect of having to buy them back (Comms + Spread).
He is used to having near dated OTM writes run to expiry and keeping all the premium.
However, he took a hit on Friday on 5075 calls. (Some serious manipulation going on imo.)

Glenn

Glen,
Are u the one also known as GMT/novice that came to the football club hse some months ago? and ate all my food and drinks?

bulldozer said:

Glen,
Are u the one also known as GMT/novice that came to the football club hse some months ago? and ate all my food and drinks?

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Not quite. I couldn't finish the Roasted Loin of Veal with Braised Leek and Crisp Pancetta & Café au Lait Sauce, Anna Potatoes and Baby Vegetables.
Must have been because of the gallon of Newcastle Brown I had

So what do you think about the far dated strgls ?
Glenn

Glenn said:

Hi Bull (John)
Presume you wouldn't let far dated strgls run to expiry if they start to look suspect?
Or would you hedge using something else ?
I've tried to convince a pal to write OTM further out in time, but he seems perturbed by the prospect of having to buy them back (Comms + Spread).
He is used to having near dated OTM writes run to expiry and keeping all the premium.
However, he took a hit on Friday on 5075 calls. (Some serious manipulation going on imo.)

Glenn

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Glenn,

Good questions m8.
I would hang on to them if they still had time value with intrinsic. If theres no time value left or very little i would roll them with a dffrt strike.
If my marg can hold position theres no need for me to hedge at that point.

I agree with you on the next question. I dont agree with ur friend to hold till xpiry and make a saving on comms+Spread. In fact he is losing money by holding till xpiry and let position finish worthless!
I'll try to xplain why: I would buy them back at 2-3 pts and happy to pay the MM to take them off me, this action will realease my marg and can be shifted to the new strgl position and take in HEAVY prems. While ur friend is waiting for his position to finish worthless just to make those 2-3pts, i've made 5-12 pts in the same time period with the theta working in my favor. I'm sure you understand my point. Ur mate is not so bright. And more contracts than ur friend with the same amount of marg.

Now to ur last point [near dated position] he is obviously writing very near the mrkt level/action for him to get hit. He is also paying heavy marg on near dated ATM/ITM which he may not know.
Its all about making the most use of the margin paid. I trade away from mrkt action OTM and a few mths out and with less marg and more contracts for the same amount of marg ur friend is paying and the added benifits> no stress and more free time to enjoy life.

I hope this is not all mumbo jumbo

Bull
Milk theta and strangle the MM :cheesy:

Bull
I agree with you. Not mumbo Jumbo at all.
His recent position was opened maybe 6 wks ago, when he was maybe 100pts or more OTM.
But the premiums have been poor of late (Hedge Funds activity possibly) and that was a lot closer to the market than he is used to.

Perhaps one thing against the far-dated posns is that theta takes a lot longer to have a decent effect, so you may be sitting on a posn and suffering the marg longer than you would with near dated to get the same reduction in premium.

Glenn

bulldozer said:

Glenn,

Good questions m8.
I would hang on to them if they still had time value with intrinsic. If theres no time value left or very little i would roll them with a dffrt strike.
If my marg can hold position theres no need for me to hedge at that point.

I agree with you on the next question. I dont agree with ur friend to hold till xpiry and make a saving on comms+Spread. In fact he is losing money by holding till xpiry and let position finish worthless!
I'll try to xplain why: I would buy them back at 2-3 pts and happy to pay the MM to take them off me, this action will realease my marg and can be shifted to the new strgl position and take in HEAVY prems. While ur friend is waiting for his position to finish worthless just to make those 2-3pts, i've made 5-12 pts in the same time period with the theta working in my favor. I'm sure you understand my point. Ur mate is not so bright. And more contracts than ur friend with the same amount of marg.

Now to ur last point [near dated position] he is obviously writing very near the mrkt level/action for him to get hit. He is also paying heavy marg on near dated ATM/ITM which he may not know.
Its all about making the most use of the margin paid. I trade away from mrkt action OTM and a few mths out and with less marg and more contracts for the same amount of marg ur friend is paying and the added benifits> no stress and more free time to enjoy life.

I hope this is not all mumbo jumbo

Bull
Milk theta and strangle the MM :cheesy:

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Glen,

A few free tips 4 u.
Do half strangle first when volty is pushing prems higher and also making sure u chose the right strike. Then do the other half a few days later when volty is in ur favor. inother words wait for entry points that suits you.
Ur friend is on a 7-10 weeks position from what i can gather. My 3-4 mths OTM will have a better advantage when the 7-10 [ur friend] wks are up. The theta will show up better at that point but u CANT keep checking the theta effects on the daily basis on the far out position like u can on the near month. Inother words i will make more prems at the end of ur friends xpiry date [7-10wks] with my long dated position now reduced by 10wks. Get the picture? This is because his prems are a lot lower than mine at the outset.

Lets say he took in 12 pts and i took in 30 pts and in 10 wks his are worthless and keeps all 12 pts prems and mine are now worth 13 i have made 17 pts compared to his 12 pts. He cant make 17pts. 5pts difference = £50 >>times 10 contracts= £500 and STILL with LESS margin.
Plus he is trading close to mrkt action with the Delta breathing down his neck and I'm still away from the mrkt action with NO threats of the Delta hitting me in the face cause I'm OTM. He needs to hedge if it goes ITM , i dont. Even if my position is showing ONLY 10 pts profits at the xpiry date of ur friend, I'm still better off than his position because with the SAME amount of marg as ur friend i'm able to do 2-4 more contracts.

word of warning to others who read my posts: DONT do strangles if you cant come up with any margin calls! or if u dont know how to hedge!, or if you dont know how to convert positions! or if it makes you feel nervous and keeps u awake at night. or if you have heart/blood presure problems. Options can HARM your health and ur happiness if done wrongly :idea:
If you suffer with any of the above problems you need to visit my site> www.jc53.com


Bull

Bull - I'd be interested in a walk through example of the sort of trade you're talking about. As it happens I've tried starting several threads on options but the response has been very muted.

In the interest of not hi-jacking FC's thread can you start one in the options section and just maybe post the link here.

Hope everyone's having a great weekend (Wasn't the cricket great!)
Steve.

stevespray said:

Bull - I'd be interested in a walk through example of the sort of trade you're talking about. As it happens I've tried starting several threads on options but the response has been very muted.

In the interest of not hi-jacking FC's thread can you start one in the options section and just maybe post the link here.

Hope everyone's having a great weekend (Wasn't the cricket great!)
Steve.

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Steve,

Its been done many times before [option threads]

It does not work on this forum. It all becomes hostile with lots of insults and lots of mud slinggin it normally ends up with the thread getting stopped by admin. Ask FC he has seen it all.
Go on the search engine for good option forum. Yu'll not find it here.
I will try to PM some links later.
Have a good trading week.

Bull
In all things give thanx