Option strategies

This is a discussion on Option strategies within the Futures & Options forums, part of the Markets category; Originally Posted by Windlesham1 dozer: Never write far dated stuff-it'll bite yer bum. You can adjust near month,and generally roll ...

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Old Jun 18, 2005, 11:31am   #9
Joined Jan 2005
Quote:
Originally Posted by Windlesham1
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.

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
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Old Jun 18, 2005, 11:51am   #10
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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.
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Old Jun 18, 2005, 6:09pm   #11
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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
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Old Jun 18, 2005, 6:28pm   #12
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Quote:
Originally Posted by Windlesham1
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.
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 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 Just take a mo and think pls.

Bull

Last edited by bulldozer; Jun 18, 2005 at 6:50pm.
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Old Jun 18, 2005, 6:52pm   #13
 
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Originally Posted by bulldozer
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 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 Just take a mo and think pls.

Bull
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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Old Jun 18, 2005, 7:05pm   #14
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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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Old Jun 18, 2005, 8:22pm   #15
 
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Originally Posted by bulldozer
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?
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
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Old Jun 18, 2005, 9:31pm   #16
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Originally Posted by Glenn
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
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
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