ROM of HIPS and LOBS

The below expired.

6/21/18 STO SOLD -1 /ESU8 1/50 JUN 18 (Wk4) /EW4M8 2745 PUT @2.00

The return on margin for the last three weeks of this strategy is about 9%.

This conclude the review of HIPS and LOBS.

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LOBS signal setup

Today LOBS signal appeared.

6/21/18 STO SOLD -1 /ESU8 1/50 JUN 18 (Wk4) /EW4M8 2745 PUT @2.00

The below expired.

6/18/2018 STO SOLD -1 /ESU8 1/50 JUN 18 (Wednesday) (Wk4) /E3CM8 2795 CALL @2.00

From seller to buyer and IV on spread

Seller to buyer of options

Recently, when reviewing the number of option trades, I realized that I had a good balance of both selling and buying of options. That was not so previously, of which I am almost a majority seller of options.

The change came about recently when the market went wild and my sell options took a hit on my portfolio. Sensing the market is in temporary bearish, I started to do progressive of buying options and realize the returns are much much better.

Now, I use more of buy (directional) than sell (neutral to directional) of options.

 

IV impact on spread

IV works well with single position for buy when IV rank is low or sell when IV rank is high. With that, I assume it should work with narrow spread options (either debit or credit spread). After period of observation, I realize doing a narrow spread base on IV have little or no impact on Volatility and Time decay.

Impact of IV on spread

From the above the next strike price of both the Theta and Vega is either the same or close in value . Eg Spread SP of 175 and 172.5, the net Theta is 0 and the net Vega is 0.2 which is either no or low Theta decay and small Vega impact. Thus, when doing narrow spread options the use of IV have little impact unless the spread is very wide.

Kum Seah Chu

Kum Seah Chu

Below is the summary:

  1. Selling option involve undefined risk.
  2. Buying option limit the risk.
  3. Risk profile provide a graphical view of risk.
  4. Option’s return are dependent on whether one adopt long, short or neutral strategy.
  5. It is possible to manage risk with adjustment.
  6. Option learning curve is not easy, Fullness of Time is necessary.
  7. Trade Well with your system.

TDA automated option closing order

 

It is easy to automate the closing order by doing simple programming on your own. Below are some of the scenario to close option orders.

Closing a Bull Put spread (bups) order

  1. Take profit when premium drop to below certain price and close out the bups option trade
  2. If market price reach the sell leg price, can close out the bups order with limit the loss to a certain amount
    • Beware of this as sometime the market does not give you this limit premium that you requested especially when volatility exploded and the premium may not be filled even when it is triggered.
    • Can change to market premium to ensure closed out
  3. If price drop to or close to the sell leg price, trigger rollover with some a limit premium  (also depend on market conditions when it is triggered)

In fact, it is so flexible and I can program the above three scenario or more (include adjustment) into a single closing order so that I don’t need to stay awake to monitor the US market when the timezone is not the same.

Who made a better trader, Perfectionist or Average Joe?

imperfectandperfect

I shared an option strategy that I had backtested and also forward-tested for few months with reasonable return. When I shared this strategy with friends, the feedback is that it is not workable and vulnerable to volatile market forces etc.

However, one friend decide to test out this strategy with his live account and so far all are winners. Now, he is excited and wanted to do more and explore other instruments with this strategy.

I predicted sometime in the future, my friend will abandon this strategy when market condition changed or when he hit a few losses.

A perfectionist seek to look for a perfect strategy that win all the times, and an average Joe is happy with high winrate and average return. I am the average Joe.

Weekly Option: Theta Gain with Gamma Risk

weeklies.jpg

When I looked at my trades, realized that almost 90% of them are on weekly options.

Weeklies advantages are :

  1. Theta decay is most fierce in the last week of expiration
  2. Plenty opportunities to do Earning play
  3. Technical Signals setup; Hammers, Shooting stars and crossover .etc
  4. Ride on Macro news like FOMC, Oil inventories or any major news
  5. Counter like SPX have three expiry dates within a week
  6. Big counters with weeklies are gaining more liquidity and thus easy to close or exit

 

There are a few downsides of the weeklies :-

  1. Gamma risk (positions get tested often)
  2. Adjustment is almost impossible
  3. Commission cost

Of late, I have been trading on a new broker platform and that save me a huge commission cost with $1 per contract and no closing cost.

tastyworks

Do open an account with tastyworks.com if you trades weeklies.