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.

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Enhance Option strategy to protect capital

SL

Met a friend at an Option seminar organised by TDAmeritade, he was sharing of his naked put and covered-call strategy (P-C-P strategy).

Personally, I think the US market is overvalue and there is a need to protect one’s capital by using defined risk option strategies.

Realize that not many like to do the adjustment as it is tricky and the probability of successful adjustment can be 50-50. So use defined-risk option strategies is good enough in my opinion.

For friends still doing selling naked put option, do consider using defined risk or/and adjustment to protect your capital.

Wk 40 2016: GOLD broke down

gold-future-oct-2016

On hearing of GOLD price dropping like drastically, I went in on the tested side to ready to catch a falling knife and intent to pick some assignment with bull put spread.

News of GOLD drop further,  I enter with with less contracts thinking it will rebound. There was various window of opportunity to do adjustment but my instinct tell me it will recover.

The next few days it dropped even lower and I enter less and less contract. Overal, I am still positive in wk40 to be profitable, however I could have done better if I were to :-

  1. Enter smaller to bigger contracts progressively
  2. Perform adjustment of closure to take loss or profit when market present window of opportunities
  3. Stick to the PITM and not chase after premium

Close position when on Holiday

Out of office

Was on holiday oversea when the monthly option expires that week and I brought only my 4 inch screen handphone to perform transaction. Some of the issues I encontered:-

  1. Unable to connect to the hotel intermittent wifi
  2. Hard to use handphone to perform the transaction, instead of close positions, I ended open more position as not familiar with hadnphone version
  3. A rollover can be done on the desktop easily but when using the handphone it is complex (ended I didn’t manage to rollover)
  4. Chart on handphone is hard read or analyse

In summary, better close the postions early or rollover during holiday. Don’t waste the holiday.

 

Follow Rules

hands-holding-follow-rules-sky-many-words-40431622

Why do we need rules?

Not to retrict us but protect us.

What happen if we don’t follow rules?

Mr Market will “fine” you

If still don’t follow rule?

Even heavier judgement

What is the worse outcome if continue to break the rules?

Account wipe out, emotion distress, affect health and family relationshp and to a point of no return.

So it best to follow rules