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2022 Q1 Trades

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earlyretirementnow.com
Posts: 297
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Topic starter
(@earlyretirementnowcom)
Member
Joined: 6 years ago

I'm starting a topic: Q1 2022 trades, just a little bit early. 

Just a reminder: Dec 24 is a trading holiday, so we have to roll our CBOE put options on Dec 23 with the Dec 27 expiration. Despite the 4-day gap, I'm still targeting my regular weekend premium of around 0.95-1.00 premium, i.e., $95-$100 premium per $187,500 in portfolio equity. 

84 Replies
setspreads
Posts: 16
(@setspreads)
Active Member
Joined: 8 months ago

Thanks for the heads up. Have you considered whether it is worth it to trade via an LLC, and potentially make an S-Corp election? Looking at making these changes for the new year. For a recently formed LLC, S-Corp election needs to be made by March 15th to apply for 2022 tax year.

Interactive Brokers has a process to convert an individual account to an LLC - https://ibkr.info/article/3322

Converting From an Individual to Limited Liability Company Account

 
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earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

Member
Posts: 297

@setspreads If you have clear and convincing reasons for the LLC (asset protection, estate planning, some potential tax advantages, etc.) you could go that route. But it's also more record-keeping: you'll have to file taxes separately for that new entity and then file a K-1 on your personal return.

But check with your tax planner/attorney because I do the finance stuff, not the legal and tax issues! 🙂

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setspreads
(@setspreads)
Joined: 8 months ago

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Posts: 16

@earlyretirementnowcom Thanks Karsten! Good things to consider. The motivation for me is being able to deduct health insurance premiums and solo 401k contributions while keeping 60/40 tax treatment using a pass through entity. Have to weigh those benefits against the cost of tax preparation and record keeping. Here’s some of the resources I’ve found from Greens Trader Tax and IBKR 

http://www.interactivebrokers.com/webinars/2020-WB-3309-GreenTraderTax-HighlightsFromGreens2020TraderTaxGuide.pdf

https://greentradertax.com/wp-content/uploads/2021/09/2021-WB-3836-Green-Trader-Tax-September-16-2021-v3.pdf

 

 

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nobatmanjokes
Posts: 99
(@nobatmanjokes)
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Joined: 2 years ago

I set my holiday strikes even a bit lower than a usual weekend given the low short term vol and big up moves on the market the last two days. I’m down in the $0.7-$0.8 range instead of my typical $1-$1.1.

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earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

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Posts: 297

@nobatmanjokes Good choice! I try to cut my premium target by 20-25%. 

Merry Christmas!

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E Trader
Posts: 33
(@e-trader)
Eminent Member
Joined: 1 year ago

I just saw your latest article (Nov) on the put selling strategy and a backtest by Spintwig.

Are you familiar with his S1 signal service?  Seems like that backtest would have been a goo place for a plug for him and potentially higher returns based on only taking trades (or shorting higher delta puts) when his signal shows the environment is providing higher probabilities.

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earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

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Posts: 297

@e-trader What's the link for that?

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E Trader
(@e-trader)
Joined: 1 year ago

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Posts: 33

The link for his S1 signal service?

 

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earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

Member
Posts: 297
E Trader
(@e-trader)
Joined: 1 year ago

Eminent Member
Posts: 33
earlyretirementnow.com
(@earlyretirementnowcom)
Joined: 6 years ago

Member
Posts: 297

@e-trader I don't have enough details on what this signal is. 

As I wrote in Part 9 of the series, after Spintwig's simulations: my actual track record of a (non-fixed-Delta) put selling strategy outperforms the 5D strategy.

I also slightly outperform the 5D plus S1, when measured by the Sharpe. 

So, my suspicion is that the S1 is likely something like my approach: scale down exposure when vol is too low. But I can't be certain without knowing how this S1 is constructed.

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norciom
Posts: 5
(@norciom)
Active Member
Joined: 1 year ago

Since jan 1st, I lost 6 months of premium. I am shaken.

Last year I had multiple small loses and I was ok with them.

 

Is it a sign I am doing something very wrong? I remember you keep about 50% of the premium / year (on average) but is there rime or reason to the magnitude and frequency of hits?

 

I find it difficult to be in the catch up position, to sell my puts for the next 6 months just to be at 0.

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3 Replies
schmeljones
(@schmeljones)
Joined: 1 year ago

Active Member
Posts: 17

@norciom 6 months of premia collected seems like a lot considering the market movements over the past week, which are actually quite mild compared to historical volatility events. I use higher delta/leverage than Karsten recommends as part of my pre-FIRE portfolio to hedge against flat markets and my max draw-down was 1 month of premium.

Are you using real-time quotes for price/delta? Also are you splitting up your positions over time? Some of these sudden movements this year were ameliorated by opening up some positions on W and some on Th for Friday expirations.

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norciom
(@norciom)
Joined: 1 year ago

Active Member
Posts: 5

@schmeljones The reason I have (major) loses is NDX. SPX was better behaved.

 

My questions is if there is pattern to the loss that occur over the year.  Taken at extreme, for clarity, it it more like 6 losses worth 1 month of premium or 1 loss worth 6 months of premium?

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schmeljones
(@schmeljones)
Joined: 1 year ago

Active Member
Posts: 17

@norciom ah I see. Yes our tech stocks are certainly swooning right now. The pattern is definitely more like 1 loss worth a lot of premium rather than 6 losses. Going back over the past year in my trade log there are 7 positions that closed ITM out of 500+ opened but each ITM close wiped out roughly 2 weeks of premium on average. The worst single position though was only about 1.5 months of premium and that was last week for a position expiring 1/5.

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