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What a wild ride on 9/4! How did your strikes hold up?


earlyretirementnow.com
Posts: 250
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Topic starter
(@earlyretirementnowcom)
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Joined: 6 years ago

I fared pretty well. I was on a podcast recording on Friday morning when the market tanked and went all the way to 3349, way below my strikes (between 335 and 3400). I'm glad I didn't see that. Maybe I might have lost my nerves??? But then all ended well when the market recovered to well above 3400 again. Whew!

And I sold options with strikes between 3000 and 3150 for Tuesday (Monday is a holiday in the U.S.)! 

Did anyone suffer losses on Friday?

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11 Replies
Bob Jane
Posts: 26
(@bob-jane)
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Joined: 1 year ago

My strike was 3435 so I lost some. I think at the time of the trade, it was a 3 delta option?

 

Have you been targeting even lower deltas?

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earlyretirementnow.com
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@bob-jane On Wednesday I targeted a premium 30% less than normal (0.70 instead of 1.00). Was a Delta of only ~2.2.

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NavyPack
(@navypack)
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I got greedy and was up at 3470 ($1.95 put with 6 delta, I think).  Still positive for the year, but not fun.  Think I learned that big up days (Wednesday, 9/2) require more safety on the put sell.  Big up days may just be a melt up with little conviction.

Sold 3220 for Tursdat, so over 200 points below Friday's close.  Seems safe for one market day of trading, but maybe not with you guys going much lower.

 

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earlyretirementnow.com
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@navypack Yes! Totally agree! On the big upswings, I'm always happy to make a bit less $ on my puts. So, I sold puts further OTM with less premium. Especially considering that I'm solidly up for the year. 🙂

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Bob Jane
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@earlyretirementnowcom

 

Did you target a lower premium because of the run up in the market or did you use other criteria?

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earlyretirementnow.com
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@bob-jane Yes! If we're close to the peak and I made a ton of money with all my other investments, why pile on a lot of risk with leveraged short puts? Also, I had already made enough money from the puts for the entire year. Another reason to slow down a bit.

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jkoptions18
Posts: 14
(@jkoptions18)
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I learned a little about myself on Friday - I write some of my own backtesting software that I try to optimize for my goals/behavior.  I usually sell SPX 3DTE, between 4 delta and -3.75% off the current price.  Based on historical results, I have always said that I can deal with losing and always would hold to expiration.

 

I had strikes of 3425 and 3410 expiring Friday.  I bought back both at about 7:20PST, at the number that wiped out my August gains. I looked at the charts, envisioned back to back -3.5% down days (although historically that has only happened 4 times in the past 2 decades - March ’20, Oct/Nov ’08), panicked and at that moment decided that was the stop loss threshold for me.

 

With the close at 3426, obviously I should have sat on my hands, but I’m going to re-think my strategy based on how I behaved.

 

 

I was happier to get higher premium for Tues, selling between 2975 - 3020 (my strategy has a simple trigger to sell dramatically lower delta/% off once SPX drops -3% anytime in the last X days)

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earlyretirementnow.com
(@earlyretirementnowcom)
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@jkoptions18 Yeah, if you lose "only" one month worth of gains, that's still manageable. I always use more caution when writing the options while the market is at the all-time-high. But if equity momentum is still positive I normally bet on mean-reversion after the big drops. So, I benefitted from the late rally on Friday.

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Rob L
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(@rob-l)
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Joined: 1 year ago

Nothing to add but an interesting story. Being so new to your method I've yet to back test sufficiently to have the confidence to implement it. So, here's something from a participant that was "almost" on the other side of your trades.

On Wednesday 9/2 around 2 pm I bought 5 puts on the SPY Sept 4 contract 350 strike at $0.57 per. Market moved strongly against me and I closed the position late in the day at $0.32. It's very hard and admittedly fairly dumb to fade a bull market this strong. There are rules about such things! As everyone knows the bottom fell out the next day. During trading 9/3 - 9/4 those puts traded as high as $16 (yes, almost $8k profit) and expired at $7.50. Ouch! I'm guessing in truth the best I would have done was to sell 3 at $4-$5 and sell the remaining 2 a bit better. Oh well ...

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earlyretirementnow.com
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@rob-l Oh, wow! That could have been excellent timing! I will make sure I'll call you next time if I want to time the market high! 😀 

Personally, I've never tried to time the peak through buying an option. But I've certainly lowered my exposure around the market peaks. Has worked pretty well for me so far!

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Rob L
Posts: 2
(@rob-l)
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Joined: 1 year ago

I'll be waiting for your call (not) 🙂 In the mean time there are some occasions where I just can't help myself and put a few dollars into a long shot like this one. A personal weakness I guess.

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