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Whoa, it's already halfway through October. Time to open a new Topic for Q4 options trading. So far so good. I've made all my options profits so far, which is not bad considering the wild swings. Here's what has worked well:
- I cautiously trade a few extra same-day contracts if the puts expiring that day are far enough OTM. And with "cautious" I mean a premium of only $0.15-0.20. I got burned a few times in Q3 when trading same-day contracts too aggressively.
- I trade about 8 contracts for T+1. I restrict the premium to only about 0.50 per contract for the next day. Sometimes even as low as 0.40.
- I also trade maybe 4 or so extra contracts for the next day with a premium of $0.25 for supplemental income.
- For all trades of puts with T+1 expiration, I wait until right before closing. In Q3 I had a few scary moments where I traded too early and then the market unraveled right before closing. Yes, I know, there is a little bit of decay of premiums toward the end in the absence of a late-day decline. But I'm willing to wait for the close. Also, the same-day contracts compensate a bit for the lost income.
With all that, I'm still at about $500 per trading day. Worked out very well so far in October.
I hope you're all trading well! This will be a very volatile quarter, thanks to my former colleagues at the Federal Reserve. Should be a profitable environment for us!
Thanks for the update! I definitely took a few bad losses this year (last drawdown on 9/12 option) and my bond holdings didn't help. I'm hoping to cushion the losses a bit by year end from the higher premiums. Whats your ytd returns so far?
@fi4wanderlust 9/13 and 9/23 expiration caused small losses. Not because the market went ITM. I closed the positions for a small loss before expiry, just to be safe. If I had suffered through a volatile market I could have collected the whole premium. But I don't regret pulling the plug sometimes.
Hi Ern,
It's always good to hear you and don't feel alone in this volatility drum 🙂
When you say that you sell 4 extra cts for lower premium I guess you have some extra margin for this or you doubling down?
Ps. my result this year so far (touch wood) is keeping 67% albeit lower premiums. Could be even better if not first CPI manifest and missed market open and selling just before intraday reversal...
John.
@john That's a very impressive hit ratio. So far, this year, I'm at only 30% premium kept. But I've been "churning" a lot more contracts than normal, so the income is still on track for an acceptable year. Not as much as 2019,20,21 but still better than 2018.
@john And yes, I got plenty of extra margin funds available. I can sustain 12 contracts expiring today and already roll the next 12 for tomorrow before close.
Reminder: This week we have 6 expirations. The SPXW for 10/20/2022 is for the Thursday PM closing. The SPX for 10/20/2022 is for Friday AM expiration.
Trade them both! Don't mix them up! The SPX premiums look much richer, but there's an additional 0.5 days to expiration! 🙂
Sorry to be pain in the soft place, but do I understand correctly on SPXW + SPX?
- you would sell Fridays AMs once Thursdays ones are "expired" as per regular
- you would sell Fridays PMs once Fridays AMs are "expired" ie, just after open, ie they would be intraday sells?
I remember had done this once by accident and somehow Fridays AMs were kept "alive" by IB quite into the day and locking margin. Also gave warning about some overlap and possible extra charges.
@john Almost.
I think the Friday AM options stop trading at 1pm PDT. So, I sell the Friday AM options right before the market close. Correction: The SPX contracts do trade for a little while after the close. Until 1:15pm PDT and then also for the 1:30-2:00pm session.
And you're right: the margin $'s for the Friday AM options are not released until the close on Friday. That sucks.
Right before the close on Thursday, I will likely sell 6 puts with the Friday AM expiration and 6 for the Friday PM expiration.
Depending on how the day evolves on Friday, I might sell some more same-day puts on Friday throughout the day. Then sell all the Monday options starting at 12:45 PM PDT on Friday.
@earlyretirementnowcom Interesting approach. Reduce risk by going down to 6 contracts, but now you have 12 open overnight.
'Feels' safer to sell the Friday PM after the open on Friday. Sell both at 75% of normal premium to get %150 of normal Th to F close premium.
Also, this has certainly been a tough year, but a couple of my mistakes are on me. Be very careful around CPI print and selling next day option too early (before 1200 PDT) is dangerous.
- @earlyretirementnowcom love the 6 expirations, but I'm scared to have double open over Thursday night..
- @navypack Agree. The trick is to spread out the trades. Instead of 8 puts expiring on Friday like in a normal week, sell 5 for Friday AM and 5 for Friday PM. Then 3 more for Friday PM at the Friday open.