Update (12/31/2022):
It seems that new users have trouble registering for the forum. The confirmation email never shows up. I’ve decided to phase out this forum and transition over to a new forum plugin. The new location is here:
https://earlyretirementnow.com/forum-3/
Policies – please read!
- Everyone can read posts, but to start a new topic or add a reply you’d need to register. To create an ID, please verify your email address. You will get a link at that email address and you can then pick a password.
- Be courteous to others. Treat others like you like to be treated. Discuss the issues. No ad-hominem attacks!
- It’s OK to include external links if they are relevant. But please avoid spamming! Please no affiliate links.
- Before starting a new topic, please check if that question/topic has been discussed before already and add to that discussion instead of starting a new topic.
- If you’ve written a cool blog post that you want to share with others please post this in the “Self-Promo” category only!
- Please read the usual Disclaimers and the Privacy Policy!
- The forum policies may be amended in the future!
FOMC on Wednesday... The market has been pricing in a lower terminal FED rate lately. Sure, it's 0.75% this meeting, but everything revolves around how Jpow speaks. Play safe.
Worked out pretty well. The market certainly factored in a lot of uncertainty and you could sell puts way out of the money. Onto the next vol spike: the midterm elections and the inflation report this week!
At the close, I sold tomorrows 3855 Put for $75 at around 3.7 delta. SPX at the time was around 3957.
@navypack You guys are increasing your Delta? I'm sitting at d~0.01/$0.5 per contract for the foreseeable future.
@ohadost Think I'm at a higher Delta than Big ERN and he us closer to your contract price. I try to follow the model, so today I look for around $0.75-0.80 per weekday contract (SPX at 3957), but that floats with the index price.
I'm trying to get better at tracking economic announcements, so I don't know jump in front of bad news.
I probably should back off a little and drop delta closer to 0.02 until we have an event (i.e., big drop) especially following last Thursday.
My gut says delta risk can be a little higher following big negative days (>2%) and then the ability to take higher delta decays based on time. I should test that hypothesis with a model.
@ohadost I've recently sold about 1.5x as many contracts (12 instead of 8) but with a slightly lower premium. Maybe 0.35 each. Sometimes spreading it around with a few contracts at 0.50 and a few far OTM at only 0.25.
A quick announcement about the 6th option expiration this week. Make sure to get the timing right. In the IB trading screen, the "NOV 17 SPX REGULAR" contract is listed before the NOV 17 SPXW contract. But the SPXW expires on Thursday in the PM, while the SPX contract stops trading at that time but settles at the open on Friday in the AM!
Hi Ern,
Few side questions if I'm allowed.
What's your take on info that SPX 0DTE options now total up to 45% overall index option volume? Can such change cause some unprecedented moves on it's own? I understand Delta hedging works in this matter, but so far never seen it having material impact.
Is today possible huge daily opens/drop like in 87, considering now existing circuit breakers and etc? I somehow would hope that human irrationality should not cause such swings out of nothing unless some great force majeure eg. god forbid, nuclear war or so? As we saw even Covid came in gradually in terms of VIX.
Finally, we see recessions telegrams coming from out of every corner while 10s-2s yield keeps inverting to levels seen in 1981. Supposedly yield curve should be future looking. Seems market is still not discounting possible drop enough?
Thanks
@john All good questions.
I think the market is more resilient today. 1987 was due to computer trading going haywire. I think today's markets are better protected from that slide, due to circuit breakers and better risk management in trading models. But an out-of-the-blue crisis, like a nuclear attack, would certainly be bad. I don't recommend using this put-selling strategy with too much leverage. One could also imagine buying way OTM puts for $0.05-0.10 as a downside limit.
Yup, this looks like a recession. I think 2023 could bring a mild recession. The yield curve has been telegraphing it for a while. Earnings forecasts are already down quite a bit. So, I cross my fingers and hope that whatever happens is already priced in.