Let's Trade Options

....$3810 puts you coulda got $24, almost $20 net on the strangle, if you were patient and rode it to the last hour.

maybe a better way to enter these is to buy a double vert for the following day - entering in the last minutes. As shown, I am in $10-wide verts @ about 20 delta on the long strike. I imagine these could make money on both ends in this market, but we'll see what tomorrow brings. Net debit is $2.60 as shown.

12/29 1200.......The call vert is ditm, worth $9, a good >3x return on the combo overnight

Last setup of the year, looking out to Dec CPI, due out Jan12 pre-market. As shown below. Jan12 IC funds all but ~$950 of the cost of the rest of the spreads. I will add to one side or the other if it runs up in price. Take off or roll in either side if they get cheap. The end game here is to catch a nice move post-CPI on 1/12/23. The calendars shown are actually done in SPY, not SPX, and I may add to those a bit also if they get cheaper. May add to the SPX fotm verts also. (Modeling SPY vs SPX is simply a factor of 10 difference - SPY = 0.1*SPX.) Markets are closed 1/16 for MLK Day.

I learned some things in the last year about trading european options SPX and RUT. The broker I have says they need to up the margin requirement for long calendars within 5 days of expiry. I'm still not sure how they do their calcs exactly, so i just make sure I have a wide buffer of margin $. The same requirement does not apply to American-style SPY, so often I just substitute SPY for SPX and free up more BP. The cost of trading more numbers of SPY is greater, though, so it's a trade-off.

In 2023 I am going to be trading a much larger non-IRA account, with portfolio margin, which I hope will make things easier.....

This from Jan-February 2022.....on Feb 24, 2022, Putin sent his army into Ukraine

...I have heard of similar Russian troop mobilizations recently, but not able to find good discussion in the press. Anyway, the time to make big moves in Ukraine will come soon, when the sloggy farmland freezes and hardens... There wasn't a clear connection between invasion and market moves last February. If it happens again in Winter 2023, I'd bet it'll be easier to see in the charts...

...reading various places now Putin will declare martial law in January, close the borders, and call a general mobilization of Russian men to raise up to 1,000,000 new troops. Similar action expected in Belarus.....

I might shoot some ERs, BAC out 1/13...projected +4% iv jack

GS, looking for 10%. Typically I shoot these for the iv increase and will cash out the day b4 the actual ER, and maybe let some run for the aftermath if it looks promising

MS, also looking for +10% iv. Key to trading these is to come in at least a couple weeks (3-4 weeks better) b4 the ER. If broad market iv is already elevated, it may not be as good, so you have to look at the iv states of the options, look at the previous iv changes at earnings, and pick well the names to trade. I like throwing some of these in the mix sometimes, as they don't require any/much margin, and provide some variety...

big banks, airlines, SLB - all in week 1/16-1/20; pick up the following week, bigger names, also don't forget CPI 1/12; FOMC 2/1.

UAL 1/18 35/44
PG 1/19 $140/165

RUT combo. Why this trade?

1) Why RUT? It's big and is a euro-style option. That means it pays well, is cash-settled, and is therefore only exercised at expiration, so you don't have any early assignment risk. RUT also correlates perfectly with IWM, which, at 1/10 the size, can be used to fine-tune hedge the RUT trade.

2) Why thee dates? The trade targets a known pattern in time - ie, it sells RUT verts to expire on the day b4 the Dec CPI read. CPI has gotten to be a bfd, in that market reactions are large, related to implications for Fed's future moves. In anticipation of bfd CPI, the markets may tend to freeze up for several days prior to the CPI read date - that's ideal for credit spreads, which pay best if prices sits still while time passes and options values decay. So the 1/11 short verts expire a day b4 the 1/12 CPI read.

The RUT calendars and long verts are there to minimize the tail risk of the iron condor. The IC is sized to cover most of the cost of these trades - it's a symbiotic relationship. After the RUT short verts expire, the options in these spread trades have later expiration dates, so they are free to go ahead and bring in some profits.

....so, after the CPI prints and maybe there's a big move in the markets. The combo looks like this on 1/13...

...and then like this on 1/14 out to 1/17...

As shown, the combo needs $10k of margin $ and has a net debit of about $1k, with max profit reasonably @ $50k or better.

using the RUT verts is a little better for tail hedging than calendars. Calendars are cheaper, but they have their own tails, and the verts pay better/best the further out on the IC tails you go.

HOW TO establish targets? a) go off the ATR. On RUT daily candle chart shown, with a 21 bar lookback, the daily range is looking low at around $35. b) If you are trading around a specific event, look to see what price did around previous instances.

If it's an event trade, and there is a likelihood of a large move, probably use a strangle. Otherwise, use dual verts. Strangles will always pay better, (on a wide move), but you risk more...

An example below. Assuming entry was made at end of day Friday. I'd like to risk a dollar. The double verts shown costs $1.01. Long strikes are $40 off the closing price of ~$1760. Each side is $10 wide. So, risking $1 to net as much as $9. ROI capped by the width of the vert.

Let's say this trade is being taken next Thursday, 1/5/2023. NFP is pre-market the following day. I still want to risk a dollar. The $1720/$1810 strangle does the trick. You'd need to get a $40+ move to outperform the double vert.

Looking back at 1-day ranges on prior NFP days:

Aug 5 - $38; Sep 2 - $45; Oct 7 - $40; Nov 4 - $33; Dec 2 - $42. Meh. I'd rather get closer in to the day before close price with the verts than risk more ruin with strangles.

Looking at SPX for comparison, if I look to buy the ~10 delta option for the long strike in $10-wide double verts, Jan3 looks like....


...so, a comparable $10-wide double vert on SPX costs almost twice as much as the similar trade on RUT. Why is this? I will look some more, maybe I'm wrong, but if this result holds true, RUT is obviously a better choice for the 0 dte scalps.

If you can stand to risk some more for a more certain, but smaller positive return, then bring in the long strikes on the double vert. If you go to about 18-20 delta on those, you'll be paying $2.2-$2.40 or so on the $10-wide verts, in total, and so with a max roi of $7.75 +/-. However, that puts you into a positive return on all but the deadest of days. If you can afford to shoot 10-lots on these, on a daily basis, I'll bet you could have a >90% win rate, with an average day return of $1k or better. There are going to be days where you lose a little or break even; days where you hit a big move and make >$6k; there are going to be days where you make money on both ends. Worth a shot. I will be trying it more in 2023. I like these a lot - they don't eat any margin. They take some babysitting, but that's ok. Not as much as time spreads I put on in a 1- or 2-week cycle. After you've made your $20k for the week, pack it up and go fishing or....

some good thoughts in this guys vids. Former CBOE floor trader or prop trader from way back it seems....

will the Fed minutes spark a big bear run? I'll be shooting some short duration vert scalps.....there is no bull juice in this market, it just needs a reminder to sell off....

Combo to catch a big down move, everyone knows it's coming - 1/12 the date for the CPI read, would like to buy out the IC b4 then. The SPX 2-lot calendars are actually 20-lot SPY.