dan
imo,,,,,successful trading especially in option trading is about position sizing and money management..
--- In ConservativeOptionS
>
> dan, hopefully i corrected the most by deleting the first one and posting another with correction.
>
> re: position sizing......
>
> --- In ConservativeOptionS
> >
> > Hi Dr. Joe,
> >
> > Thank you for a very detailed and enlightening post on your strategy.
> > I would like to clarify one item, having to do with position sizing.
> > If I wish to limit my position size to 27 contracts, you wrote that the
> > details would be as follows.
> > November sell to open 9 contracts ATM, 9 contracts 5% OTM and 9 contracts
> > for 10% OTM for February expiration.
> > Repeat for December and January each with one month later expiration.
> >
> > Since I will have 81 contracts open at a time, if I wished to use cash to
> > secure the puts would I not need enough cash for 8100 shares?
> >
> > Dan (dan2fl)
> >
> >
> >
> > -----Original Message-----
> > From: ConservativeOptionS
> > [mailto:ConservativeOptionS
> > leigh
> > Sent: Thursday, March 25, 2010 9:28 AM
> > To: ConservativeOptionS
> > Subject: [ConservativeOption
> >
> > mike my basic strategy for cash-secured puts is below: i do vary it on a
> > regular basis but
> > much the basic principles i use to trade it. i use almost exclusively
> > trade iwm. as you will read below i sell atm, 5%otm and 10%otm puts with
> > equal lots of each. over the past 194 months from jan 1994 to present iwm
> > dropped greater than 5% only 30 times or 15.5%, greater than 10% only 8
> > times or 4.1% and over 15% only 3 times or 1.5%.
> >
> >
> >
> > CASH-SECURED PUT STRATEGY
> >
> >
> > INDEX
> > Diversified ETF: SPY, IWM (favorite), EFA, EEM, QQQQ, for example.
> >
> >
> > POSITION SIZE
> > Determine the size of the position if you were buying that index
> >
> > for your buy-and-hold strategy. Do NOT leaverage !!!!!!!
> >
> > If you wanted 2700 shares in your portfolio, then do not STO
> >
> > more than 27 contracts. Assuming you have no shares currently.
> >
> >
> > EXPIRATION
> > Ninety days (90)
> >
> > Leg in 1/3 of calculated position size every 30 days
> >
> > ie. If 27 contracts is your determine final position size, then
> >
> > Nov expiration STO 9 contracts Feb expiration
> >
> > Dec expiration STO 9 contracts Mar expiration
> >
> > Jan expiration STO 9 contracts Apr expiration
> >
> > Feb expiration initial 9 expiring to be managed
> >
> >
> > STRIKE
> > 1/3 or 9 contracts ATM
> >
> > 1/3 or 9 contracts 5% OTM
> >
> > 1/3 or 9 contracts 10% OTM
> >
> >
> > FUNDING
> > 100% secured with cash or 50% cash account and 50% in
> >
> > fixed income ETF
> >
> >
> > MANAGING OPEN POSITIONS
> >
> >
> > BEFORE EXPIRATION
> >
> >
> > If stock is above put strike no management required.
> >
> > What are the options if the index is decreasing in price?
> >
> >
> > 1. Close position at a loss
> >
> > 2. Buy leap puts for protection
> >
> > If decreases 5%, purchase 50% leap puts
> >
> > If decreases 10%, purchase other 50% leap puts
> >
> > Strike at CSP (cash-secured put) strike price or
> >
> > at current stock price based on your risk
> >
> >
> > Since the above 3 strikes gives one 5% protection
> >
> > and I am willing to accept some loss, I place a contingent order in
> >
> > the initial setup to purchase leap puts when stock decreases 10% and
> >
> > I choose a strike that is 10% ITM. Ie. Initial setup stock was
> > $100.
> > The initial strikes would be $100, $95, $90 (0, 5%, 10% OTM)
> >
> > I woud put a contingent order in to purchase the leap put with a
> > strike
> > of $100 when underlying decreases to $90.
> >
> >
> > 3. Roll the CSP
> >
> > Roll out and down and decrease number of contracts
> >
> > Can be done for net credit or approx break even
> >
> >
> > example: based on Dec 2, 2009
> >
> >
> > IWM @ $58.99
> > CSP is Feb 58 Put @ $2.84 ---10 contracts
> >
> >
> > Look at June 56 Put and Sept 56 Put
> >
> > June 56 @ $4.35
> > Sept 56 @ $5.55
> >
> > Market drops 5% today to $56
> >
> > Using option calculator the
> >
> > June 56 increases to $5.57
> >
> > Sept 56 increases to $6.67
> >
> > Feb 58 increases to $4.32
> >
> >
> > BTC Feb 58 for 1000 * $4.32 or $4320
> >
> > STO June 56 - 8 contracts for 800 * $5.57 or $4456
> >
> > You have reduced your risk 20%
> >
> > or
> > STO Sept 56 - 6 contracts for $4056 or
> >
> > 7 contracts for $4732 reducing risk 30-40%
> >
> >
> > Regarding rolling CSP's: each time you roll you should be
> > able
> > to decrease your exposure. First roll usually can decrease
> > 10
> > contracts to 7 or 8, second roll the 7 or 8 to 5 or 6 and a
> > third
> > roll the 5 or 6 to 3 or 4. All without adding new money and
> >
> > frees up margin each time
> >
> >
> > 4. Do nothing until expiration
> >
> >
> >
> > AT EXPIRATION
> >
> > Stock > put strike price
> >
> > Continue selling CSP same as above
> >
> >
> > Stock < put strike price and assigned
> >
> > Sell covered calls 3 months to expiration
> >
> > Strike NO less than cost basis, ie put strike at assignment
> >
> > If premium is small because stock has dropped
> >
> > significantly, sell at a strike less than cost basis if you
> >
> > understand how to manage covered calls and prepared to
> >
> > roll out to avoid being exercised before expiration
> >
> > below your cost basis
> >
> >
> > GOAL be exercised at or above cost basis and go back to selling
> > CSP's
> >
> >
> >
> >
> >
> > --- In ConservativeOptionS
> > <michael@> wrote:
> > >
> > > Dr Joe,
> > > I'll start it off. I like writing front-month cash-secured puts. I
> > like to do them on somewhat high-beta stocks (e.g. TSL, IPI) and well as
> > more stable stocks such as PFE, MRK, XOM. I tend to avoid samll drug and
> > biotech stocks becase of past dissapointment. I try to enter these csp's on
> > down days. I will take a profit at .05 to .15, if reached, before
> > expiration. I write only enough puts (3 to 10 depending on the strike price)
> > that if assigned I'm equally happy and then will write calls on these. I
> > will consider putting a protective collar on some of these if they advance
> > far enough although I prefer to be called out. I do this in a tax-deferred
> > account. In my taxable account I like to do front-month credit spreads on
> > ETF's.
> > >
> > > Michael
> > > www.safe-options-
> > >
> > > --- In ConservativeOptionS
> > <gass20@> wrote:
> > > >
> > > > i really would love to hear from people who are doing dls (calls) and
> > short puts selling cc's if assigned,,,,
> > etc....do you use protection with long puts....maybe we can get a discussion
> > going....drjoe.
> > deleted
> > > >
> > >
> >
> >
> >
> >
> > ------------
> >
> > Yahoo! Groups Links
> >
>
No comments:
Post a Comment