Cordier to TD Ameritrade: Why Option Strangles are a “fabulous way to create strong performance”


Jun

11

2018

Cordier to TD Ameritrade: Why Option Strangles are a “fabulous way to create strong performance”

  1. Celine Mak Says:
    June 17, 2018 at 7:42 am

    When selling options, whether naked, strangle or other strategy, is there a way for me to calculate or assess the adequacy of the premium that I am collecting. U mentioned in the sell strangle 45P/90C on oil in May the premium was around $1,000-$1,100 credit.I checked the the trade on 14.6.18, a short strangle 45P/90C, expiration Dec 18 expiration, the combined premium to be collected was only $340.The underlying oil
    price was $66.80. The premium is a big difference from the premium that you mentioned.I am keen to learn whether there is some guideline for me to assess the adequacy of the premium before undertaking the trade.

    • Michael Gross Says:
      June 18, 2018 at 12:46 pm

      Dear Celine,

      Sometimes you get lucky! 🙂 The premium decay you mentioned took place fairly quickly. As oil prices were soaring, option premium in the oil markets inflated as the public poured into the options. As oil prices started to decline, the volatility flowed back out of the options, deflating the option premiums mentioned. We expected a successful trade. But profitability came faster than we expected. As far as selecting premium, we typically look for $600-$800 per options. As a self directed trader, you can probably accept a little less.

      I hope that helps.

      Regards,
      Michael

  2. So what’s a good metric that may tell us that a futures contract may not swing wildly as futures are known to do and ruin the position. I just saw a stock…RH move 41 points (36%) on an earnings beat. Historical volatility number didn’t offer much help.

    • Michael Gross Says:
      June 18, 2018 at 12:57 pm

      Tony,

      Thats too long an answer to provide in this forum. I recommend reading The Complete Guide to Option Selling, 3rd edition for the answer. What are you basing your statement “as futures are known to do?” Have you ever traded futures? I do know that they do not move off of earnings beats. They move off of supply demand fundamentals. There is no one “metric” that can tell you that a futures contract may not swing wildly. However, applying a specific set of supply demand fundamentals does a pretty good job of it. And selling options the right way can protect you from many kinds of such unexpected movement. Again, I suggest starting with the book (www.OptionSellers.com/book)

      Thank you and good luck in your trading.

      Regards,
      Michael

  3. Celine Mak Says:
    June 13, 2018 at 9:27 am

    How far out in time are you targeting?

  4. Chris A. Says:
    June 12, 2018 at 5:27 pm

    Just curious, but what is the overall advantage (assuming most viewers/readers can’t actually afford to become clients) to promoting selling futures options to the general public?

    Looking at it in supply/demand terms, the more folks out there selling a particular strike, the lower the premium is going to be since demand is up and since there must be a buyer for every seller.

    What am I missing?

    • Michael Gross Says:
      June 13, 2018 at 1:46 pm

      Chris,

      See my response to Jon in the previous thread. Futures options are a huge playing field. There will always be buyers – banks, end users, hedgers and the general public. A few more informed investors coming on board isn’t going to change that. More liquidity just makes a bigger pie – and its better for everyone. In addition, its our mission to “spread the good word” to investors and hopefully, open their eyes to a better path to investing.

      Regards,
      Michael

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