How to Use SPAN Margin to Inflate your ROI


Jan

5

2018

How to Use SPAN Margin to Inflate your ROI

In this edition of the OptionSellers.com video seminar, Michael Gross teaches how the SPAN margin system in commodities can help you create big ROIs with the Options you Sell.
  1. I’ve been following the pattern of existing an option when it doubles in value and goes against me at the 200% method. This can be tricky as the 200% and much more value can be attained overnight when you are asleep – so I have made a modification to this method.

    I now set a trigger (when the option is accelerating against me in a negative direction) to send the option to market when it reaches the 195% premium but with a limit price of 225% which effectively would increase my $ loss from 100% to 125%. A bit more than the standard 200% method, but an amount acceptable to me. Example Premium $100 collected; close at $225; Loss – $125 (125%). Does this seem reasonable to you? Essentially even though the 200% value is reached, the closeout does not trigger at 200% if the premium drops below the 200% which may happen soon after the 200% is reached.

    Example:

    • Michael Gross Says:
      January 8, 2018 at 3:12 pm

      Alan,

      Your approach is sound. The important thing is that you have a well planned exit strategy. It sounds as though you do.

      Regards,
      Michael

  2. You missed what I think is the best benefit
    When you sell an option the money goes directly in your account and can and is used toward the margin
    Ex: sell option $600.00.
    Margin $1200.00
    Only $600.00 from your account plus $600.00 you sold it for = total margin of $1200.00

  3. Good video.

    I think it’s important for newcomers to realize that ROI, when looking at SPAN margin requirements, is extremely impressive, but it really doesn’t reflect reality / real world returns in the least, if you’re selling options “appropriately.”

    First off, if you’re keeping a 50% cash cushion, you’re never going to be using more than 50% of your account balance at any one time (which is a good idea, and you’re able to do this BECAUSE of the very high ROI as compared to SPAN).

    Secondly, if you are making it a practice to exit if one side of your strangle goes double against you (or when selling naked, but I almost always stick to strangles), you’re actually going to have quite a few small losses (your profitable side of the strangle will keep the loss small, or even eliminate it entirely, if the position doesn’t go against you very quickly after placing it).

    The rest of your options will likely be bought back at roughly 80% profit up to full expiration for 100% profit, depending on how much value is left vs. how much time is left vs. just wanting to get a position off of the table.

    The great thing is that even with all of the above being said, you can have what amounts to a very nice annual return (12-15% is easily achievable if you don’t get greedy).

    Great job, guys.

    • Michael Gross Says:
      September 28, 2017 at 2:19 pm

      Dear Chris,

      Thank you for your astute observations. I believe you are on the right track and the points you make are valid if taking a very conservative approach. However, the approach is flexible and can be adjusted to target higher return as well (with proportionately higher risk.)

      Thank you again for your insightful response.

      Regards,
      Michael

  4. Another great video – thank you. I love how you guys educate new people to commodities option selling. In fact, I am in the process of making the switch from equities to commodities; I just adjusted my account this weekend.

    I appreciate all of the info from your book and these videos – thanks again!

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