TheRumpledOne wrote:Hi Greg:
Don't follow me, I'm lost! LOL
I answered your question on my yahoo forum.
Please post your method on this forum.
Thanks.
The futures options strategy I've been successfully using for 3 years can be
easily backtested by downloading historical S&P closing prices from Yahoo:
http://finance.yahoo.com/q/hp?s=%5EGSPC and current day premium/strike
settlement prices can be seen here:
http://www.cme.com/html.wrap/wrappedpag ... es/os.html
The method is not proprietary or particularly unknown...it is basically
setting Iron Condors about 2 months out from expiration (3rd Friday of any
month) by selling a call and a put about 80-100 points up and down from
current market price, then buying insurance about 20 points farther out.
There is risk in this method in that there are no guarantees that the S&P
market will not run up or down 100 points in 2 months time...recent months
have proven this to happen, although unlikely, historically. Again,
download the prices to Excel and check the numbers. Nearly every month that
you go back 2 to 2.5 months from expiration Friday you will find to be
within about 90 points (meaning that the contracts expired worthless and you
made money...see example below). This method is wonderful when markets are
flat as you want all your sold strike prices to expire worthless and
therefore keep your premiums.
A typical example is like this, assuming the market is around 1300 and the
date is about June 7th (+/- a couple weeks...remember, premiums decay
quickly in the last 1.5 or so months before expiration):
Buy one 1400 August for 1.5 points (premium)
Sell one 1380 August for 2.0 points
...net 0.5 points
Sell one 1220 August for 4.0 points
Buy one 1200 August for 3.0 points
...net 1.0 points
Total net is 1.5 points X $250/point minus $15 commissions/strike=$315
Risk (and therefore margin) is 20 points X $250=$5,000 so profit is 315/5000
X 6 (six 2 month periods like this in a year)=37.8%. Remember, market can
run up or down but not both so only one (call or put) is at risk.
Risk/money management...if market does run, you must decide whether you want
to reverse your position, probably at a loss, or wait and hope and wish for
a reversal (again, probability says it will) but nothing is guaranteed. You
can do these ICs every month with 1/3rd of your account/margin since current
month will expire on the 3rd Friday, next month has been set for about a
month and month after that is probably just set, thus 3 months are in
process at any time.
I've refined this process to higher profits and less risk by doing calls
when the market is up or going up and puts when the market is down or going
down. The problem with this refinement is that you don't usually get a lot
of price action/movement in the roughly 2-3 week window in which most trades
are set 2 to 2.5 months before expiration. Also, as market goes up, put
prices fade quickly and vice versa with calls. Also, since markets rise
slowly and fall fast, the calls usually have half the premium of puts. Note
that this is a live broker trade in which you need a broker to call the pit
to get bid/ask and set trades....not nearly as fast as doing electronic
trading for sure. But, you don't sit and watch all day, all week as you
mostly get a current market price every day just to see that you aren't
getting in dangerous territory. Feel free to ask me any questions and I'll
be glad to try to answer. If you have any comments or suggestions for me,
send them my way.
Greg Klipstein gregklipstein at gmail dot com