Selling Strangles on Futures

Introduction

• Focus on selling short strangles on Futures options.
• Emphasis on a specific strategy and importance of detailed execution.
• Managed approximately $5 million in client accounts.
• No courses or memberships; aim to build a track record and meet new clients.

Current Strategy Overview

• Focus on neutral market opportunities.
• Main strategy with over 8 years of experience.
• 92% win rate, generating 56.31% return over the past year.

Key Points of the Strategy

• Days to Expiration (DTE):

  • Target 45 days or less for trades.
  • Theta (time decay) accelerates under 45 days.
  • Occasionally will consider trades up to 55 days in special situations.

• Products Traded:

  • Specific products only; certain commodities (e.g., HLE, GF) not traded neutrally anymore due to risk.

• Short Strikes:

  • Set at Delta 20 for optimal risk/reward ratio.
  • Risk 50% of credit for the potential of 50% profit.

Risk Management

• Stop Loss & Take Profit:
  • Initial stop loss at 50% credit, take profit at 50%.
  • Adjust stop loss as position improves:
    • Move to 25% loss when position is up 25% credit.
    • Move to 10% profit when position is up 40%.
    • Move to 40% when position is up 47%.

Trade Management

• Continuously optimize trade management based on experience.
• Use commodity volatility index (CVI) for entry and exit points.

Examples of Past Positions

• Analyzed several positions from January:
  • Position 1: 55 days DTE, profit of 2.5% capital in 18 days.
  • Position 2: Euro with 31 days DTE, exited profitably in 11 days.
  • Position 3: Copper with 55 days DTE, profitable within 18 days.

When Not to Trade

• Avoid trading during high volatility periods (e.g., winter for natural gas).
• Avoid trading commodities during planting months (May, June, July).
• Avoid trading currencies and bonds around major reports/announcements (CPI, GDP).

Conclusion

• Emphasis that strategy alone is insufficient; requires understanding of market conditions, experience, and continuous optimization.
• Trading is a business requiring time, patience, and knowledge.
• Encourage forward testing strategies for optimal market conditions.