December 27, 2024 ☼ Options ☼ Trading
I started option trading after reading the seminal book “Option Volatility & Pricing” by Sheldon Natenberg but I honed my strategies after listening to a bunch of TastyTrade videos. This video, on managing your option positions is a gold mine. See my notes below:
Building an Effective Watchlist
Building an Effective Watchlist- Start with front-month index futures in descending order to track liquidity.
- Include liquid equities and organize by categories (e.g., gold, silver, bonds).
- Ensure your platform supports comprehensive watchlist features for effective monitoring.
Sorting for Clarity
Sorting for Clarity- Sort watchlists by IV Rank and liquidity to prioritize actionable data.
- IV Rank helps in identifying opportunities for rolling forward or closing positions.
Managing Greeks and Positions
- Use native Greeks (non-beta-weighted) for equities and ETFs.
- Normalize futures positions to their equity equivalents for easier portfolio comparison.
Adjusting and Rolling Positions
Adjusting and Rolling Positions- Apply the “Three Rs” for position adjustments:
- Roll up or down the untested side.
- Reenter positions for Delta management.
- Roll out in time to extend duration and reduce risk.
Focus on Risk Reduction
- Be mechanical and consistent in portfolio adjustments.
- Avoid adding to losing positions; instead, focus on increasing credits and lowering Delta.
Timing and Longevity
Timing and Longevity- Timing relates to mechanics, not market prediction.
- Portfolio longevity contributes to success by enabling consistent improvements.
⚙️ Redeploying Capital
- Optimize capital allocation by closing positions with reduced profitability and redeploying to efficient opportunities.
- Maintain daily engagement to monitor and adapt your portfolio.
Capital Efficiency and Non-Correlation
Capital Efficiency and Non-Correlation- Incorporate futures and futures options for better capital efficiency and diversification.
- Understand the uncorrelated nature of different asset classes for strategic advantage.
Basis Reduction and Return Expectations
Basis Reduction and Return Expectations- Aim for reasonable returns (e.g., 3x risk-free rates).
- Utilize theta effectively to generate consistent income, targeting around 25% of daily theta as profit.