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slurp 〽️

slurp 〽️

Nov 25
19 tweets

thread on options selling - this is not another generic thread on selling but focused more on capturing as much yield as fast as possible - you really should have some felling where market could move(but I guess if ur selling options you already have that)

first missconception if price ends up above strike after expiry you lose money. - that is technically not right - you only start losing money after price is above/below strike for amount you sold option for
ex: you sell 1 eth call 1k strike for price of 70$, at expiry price of eth needs to be above 1071 in order for you to lose money(7% difference from strike) 1070 is now your actuall strike/BE price on pic below is some random 18k strike on btc and BE at around 18650 at expiry
you really don't need to always sell options to get decent yield more often than not it's better to get involded: - at extremes of price range - at extreme values of IV - and then other 80% of the time not sell at all
most ppl sell options that are below 0.2 delta ofc that makes you relativelly safe since that options has around 20% chance of expiring in profit. But yields are bad most of the time.
generally option prices around ITM are the most volatile/most misspriced therefore these offer you the best yield most of the time, and misspriced usually means overpriced... which if you refer back to first point gives you the biggest buffer of making money
options close to ITM usually also lose the most value when they move out of 2 strike zone(it depends also in expiry time) so essentially the fastest/most efficient yield possible is gained if you sell close to ITM and close positions when it moves 2-3 strikes away
but how do you quantify how efficiently/fast you captured the largest share of the yield ?? since without that above statements are useless I quantify that with yield/hold time ratio so essentially you divide % of yield captured at the moment with % amount of time you held
so for example 20% yield captured at 5% time held till expiry gives you ratio of 4 yield to hold ratio at expiry is always 1 so you have a reference point ratio of 4 means that for each time period held you extracted 4 points of yield available
ratio below 0 would imply most of the time you held that option you didn't make any money on it on the pic are example of some my recent option sell and stats when it was closed(ones with negative numbers are still open)
most commom relation of those 2 variables is shown below on the picture so Ideally you want to sell peaks of that ratio in order to be most efficient what is the best ratio to sell is up to you to figure out i'm just giving you general idea here
so now we are selling close to ITM or maybe even ITM options...which in general is seen as -ev we move back to first missconception and find options that gives us biggest buffer for annualized yield it offers(so it's not as -ev as it was before when u look from that angle)
I use a script to get option data on daily basis and check out yields etc(on the pic below)
after you calculate your actual BE point for option you want to sell you should run some simple stats about price, rolling realized move trends, IV vs RV trends, and determine at which point of price stat you are at the moment
extremes of current rolling period are usually time to sell options use your new strike(BE price) as input to calc. what kinda moves are needed in order for price to move out of your profit zone
how to manage risk after you sell them is up to you but in general you should be making money relativelly quick so if you sell and ur not making money in first 10% of options time till expiry you are probably wrong/will have to manage this position more
in general you can lever up decently on this strategy but of I wouldn't go above 40% of MM(you could but needs a decent bit of managing if market is volatile)
you will be suprised what % of time you need almost 3sigma move based on 1month rolling stats to actually end up losing money
now it's up to you to explore a bit...didn't give a lot away but I think the general idea is clear
slurp 〽️

slurp 〽️

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