Trading Options, Selling Premium (Fig Leaf/PMCC)

[Nomis]

Hey Oz options traders,

Am back trading the ASX equities after many years trading US options and intend on trading spreads, buying ATM back month and selling OTM front month puts to capture the IV and time skew however the broker accounts (Commsec, IB, CMC) I have set up don't have IV data except IB, which doesn't show up for each strike.

How do you guys work out IV for different strikes?

Thanks in advance

 

[zac]

Hey Oz options traders,

Am back trading the ASX equities after many years trading US options and intend on trading spreads,

So you have stopped with the US options to trade Aussie options?
If so, whats your rationale there??

 

[Nomis]

I back living in Oz and not interested in making the time difference work and more so, don't wish to lose dollars on the conversion when sending funds back. Trading ASX equities with CFDS and using options to hedge but not liking the lack of data so far.

 

[cutz]

Hey Oz options traders,

Am back trading the ASX equities after many years trading US options and intend on trading spreads, buying ATM back month and selling OTM front month puts to capture the IV and time skew however the broker accounts (Commsec, IB, CMC) I have set up don't have IV data except IB, which doesn't show up for each strike.

How do you guys work out IV for different strikes?

Thanks in advance

Hi.

I know what you mean about Comsec, not much in the way of Option Tools, although I am impressed with their ability to generate huge commissions.

IB has numerous methods, hovering over the price quotes will show IV.

I also find the TWS Option Trader page helpful, in the Option Chains menu check the show volatility feature, prices will be displayed in IV, if you look around there are also various charting features in which you can compare expiries, these are just a couple of examples, you need to have a good look around and work out what fits best for you.

Occasionally I also use Hoadley's Option Strategy tool to back out an IV.

 

[Nomis]

Thanks Cutz for the prompt reply with handy hints on IBs platform, will check it out tomorrow. I’ve just started a trial with impliedvolatility.com.au to see what they have and need to re-download Hoadleys. Had everything I needed with just my broker when trading US, so guess it’s just a matter of looking a bit harder here. Thanks again.

 

[cutz]

Thanks Cutz for the prompt reply with handy hints on IBs platform, will check it out tomorrow. I’ve just started a trial with impliedvolatility.com.au to see what they have and need to re-download Hoadleys. Had everything I needed with just my broker when trading US, so guess it’s just a matter of looking a bit harder here. Thanks again.

No worries mate, let us know how you go.

BTW, watch out for option commission schedules that charge a percentage of face value.

 

[Nomis]

Got sorted with IB TWS, has everything I was hoping to find. Thanks again cutz and you’re not wrong on the fees front, borderline criminal.. lol

 

[cutz]

Got sorted with IB TWS, has everything I was hoping to find. Thanks again cutz and you’re not wrong on the fees front, borderline criminal.. lol

Yeah, that's why I love IB, fixed price per contract regardless of face value.

 

[zac]

to be clear - i'm not saying that the strategy is garbage. i clearly don't have enough experience with trading it to make any sort of judgment, given that it is pretty much unviable in the ASX. just wanted to point out that it has pros and cons (as does every strategy), and that if it's considered to be higher yielding vs the traditional covered call, then it must also be considered to carry higher downside risk, not lower.

Since Sharkman posted this it has played on my mind. I've been trading PMCC for a while now. When I trade I have the mantra making money is easy, keeping it is hard so therefore I'm all about risk management.

The one thing I love about the PMCC is the lower downside risk, not "higher."
On face value, this may seem incorrect and counter-intuitive, I follow Dr Alan Ellman and Nassim Taleb in their approach and wisdom for writing covered calls and risk management respectively.
With appropriate risk/money/position management the risk is far less than a traditional covered call.
Following Nassim Taleb, structuring an 'Anti-Fragile' portfolio has been my goal and to have an account that 'gains from disorder.'

By way of a simple example during the Covid Pandemic, I placed a trade on Chevron that went against me. My deep ITM long call ended up ATM so I lost around $18/per share of Intrinsic Value, however with the extra volatility (and change in delta), the Time Value component surged and I was able to sell the position with $9.50 of Time Value (per share). My hypothesis didn't change on Chevron so I kept the position by rolling down to a lower ITM strike and significantly lowered my cost basis as a result.

I hope that makes sense and I must stress strict risk/money/position management is vital for success trading this way.

 

[ot1]

I've a query whether anyone here trades options by selling premium, ie covered calls.

This does not seem to be popular strategy used by Australians, yet in the USA there are countless people doing it with large success.

My question here is if anyone has views on instead of using stock, using an In The Money Call option to simulate the stock position. This strategy while technically a diagonal spread however known mostly as Poor Mans Covered Call or Fig Leaf Strategy.

Ive been trading options for several years now and I quite like the PMCC/Fig leaf strategy.

So I'm wondering what people's views are?

There's a huge broadside attack on using CFDs with covered calls (and rightly so) on this site, but I'd love to get a consensus on people's thoughts on this. Personally I like how the call option part of the trade is long volatility, requires less capital, and has limited downside risk in comparison to the usual CCW strategy.

I mention the CFD strategy as the returns in some cases can be on par with writing covered calls with CFD's. I do not advocate using CFDs however.

For disclosure, I trade these in the US market space due to liquidity and these are now a staple of mine.

Hello, regarding the fig leaf: This is when good technical & fundamental analysis is crucial! Suggest buying 2 strikes in the money 1 to 3 years out and selling weeklies or monthly’s at 1 standard deviation on ETF’s. If underlying exceeds short strike price close position if profitable, if not profitable roll to next profitable expiration date. This strategy works on puts as well. To adjust both the leap and short, let Delta & Theta be your guide. Good trading...ot1