The Option Writer

99% boredom vs 1% mega stress

📅 May 12, 2023 edition

🧪Experiences with Option buying on CPI week

Let's move away from discussing options selling for this week's topic. This time, I have decided to experiment with option buying strategies during the CPI event. My 🤔theory is that news events tend to significantly impact prices in one direction, only to eventually reverse course in the following hours or days. Although I typically avoid trading news events due to their volatility, uncertainty and wicks flying all over the place, I decided to attempt an option strategy this time around. I patiently waited for the news to affect the price, and then purchased 1900 and 1850 puts (since the market was pumped up; I would have gone for calls if it had been a dump), with a two-day expiration period.

Skipping ahead five hours, the markets for BTC, ES, Gold, DXY, and Forex all experienced a 📉reversal of the earlier CPI-driven price movement, and my puts ended up in a very favorable position. However, one notable difference between perpetual futures and options is that exiting positions is not as straightforward with the latter. Prices, spreads, and liquidity are less clear-cut and immediate, so unfortunately, I missed the opportunity for a timely exit as prices rapidly wicked upward on the day of the news.

On the following day the price revisited the lows (as expected) and I 💰sold 50% of my position (the 1900 puts) for a profit of 110% and half of the 1850 puts for a profit of 205%, while ETH was trading at around 1780-1800. As for the remaining position, which was roughly the same size as my 1750 sell from last week, I decided to hold it to expiration as a hedge. This way my riskier sell position from last week (1750 PUT) was protected for the possibility of further price continuation and it had zero risk even if it expired in the money.

This last position expired at 1760 and gave me 374% profit, and the total of this operation resulted in 199% profit. Not bad for an experiment 😊

What➕advantages do I have in purchasing options as opposed to perpetual futures? The foremost and crucial benefit is that the downside risk is confined to the premium cost. Knowing the maximum amount I am risking ahead of time relieves me of this concern when managing the trade. I also tend to plan my decisions more thoroughly and avoid impulsive behaviors, since options are not as readily available and fluid. Finally, I am immune to crazy wicks as there is no stop loss to worry about.

📋May 12 Epoch review

Back to the point, let’s talk about option selling.

This, ladies and gentlemen, is why we spread the risk! This week had a very big move, something we hate as option sellers, and we were 100% comfortable because:

1) The position exposed to risk was only of 9.5% of the capital allocated.

2) we hedged the position by making a buying operation, effectively reducing our risk to zero.

3) because we only trade out-of-the-money strikes and never gamble, all of our options expired out of the money (close, I know😅).

I started the week with these strikes:

• $2100 CALL

• $1700 PUT

And build more positions during the weekend (calls in pumps, puts in dumps) to end up with this:

• $2150 CALL

• $2100 CALL

• $2050 CALL

• $1750 PUT

• $1700 PUT

📋May 19 Epoch plan

The plan remains the same: look for very out of the money strikes in the direction of the trend. I have already a position ($1600 PUT), and I will build more soon. These are the levels I am considering:

📈📉My results

Average Yield %: 1.81%

Projected APY %: 153%

Growth %: 16.75%

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Nothing in this newsletter is financial advice. I just share my thoughts and personal experiences on Options and the markets in general