Finally a decent upwards move in the market, but because the VIX didn't drop significantly, I have a feeling that we will see further movement downwards in the coming days.
In times like this it's important to keep in mind a potential crash that could wipe out many traders' accounts.
So how do we make sure that option traders won't get wiped out?
Stay small and diversified.
Stay small: maintain a BP that's at least 50% of the account balance.
Diversify: it's pretty obvious that having positions in only 1 industry is risky so it's best to keep positions in uncorrelated underlyings.
These accounts swings significantly more than larger accounts for obvious reasons. Maintaining 50% BP is often challenging when a paper moves against the account holder. Adjusting positions is critical but over adjusting is highly risky.
So what's my trade for today?
#XOP (#OilGasETF). This sector is in a major turmoil and the option prices certainly reflect that. I have selected a very wide strangle but the amount of credit it pays is insane.
Trade Type: Short Strangle
Strike: $90 / 165
Expiry: 19 Aug
IV Rank: 47.4
Cap Req: $1341
Annualised Prof at Expiry: 135%
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.
I closed down a few positions to reduce my portfolio risk.
Closed at $0.77 for an annualised profit of 2926%.