options trading strategies

Options Trading Strategies – What Am I Trying To Achieve?

I started this blog last year thinking to use it as a trading diary. As you can see I posted a few posts here and there but eventually stopped.

One of the biggest reasons was that I did not believe in what I was doing. Especially when it ended the year with a negative PNL as you can see from the video I created below.

The win rate was good, but the result was bad. It also needed substantial amount of time to look for trade opportunities and manage the trades. Considering I was not looking for another job, this really does not fit well with what I wanted to achieve.

Let’s trade some VIX products!

Along with the strangle / straddle options strategy I was doing, I also experimented with VIX related products such as UVXY and VXX.

Thanks to the low volatility environment at the time, it went extremely well, until early February 2018. As you know, VIX spiked overnight and eventually caused some VIX related products to dissolve. I did survive that spike but it pretty much wiped out all the profits I acquired up till that point.

Instead of stepping on the sideline, I decided to jump right back in when the VIX kept rising with backwardation going on.

The strategy I chose was selling in the money Call Spreads. Based on the experience I had, VIX tended to drop down within days. Needless to say these experience was under normal market condition.

As I started accumulating positions, it became apparent that less and less people were trading at the price point I was trading, which made it difficult to fill the orders even with my small order sizes. Instead of taking that as a warning sign, I just kept going and accumulated more in the money call spread positions.



Then came the nightmare. I started getting assigned because my Short leg was so deep in the money, there was practically no extrinsic value. This kept happening and I eventually call it quit a few months later by getting out all the remaining positions.

So now what?

I learned my lessons. When VIX shoots up like that, it would take months to get back down. I have had never traded VIX related products in that kind of environment.

  • I should have used Puts instead of Calls.
  • I should have planned better my position sizes.
  • I should have used a longer expiration options.

I took a few months off to recover both mentally and physically. I actually got sick for a few months and couldn’t even walk.

Fortunately this experience did not wipe me out but it did cause a substantial damage. However, I know for a fact that this strategy works. There are people out there successfully executing it day in, day out, disregard to the market condition.

I jumped right back in to the market around July, and started with very small position sizes. After several winning trades to confirm that the strategies do work, I now decided to focus solely only on these three simple strategies.

1) Buy Put spreads of VIX related products when VIX spikes

This is essentially what I was doing except now I am using PUT spreads. What I am trying to achieve is 10%-20% return each trade. Looking at how many times VIX spikes in one year, if I could catch 5-10 times of those spikes and manage to generate even only 10% return, the PNL should be pretty good, in theory.

Let’s say $100K is the total asset and 50% of total asset is allocated in each spike.

$50K x 10% = $5K each spike

Catching 5 spikes in a year would be 5 x $5K = $25K

Which is 25% annual return. Not bad.

2) Buy (or short sell out of money Puts) VIX or VIX related products when VIX is low

This strategy won’t make substantial return. Only a smaller portion of total asset will be allocated.

3) Sell low Delta, bear Call spread or bull Put spread (essentially iron condor one leg at a time) of SPX when it’s near to the top or bottom (depending on what the chart / market condition is)

Since this strategy will only be executed when SPX is near top or bottom (relatively speaking, depending on timeline of chart and market conditions used to analyze), it will be irregular and unpredictable. Only a smaller portion of the total asset will be allocated.

Final Thoughts

I still believe in options trading and it’s just a matter of finding the right strategies that match my goals and personality.

Like I said, I am not looking for another job, and options trading should be really a side thing that takes little efforts to manage. That is what I am trying to achieve.

PLEASE NOTE: I am not implying options trading is easy. IT IS NOT. It took me years to learn and appreciate it. Even after all these years I still do not understand its full potentials yet. What I am trying to do is to find small niche strategies that work and just keep doing it.

Do you think I will make it? Only time can tell.

In the mean time leave a comment to let me know what you think.

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