Managing Option Positions

I started option trading after reading the seminal book “Option Volatility & Pricing” by Sheldon Natenberg but I honed my strategies after listening to a bunch of TastyTrade videos. This video, on managing your option positions is a gold mine. See my notes below:

🔧 Building an Effective Watchlist

• Start with front-month index futures in descending order to track liquidity.
• Include liquid equities and organize by categories (e.g., gold, silver, bonds).
• Ensure your platform supports comprehensive watchlist features for effective monitoring.

📊 Sorting for Clarity

• Sort watchlists by IV Rank and liquidity to prioritize actionable data.
• IV Rank helps in identifying opportunities for rolling forward or closing positions.

📈 Managing Greeks and Positions

• Use native Greeks (non-beta-weighted) for equities and ETFs.
• Normalize futures positions to their equity equivalents for easier portfolio comparison.

🔄 Adjusting and Rolling Positions

• Apply the “Three Rs” for position adjustments:
• Roll up or down the untested side.
• Reenter positions for Delta management.
• Roll out in time to extend duration and reduce risk.

💡 Focus on Risk Reduction

• Be mechanical and consistent in portfolio adjustments.
• Avoid adding to losing positions; instead, focus on increasing credits and lowering Delta.

📌 Timing and Longevity

• Timing relates to mechanics, not market prediction.
• Portfolio longevity contributes to success by enabling consistent improvements.

⚙️ Redeploying Capital

• Optimize capital allocation by closing positions with reduced profitability and redeploying to efficient opportunities.
• Maintain daily engagement to monitor and adapt your portfolio.

🚀 Capital Efficiency and Non-Correlation

• Incorporate futures and futures options for better capital efficiency and diversification.
• Understand the uncorrelated nature of different asset classes for strategic advantage.

🔬 Basis Reduction and Return Expectations

• Aim for reasonable returns (e.g., 3x risk-free rates).
• Utilize theta effectively to generate consistent income, targeting around 25% of daily theta as profit.