Friday, February 8, 2013

Closure of all Feb income option inventories

Yesterday Morning, market fell down and offered me a fair opportunity to close all my option premium selling positions. With about 7 days to index expiration and a Gamma over -8 which was way above my estimated range around -2, I decided to take whatever market offered and close all remaining FEB positions to eliminate Gamma risk even though the Delta was in the comfortable zone.
The remaining positions were all RUT IC & Calendars. I had to rush to my other work and close them as soon as possible. So I entered the closing trades which were the opposite trades to the original open trades as usually. All trades which were 5 cents above mid-price were executed smoothly, except one double calendar trade. This tough-to-sell double calendar had a RUT Delta of -36, as market was falling quick at the time. I had to reduce my ask price a few times to sell it. Thus I was not able to catch all the profit shown in the above chart which was taken before I started closing position. It took me about 30 minutes to close all trades.

This let my think about an optimized closing sequence for the monthly option inventory liquidation day. In the closing time of such a day, I'll need to review the intraday market trend on a 15 minute chart. If the market is trending, then I should close the damaging trades first before I close the profiting trades.

Without this procedure, the trades with potential to more profits are most likely to be closed first and the trades with potential to more losses will end up remaining alive.

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