This trading plan was created on 17 June 2016 for the XJO Short Straddle Model Portfolio.
- To find a simple, low maintenance undefined risk strategy with high system quality
- To test taking profit at different levels for short straddle with the same risk
- To see if this strategy is suitable for retirees seeking to increases returns on cash
- Sell an ATM short straddle with 30-45 DTE every month
- Close when profit target is achieved or when unrealised loss exceeds 25% of premium collected.
- Open short straddle with 30-45 DTE, after the RBA meeting each month
- Sell at ATM strike prices
- Close trade when profit target is reached. Set this up as a GTC (Good-till-cancelled) order after trade is opened. The 3 profit targets that we will test are:
- 10% of premium collected
- 15% of premium collected
- 25% of premium collected
- Check positions after market close daily and close the trade the next day if unrealised loss exceeds 25% of premium collected
Risk Management rules
- To avoid big losses, we will close our trade if our unrealised loss exceeds 25% of premium collected
Money Management rules
- As margins are not fixed, we will trade with small position sizes. As we have 3 profit targets, we will start with 3 contracts (assuming we have a portfolio of at least $100,000) and close one contract at each profit target.
- Our capital at risk is 25% of premium collected.
- Check options have at least 30 DTE