Overview

This trading plan was created on 17 June 2016 for the XJO Short Straddle Model Portfolio.

Objectives

  • 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

Trading Strategy

  • 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.

Entry Guidelines

  • Open short straddle with 30-45 DTE, after the RBA meeting each month
  • Sell at ATM strike prices

Exit Guidelines

  • 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.

Pre-Trade Checklist

  • Check options have at least 30 DTE

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