Trading Futures with options as protection - futures io
futures io futures trading



Trading Futures with options as protection


Discussion in Commodities

Updated by SMCJB
      Top Posters
    1. looks_one myrrdin with 4 posts (2 thanks)
    2. looks_two zxcv64 with 3 posts (1 thanks)
    3. looks_3 Fat Tails with 2 posts (11 thanks)
    4. looks_4 PK 1 with 2 posts (0 thanks)
      Best Posters
    1. looks_one Fat Tails with 5.5 thanks per post
    2. looks_two Gooffy2010 with 2.0 thanks per post
    3. looks_3 britkid99 with 1.5 thanks per post
    4. looks_4 myrrdin with 0.5 thanks per post
    1. trending_up 8,902 views
    2. thumb_up 20 thanks given
    3. group 11 followers
    1. forum 17 replies
    2. attach_file 0 attachments




Welcome to futures io: the largest futures trading community on the planet, with well over 100,000 members
  • Genuine reviews from real traders, not fake reviews from stealth vendors
  • Quality education from leading professional traders
  • We are a friendly, helpful, and positive community
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts
  • We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

(If you already have an account, login at the top of the page)

 
Search this Thread
 

Trading Futures with options as protection

(login for full post details)
  #11 (permalink)
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: XTrader and Cloud TT
Broker: Advantage Futures
Trading: Energy
 
Posts: 3,481 since Dec 2013
Thanks: 2,777 given, 6,547 received


zxcv64 View Post
I realise this is an old thread, but I'd like some opinions pls :

As a relative newcomer, I have been buying/selling futures with protection. For example, I recently bough NGJ19 at 2.82 and a long Jan put at 2.70 strike for 0.066

Thats the same as buying a 2.70 call at 0.186.
zxcv64 View Post
My max loss is basically [Future price - long put strike]*multiplier + the cost of the put.

Yes. The same as buying a call.
zxcv64 View Post
Before I scale up, are there risks that I am blind to?

It's simple algebra.

A - B = C
Long Call + Short Put = Long Futures

A = C + B
Long Call = Long Futures + Long Put

C - A = -B
Long Future + Short Call = Short Put

Reply With Quote

 
Best Threads (Most Thanked)
in the last 7 days on futures io
Are sharks watching on the other side?
52 thanks
Sierra Chart ACSIL for Beginners.
27 thanks
Earn2Trade (Helios) - "The Gauntlet"
21 thanks
VWAP for stock index futures trading?
20 thanks
Converting NT7 indicators to NT8 for free
14 thanks
 
(login for full post details)
  #12 (permalink)
London, UK
 
 
Posts: 74 since Jan 2018
Thanks: 161 given, 68 received

"you should buy put options for the same month as the future."

Yes, I normally try to do this, but sometimes I will buy a shorter dated put against a longer dated future.
The risk being that the underlying does not move enough by the time the long put expires (I got caught out with KCZ18 in Aug like this - as soon as I closed my trade for a loss due to the put expiry, the future went on a big upward move, and I missed out on a large profit).

I plan to always close the future by the time the put expires. My reason for buying a shorter dated put is if I think the underlying is technically oversold and a bounce is due. As shorter dated puts are cheaper, it helps with the %age return figures.

I am also doing the opposite trade - shorting a future and buying a protective call. Did that on ZB recently.

To my surprise feeder cattle is a good candidate for this sort of trading. I have gone in and out numerous times closing the trade within 2-3 days for a good profit.

I have no intention of trading lumber, and orange juice has only one good seasonal that appeals to me.

Reply With Quote
 
(login for full post details)
  #13 (permalink)
London, UK
 
 
Posts: 74 since Jan 2018
Thanks: 161 given, 68 received



SMCJB View Post
It's simple algebra.

A - B = C
Long Call + Short Put = Long Futures

A = C + B
Long Call = Long Futures + Long Put

C - A = -B
Long Future + Short Call = Short Put

Thanks @SMCJB.

I'm totally comfortable with the algebra, and am aware that buying a future and a long put is technically the same as buying a long call. However, there are subtle differences between the two strategies. A couple of which are :

Liquidity - I find it easier to trade a future than an option and at a better fill. Options have wider spreads, and closing a position can sometimes be less price effective than with a future. Last week, I closed HEJ19 for 67.250 when the price momentarily hit that level - I immediately tried to close my put and struggled, even at a price close to the bid. This is due to lower volumes in the options and a smaller market. I feel that simply buying a long call in this trade, rather than a Future + Put, may have given me a similar problem in closing the call.

Repeatability : if the future rises and I close it, and the long put is worth very little, I will often just leave it, rather than selling it. At some point in the days/weeks ahead, if the future falls back close to my original entry price, I will buy it again, and I already have the long put from the first trade. So, in effect I am using the same long put twice. In fact, I reused a put 3 times with feeder cattle recently, which greatly enhanced the returns.

I am going to keep an eye on how the long call vs the Future + Put plays out and then trade accordingly.

Reply With Quote
The following user says Thank You to zxcv64 for this post:
 
(login for full post details)
  #14 (permalink)
Market Wizard
Linz Austria
 
Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker: DeCarley, IAB, RJO
Trading: Commodities
 
Posts: 1,652 since Nov 2014
Thanks: 2,689 given, 2,220 received


zxcv64 View Post
"you should buy put options for the same month as the future."

Yes, I normally try to do this, but sometimes I will buy a shorter dated put against a longer dated future.
The risk being that the underlying does not move enough by the time the long put expires (I got caught out with KCZ18 in Aug like this - as soon as I closed my trade for a loss due to the put expiry, the future went on a big upward move, and I missed out on a large profit).

I plan to always close the future by the time the put expires. My reason for buying a shorter dated put is if I think the underlying is technically oversold and a bounce is due. As shorter dated puts are cheaper, it helps with the %age return figures.

I am also doing the opposite trade - shorting a future and buying a protective call. Did that on ZB recently.

To my surprise feeder cattle is a good candidate for this sort of trading. I have gone in and out numerous times closing the trade within 2-3 days for a good profit.

I have no intention of trading lumber, and orange juice has only one good seasonal that appeals to me.

If you buy the puts for other expiry months than the futures you have to take care of the following:

For a large number of futures the price movements for the different expiry months move more or less parallel to each other, eg. the indices or the metals.

For some futures the price movements for the different expiry months move more or less independently from each other, expecially in the meat markets, but also for Natural Gas in winter (F, G, H contracts). I would avoid trading different months for these futures / options.

I usually buy the puts for the same month as the future, and sell it after being able to place a safe profitable stop for the future.

Best regards, Myrrdin

Reply With Quote
The following user says Thank You to myrrdin for this post:
 
(login for full post details)
  #15 (permalink)
Kassel / Germany
 
Experience: None
Platform: MC
Broker: IB
Trading: CL/NG/ES
 
PK 1's Avatar
 
Posts: 72 since Aug 2011
Thanks: 128 given, 59 received


zxcv64 View Post
Yes, I normally try to do this, but sometimes I will buy a shorter dated put against a longer dated future.

Seeing your NG-Note in another post I'd be careful as this can deadly having another month with the option than the future. The seasonal spread can get huge between months in winter and so the spread between options with same strike of subsequent months also. So for NG in winter it could be more interesting doing future spreads waiting in early winter for the widening of the spread.

Reply With Quote
 
(login for full post details)
  #16 (permalink)
Market Wizard
Linz Austria
 
Experience: Advanced
Platform: Zaner360, TWS, Vantage
Broker: DeCarley, IAB, RJO
Trading: Commodities
 
Posts: 1,652 since Nov 2014
Thanks: 2,689 given, 2,220 received


PK 1 View Post
Seeing your NG-Note in another post I'd be careful as this can deadly having another month with the option than the future. The seasonal spread can get huge between months in winter and so the spread between options with same strike of subsequent months also. So for NG in winter it could be more interesting doing future spreads waiting in early winter for the widening of the spread.

For Natural Gas trades in winter (F, G, H contracts) I prefer buying options. In my opinion, spreads can make huge moves overnight / over the weekend.

My recommendation for beginners: Avoid trading Natural Gas in winter.

Best regards, Myrrdin

Reply With Quote
 
(login for full post details)
  #17 (permalink)
Kassel / Germany
 
Experience: None
Platform: MC
Broker: IB
Trading: CL/NG/ES
 
PK 1's Avatar
 
Posts: 72 since Aug 2011
Thanks: 128 given, 59 received


myrrdin View Post
For Natural Gas trades in winter (F, G, H contracts) I prefer buying options. In my opinion, spreads can make huge moves overnight / over the weekend.

my point was just as simple as sticking to the same month as the underlying when playing NG-Options in Winter. That means Z - H and careful already regarding X because the winter-games of NG-Trader can start earlier. Unfortunately I missed spreading Z-F but no prob as H starts walking delayed thereafter. The sunday gaps can be extreme and could kickin tons of margin caught on the wrong side!

Reply With Quote
 
(login for full post details)
  #18 (permalink)
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: XTrader and Cloud TT
Broker: Advantage Futures
Trading: Energy
 
Posts: 3,481 since Dec 2013
Thanks: 2,777 given, 6,547 received


myrrdin View Post
My recommendation for beginners: Avoid trading Natural Gas in winter.

I'd second that!

Reply With Quote


futures io Trading Community Traders Hideout Commodities > Trading Futures with options as protection


February 3, 2019


Upcoming Webinars and Events
 

Free BloodHound Licenses for everyone!

June
 

Every journal equals ten meals for the hungry

June
     



Copyright © 2020 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts