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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,171 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old March 17th, 2013, 09:43 AM   #1031 (permalink)
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Yes I use DCOT data. It is not as high on the priority list as fundamentals or seasonals but I do use them.

Each week I download the DCOT futures only data for 23 commodities into a spreadsheet and chart the data. One spreadsheet page for each commodity plus several pages of summarized data. I have all the data back to 2006 when the CFTC came out with the DCOT report.

Commitments of Traders - CFTC

I mainly look at what the Managed Money or specs are doing because generally markets are moved by them. I am looking at trends by the specs. If they have been getting more net long/short then I will lean towards that bias in my thinking. But you can't look at the data and know when it will reverse.

I also look to see if the specs are adding longs/shorts or just covering longs/shorts when the net positions are getting longer. If they are covering longs/shorts then I believe the rally will be short.

That's what happened in SB the last 3 weeks. The shorts are covering far more than increasing longs.

The problem with the data is that it is old. The data you get on Friday afternoon is from Tuesday.

There have been some interesting things happening on the DCOT data the last few weeks. Later when I have time I will explain.

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Old March 17th, 2013, 10:12 AM   #1032 (permalink)
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superb. looking forward to it

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Old March 17th, 2013, 10:16 AM   #1033 (permalink)
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MJ888 View Post
Only selling options for a few months? Hang in there and I highly recommend reading this entire thread. It is possible you are trading strikes too close to the money. BTW, what are you trading?

I've been with this thread since the start. Actually, it's been one of the biggest factors that got me started on this path. I finally decided to step out of the shadows!

I trade contracts on energy, metals, S&P, grains, livestock, and currencies. I use about as much fundamental analysis as Ron uses of technical analysis.

The strikes I trade are at .08 delta and I bail when they get to .2 delta. I look to sell about 90 days out and exit when I collect 80% of the premium. Looking at my trading stats this usually takes about 27 days. After these few months have past I'm about at break even, which I find very frustrating.

I think I may actually listen to the more experienced traders (and more successful!) and trade at lower delta. I thought I needed to go for the big premium to get solid returns, but as someone pointed out earlier it's all about ROI.

Mac

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Old March 17th, 2013, 01:20 PM   #1034 (permalink)
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MJ888 View Post
Mac, thanks for asking. To begin with, I do not try to pick market direction nor do I "know" how to. On any given day, I honestly do not know if any certain market will trade higher or lower, the best I can do is GUESS. Will CL be higher on Monday? No idea. How about wheat? Haven't got a clue. In all honesty, there is way too much "noise" or "news" to keep up with. The great thing about option selling is one does not need to be able to guess market direction. You can sell a OTM option and be wrong market direction and still make money.

With that said, looking at seasonal charts, one can take a chance and say that "likely" something will trade in a certain direction given the same time frame of the year. But does it ALWAYS follow it's 5, 10, or 15 year pattern? No it does not. Look at sugar or SB, seasonal charts indicate that between now and mid June, the trend is lower. But SB has been trying to rally the past two sessions. Last Thursday, I sold some SBN322C or July 22 calls for a premium of 0.12 and a delta of 0.11. You can say that I "timed" my entry to the rally in SB but who is to say that SB will not rally even higher next week? No one knows. Yes, I keep reading that there is a ton of resistance in the $19.00 and $19.20 area but will it hold? Again, who knows! But being far out of the money with the 22 calls, I have some room to be temporarily wrong. In an earlier post I mentioned that in the past I would feel "naked" or "exposed" if I do not sell some puts to create a strangle to hedge this trade but I will not do that with sugar, do not want to fight the seasonal chart.

Another market is CL. The seasonal charts and many on this thread say that CL "should" be trending higher during this time until about May. In fact, the past two years I was burned holding some short calls around this time. But so far, CL has remained in the $90-$95 range. About a week ago, I did exit my short CLK375P or May 75 puts at 0.07 locking in a profit of 0.12 since I sold at 0.19. This is one trade where I was "wrong" market direction virtually the entire duration of the trade but still made solid profits. When I sold these May CL 75 puts, CL futures were trading at around $98 but sold off to $91, yet my short 75 puts continued to make money due to time decay. So this is a perfect example of me being totally wrong market direction yet I still was able to make good money.

During the past year or so, my trading style has changed. In the past, I sold strikes with a delta of around 0.20 but thanks primarily to Ron99 here, I have learned that I can be even more successful by choosing strikes with much much much lower deltas. In the past, every one of my positions were strangles but I have learned that I do not and should not trade that way. I am looking at seasonal charts more and more to make my decisions.

Only selling options for a few months? Hang in there and I highly recommend reading this entire thread. It is possible you are trading strikes too close to the money. BTW, what are you trading?

Great comment MJ888.......Thanks.

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Old March 17th, 2013, 05:19 PM   #1035 (permalink)
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ron99 View Post
I want to clarify my previous response to this post. I said it was OK. But normally I would have said 80 puts in CL are too close to ITM. I would never do them. I have on Apr & May 70s. None higher. I sold the May 70s on 2/25 for .08.

I said it was OK because kisskais had prior experience selling close to ITM options. I would never recommend them to new option sellers.

On CL, because of its' volatility, you should be at least 15-20 dollars OTM.


After reading all the posts and seeing crude up on early Friday, I decided to close both trades with a $600 profit less commission and will be watching on Monday and see if I can get back at a lower strike when crude dips again.

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Old March 17th, 2013, 07:27 PM   #1036 (permalink)
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kisskais View Post
After reading all the posts and seeing crude up on early Friday, I decided to close both trades with a $600 profit less commission and will be watching on Monday and see if I can get back at a lower strike when crude dips again.


kisskais:

Don't think that you made an incorrect trade if crude decides to keep going up and your puts would have lost more value = more potential profit. Since you already exited with a profit then consider yourself 'done with that'. Selling options in crude about $10 away is a little close. Don't beat yourself up about this either. There are a multitude of ways to sell options for profit. Do I want to sell options with 30 days left that are worth $20 each or 70 days left that are $200 each? In most cases if you are writing the $20 opts then your thinking is that you are expecting them to expire worthless because after the commission and exchange fees to sell then buy back there might not be a lot left for the bank. Unless your are someone like uh, who can that be, hmm....think his name starts with an R or something, and you sell 100 of them and after fees and commissions you can still bank a few hundred bucks that is fantastic. The larger your account size the more flexibility you have as far as profit methods are concerned.

If you sell the $200 options then you have more room there to buy those back for $100 and make a decent profit. This is how I approach a trade...Do I want to sell with less time left and let them expire worthless or sell them farther out with the intention of buying them back at 40, 50, etc. less value then what I sold them for? Different ways to approach this endeavor....find your path. Annnnd stay with the thread

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Old March 17th, 2013, 07:49 PM   #1037 (permalink)
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opts View Post
kisskais:

Don't think that you made an incorrect trade if crude decides to keep going up and your puts would have lost more value = more potential profit. Since you already exited with a profit then consider yourself 'done with that'. Selling options in crude about $10 away is a little close. Don't beat yourself up about this either. There are a multitude of ways to sell options for profit. Do I want to sell options with 30 days left that are worth $20 each or 70 days left that are $200 each? In most cases if you are writing the $20 opts then your thinking is that you are expecting them to expire worthless because after the commission and exchange fees to sell then buy back there might not be a lot left for the bank. Unless your are someone like uh, who can that be, hmm....think his name starts with an R or something, and you sell 100 of them and after fees and commissions you can still bank a few hundred bucks that is fantastic. The larger your account size the more flexibility you have as far as profit methods are concerned.

If you sell the $200 options then you have more room there to buy those back for $100 and make a decent profit. This is how I approach a trade...Do I want to sell with less time left and let them expire worthless or sell them farther out with the intention of buying them back at 40, 50, etc. less value then what I sold them for? Different ways to approach this endeavor....find your path. Annnnd stay with the thread

Well said opts. There are indeed many ways to sell options profitably. And yes, the more capital you have the more options (pun intended of course) you will have in terms of your approach.

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Old March 17th, 2013, 07:52 PM   #1038 (permalink)
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kisskais View Post
After reading all the posts and seeing crude up on early Friday, I decided to close both trades with a $600 profit less commission and will be watching on Monday and see if I can get back at a lower strike when crude dips again.

You made money, don't look back! It is very easy to second guess yourself by saying "damn, if I stayed in I would've made an extra whatever." Well, what if you DID STAY and you ended up giving back profits or worse yet, taken a loss? But you didn't stay, you exited, you booked profits, good job, now MOVE ON!

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Old March 17th, 2013, 07:55 PM   #1039 (permalink)
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ron99 View Post
MJ888, the next time you want to get out of CL puts at .07 let us know. I'm sure we can help you get out of them

Funny! I was absolutely thinking of you Ron99 when I set my order to buy back the CLK375 puts at 0.07. The next time I cover my shorts, I will post here first so be on the lookout.......Hmmmm, I wonder if that would be considered some sort of collusion trading by the CFTC?

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Old March 17th, 2013, 08:21 PM   #1040 (permalink)
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mackg867 View Post
The strikes I trade are at .08 delta and I bail when they get to .2 delta. I look to sell about 90 days out and exit when I collect 80% of the premium. Looking at my trading stats this usually takes about 27 days. After these few months have past I'm about at break even, which I find very frustrating.

I think I may actually listen to the more experienced traders (and more successful!) and trade at lower delta. I thought I needed to go for the big premium to get solid returns, but as someone pointed out earlier it's all about ROI.

Mac

You mentioned that you traded strangles. If you sold both a call and a put with the delta at 0.08 for each, you should have on a decent trade. You mentioned that you would bail when the delta reaches 0.20. Wouldn't the other end of the strangle be showing a nice profit with a very low delta? When you bail, do you just cover the side that is losing money or do you get out of the entire strangle? For me, I consider a strangle position as ONE POSITION, so if I were to exit for a loss on one end, I would also exit the opposite end for a profit, thus cushioning the overall loss. By doing this, I was able to be at break-even to slightly profitable even if I was wrong 3 out of every 4 strangle positions. This is assuming that your position sizes, premium collected and stop loss points were the same for every trade. I wrote about this in more details a few pages back.

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