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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,733 / 5,727
Last Reply:3 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old April 30th, 2012, 04:57 PM   #111 (permalink)
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Thanks for the reply Ron,

I appreciate what you are saying regarding the deltas. Do you have a minimum delta target yourself? Maybe 0.04 as a starter for oil?

Yes you are quite correct about the 50% of account used for margin, and also the ROI being based on margin used rather than total account size. Sorry, didn't mean to sensationalize, just so amazed at how it has worked out so far.

I am not too concerned about the 120 Calls as it is now down to my 0.05 limit and I have begun to scale out. I have also sold half of the Oct 80's at 0.72 limit for £500/contract and half the Sep 80 at 0.43 for $440/contract profit. so I could now withstand a $6 pullback and still be up.

This was meant to be a rolling 3 month trade but they have gained over 50% of the premium in less than a month. I am expecting a deepish pullback sometime and may enter some further otm positions if it does.

Brit

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Old April 30th, 2012, 06:11 PM   #112 (permalink)
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britkid99 View Post
Thanks for the reply Ron,

I appreciate what you are saying regarding the deltas. Do you have a minimum delta target yourself? Maybe 0.04 as a starter for oil?

I never have a minimum. If it makes a decent ROI I do it. I do have a maximum of 0.03 and most of the time I am down at < 0.02.

Yes you are quite correct about the 50% of account used for margin, and also the ROI being based on margin used rather than total account size. Sorry, didn't mean to sensationalize, just so amazed at how it has worked out so far.

No need to apologize. I just wanted everybody reading this thread to know the difference in how your numbers were calculated.

I am not too concerned about the 120 Calls as it is now down to my 0.05 limit and I have begun to scale out. I have also sold half of the Oct 80's at 0.72 limit for £500/contract and half the Sep 80 at 0.43 for $440/contract profit. so I could now withstand a $6 pullback and still be up.

This was meant to be a rolling 3 month trade but they have gained over 50% of the premium in less than a month. I am expecting a deepish pullback sometime and may enter some further otm positions if it does.

Brit

Ron

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Old May 1st, 2012, 04:56 PM   #113 (permalink)
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So Crude finally managed to break out of the 100-105 range that it has been stuck in for weeks.
This dollar+ rise has had a marginal effect on my 120 calls pushing them up by 1 point to .06-.07 and my remaining puts have increased by twice as much. So no changes today.

Brit

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Old May 3rd, 2012, 09:21 AM   #114 (permalink)
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spj77 View Post
Hi Ron,

I have been looking at some of the chains for OTM options and notice that the Bid/Ask spread is very wide in alot of them.

I have a question - when you are entering an order (say, short put) and the Bid/Ask is showing 0.15 / 1.20, do you tend to enter (using LMT order) it:
a) at the Bid (0.15)
b) slightly inside the Bid (say 0.20 or 0.25)
c) at the midpoint of Bid/Ask
d) very close to the last traded price

I know there is no set answer and it will depend on alot of things - but how do you think I should approach entering orders in markets like this?

Regards
Scott


Hi Scott,

One thing I thought of as I re-read your post was if the spread was that wide it is likely that the markets are closed and that is not the trading spread. (You could not trade that realisticaly) Also I have read that you should never hit the bid or offer and always enter near the mid point / last traded price. If you do and it sits there too long for you, you can always modify your order closer to the bid or offer.

Another point is to choose strikes where there is plenty of open interest as then it is more likely to get a mid price offer accepted. For instance I realise now that choosing 77.5 strikes was not the best choice as there is little interest and sometimes no bids offered so unlikely to get a mid-price accepted. On the other hand when I sold some of my 80 Puts I put in a limit buy order near the mid price which lifted the bid to my price and I could see my contracts by number as best bid. They got hit after a few minutes and the spread widened again.

You can check out this website Commodity Prices / Quotes & Commodity Charts - Free where you can check futures (10 minute delayed)and options prices together with volume traded and open interest up to previous day close.

Brit

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Old May 3rd, 2012, 09:21 PM   #115 (permalink)
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Futures Edge on FIO
Hi,

Thanks for the feedback on the order entry Brit, much appreciated. Ron also posted some great feedback about using the settlement and delta to position orders. It has been a great learning tool to read and gain some insight into how yourself and Ron have approached the market, thank you both for sharing so much.

I am currently reading Cordier’s book and have a question – he outlines preference for deltas of 20 (0.2000) and premiums 400-700. Ron, I see above you mentioned that you have set a maximum of 0.0300 and that most of the time you are down around 0.0200 and lower – was that a change you made over time as you found 0.2000 just far too risky…..I must admit I want to be able to sleep at night!

I see that there is still decent ROI at deltas around 0.0200, such as July CL 80 Puts – delta .0208, premium of $110, margin 516 , 42 DTE = 53% annualised ROI……why is there a need to go any higher delta than than that!!!!

Cheers
Scott

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Old May 4th, 2012, 02:01 AM   #116 (permalink)
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ron99 View Post
I have been selling options on futures for years. But it is rare to find others doing it. I was wondering if there are others here doing it.

I have been doing it for 5 years. Learned it from James Cordier's book.

I have sold energy, grain, softs and metal options. Far out of the money. Usually less than 90 days from expiration.

I am considering to buy options on futures. I cannot find any info from google search about this kind of options. I know for stock options, each contract is 100 shares. As simple as that. But for options on futures, how many future contract does each option contract represent?
The options quotes for ES are like strike 1390, ask 33. What does 33 mean here? Does that mean each option's cost is 33 dollars?
Also could you tell me which brokers are great for trading options on futures? Thanks!

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Old May 4th, 2012, 08:16 AM   #117 (permalink)
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muscleman View Post
I am considering to buy options on futures. I cannot find any info from google search about this kind of options. I know for stock options, each contract is 100 shares. As simple as that. But for options on futures, how many future contract does each option contract represent?
The options quotes for ES are like strike 1390, ask 33. What does 33 mean here? Does that mean each option's cost is 33 dollars?
Also could you tell me which brokers are great for trading options on futures? Thanks!

Hi,

First this thread is primarily about selling options rather than buying them. To answer your question though, one futures option is equal to one futures contract.

One thing that makes options pricing confusing is that there are certain multipliers that have to be applied to the quoted price to get the dollar figure.

For instance, ES has a multiplier of 50, so your 33 quote becomes 33 x 50 = $1650 which would be the cost to buy this option, or if selling would be the premium received.

Some other multiples are

CL Crude Oil 1000 ($1 move in CL = 100 ticks x $10 =1000)
ES S&P Emini 50 ($1 move in ES = 4 ticks x $12.5 = 50)
GC Gold = 100
ZW Wheat = 50

I use Interactive Brokers which is a discount broker with cheap commissions but many find TWS Trader Workstation to be a steep learning curve.

Brit

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Old May 5th, 2012, 01:57 PM   #118 (permalink)
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Selling puts on sugar

Hi, All,

Reading Jaimes Cordier Newsletter on Option Selling, for the month of May, he recommends selling sugar puts under $20.00 for October.

I would have to sell the Oct 19.00 puts in order to collect a premium worth the time, $560. Now, a 19 put is only $1.81 out of the money. A 8.7% move in the price will wipe me out.

Isn´t this recommendation to risky for 136 days away?

Thanks for your opinions.

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Old May 7th, 2012, 12:45 PM   #119 (permalink)
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alfredoe View Post
Hi, All,

Reading Jaimes Cordier Newsletter on Option Selling, for the month of May, he recommends selling sugar puts under $20.00 for October.

I would have to sell the Oct 19.00 puts in order to collect a premium worth the time, $560. Now, a 19 put is only $1.81 out of the money. A 8.7% move in the price will wipe me out.

Isn´t this recommendation to risky for 136 days away?

Thanks for your opinions.

Hi Alfredoe,

I was looking at this too. The key phrase he uses here is "on any additional weakness this month"
If Sugar dips lower then puts will be juiced up a bit, maybe such that it would then make even lower strike levels more attractive. Of course if they don't dip lower then the 19 strike wouldn't be a problem.

If you are using October options you should also use October prices of 21.18 as opposed to Jun of 20.81 which relative to 19 strike is actually 10.3% away. Also the worthwhileness of a premium needs to be looked at relative to the cost of margin applied to secure it. Because if the margin is low relative to premium you could afford more contracts.

Good trading
Brit

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Old May 8th, 2012, 12:28 PM   #120 (permalink)
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OK, I see your point Brit but still it is very hard for me to swallow. Especially when the price of sugar dropped in April from almost $24 to $20.99, over 12% in just 30 days.

It looks extremely risky to me. Thanks for your opinion.

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