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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,812 / 5,727
Last Reply:7 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old March 31st, 2013, 02:07 PM   #1191 (permalink)
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alfredoe View Post
The trades I checked in the above list, 6 so far, are all below 33% OTM, and some below 20% (too close for me).

That is why I asked the above question: James Cordier Published in this link Options writing mistakes to avoid (I had not noticed the date, it was part of an email I received today, the premiums were very different then but still the main concept applies. For me, it is impossible to get some meaningful premium even 50% OTM at the moment).

I know, this is not an exact science, I am just trying to get some understanding of his words, I don’t want to start a confrontation…Thanks

alfred: I don't think anyone here sees a confrontation..no worries there. I'm not sure of the ones you checked in the list but look at it this way...Given the DTE in that list what are the chances that the underlying will move 33%? As the DTE get smaller, the probabilities get smaller also. And, 30 DTE can mean only 22 trading days given the weekends...

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Old March 31st, 2013, 02:24 PM   #1192 (permalink)
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No confrontation here at all. I'm trying to understand you, you are trying to understand me, and we both are trying to understand Cordier. This is a great conversation!

Can you explain your calculation for OTM calculation?



The Cordier article states: "Just select options that are at least 50% out of the money and preferably 75% to 100% out of the money."

I truly have no clue how this is calculated. Is it based on premium? I'm sure it is easy, and I am just being dense.

Kevin:

For example, you sold KCK3 200 Calls 2/1/13, at the time KCK closed at $150.95 so your 200 calls were 32% OTM (200-150.95 divide by 150.95)

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Old March 31st, 2013, 02:25 PM   #1193 (permalink)
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Annnnnnnd...One more important thing is account size.

Selling one option that has a value of $20 and assuming that it expires at $0. After fees and commissions you bank, say $15. Seems like a lot of work for $15.

Sell 100 of these and bank $1500.

As your account grows you can sell less expensive options with less DTE and still make decent bank. There is a huge difference on a 20% return on an account with an initial value of 20K versus one with 500K.

If you approach this as retirement or a little extra spending money, the larger your account the more 'smaller' things matter.

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Old March 31st, 2013, 03:07 PM   #1194 (permalink)
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alfredoe View Post
Kevin:

For example, you sold KCK3 200 Calls 2/1/13, at the time KCK closed at $150.95 so your 200 calls were 32% OTM (200-150.95 divide by 150.95)

That is what i thought you were doing. I agree with you - I doubt you'll find any that way - that would be a huge move. (the price may have to double in 60 days!)

I assumed Cordier was talking about premium. If the currently premium for at the money is 10, look to sell options at 5, which would be 50% out of the money.

In either case, I don;t think % OTM is a good way. I think delta is much better. As Ron said, look for deltas of .02 to .04.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old March 31st, 2013, 03:46 PM   #1195 (permalink)
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I have seen those videos about six months ago and I agree that it is a must watch. Certainly is very inspiring! of course it can be done! Ron is DOING IT.

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Old March 31st, 2013, 06:09 PM   #1196 (permalink)
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opts View Post
Annnnnnnd...One more important thing is account size.

Selling one option that has a value of $20 and assuming that it expires at $0. After fees and commissions you bank, say $15. Seems like a lot of work for $15.

Sell 100 of these and bank $1500.

As your account grows you can sell less expensive options with less DTE and still make decent bank. There is a huge difference on a 20% return on an account with an initial value of 20K versus one with 500K.

If you approach this as retirement or a little extra spending money, the larger your account the more 'smaller' things matter.

Smallish account here. Keep in mind that 50% per year will get a $10k account to $390k in 10 years. Sock away an extra $200 a month (don't need the fanciest charts, indicators, and software now) and that is closer to $560k in 10 years.

Edward

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Old March 31st, 2013, 06:28 PM   #1197 (permalink)
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eudamonia View Post
Smallish account here. Keep in mind that 50% per year will get a $10k account to $390k in 10 years. Sock away an extra $200 a month (don't need the fanciest charts, indicators, and software now) and that is closer to $560k in 10 years.

Edward

The power of compounding! And the neat thing about selling options the way most of us do here is that should you choose to have/keep your full time job, you can. At least until your trading income matches Ron's! LMAO!

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Old March 31st, 2013, 10:15 PM   #1198 (permalink)
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eudamonia View Post
Smallish account here. Keep in mind that 50% per year will get a $10k account to $390k in 10 years. Sock away an extra $200 a month (don't need the fanciest charts, indicators, and software now) and that is closer to $560k in 10 years.

Edward


Exactly. Gotta look at trading like a business. Never withdrawing money is like reinvesting profits. Your business grows = your trading account grows.

Trade on!

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Old March 31st, 2013, 11:20 PM   #1199 (permalink)
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opts View Post
If anyone watched the video links that Ron posted, and if you have not already...just do so.

But, I am wondering how she determined 56 DTE, 100 points away, then 12% after that???

If she used some backtesting methods then that's fine with me. I'm just curious as to how she came up with these variables.

I've been looking at the ES options and even with these parameters there still looks to be decent premium with less than 56 DTE. That brings up the question of if the market goes against you within the first week or so and you want to sell the other side, would there be enough premium remaining to sell the other side given the shorter DTE if you were looking at options with 40 or 35 DTE? Did I say that correctly....uhhh...yes.

I'm guessing she is using 56 DTE (+/-) for the sole purpose that if the market does go the other way hard in the first 10 days or so there is still a good month left (decent premium) to sell the other side. However, it sounds like this is rarely done either way.

Any thoughts?


I have seen her videos a short while back. From what I gather she looks to sell puts with a delta of 0.05 and calls with a delta of 0.10. She only sell when market pulls in one direction and doesn't necessarily strangle unless the situation determines a good opportunity to do so. So for example when the market has a good down move she will sell a put, then if it moves back up she will sell calls to get a wide range for her trade.

Also she makes adjustments when a trade goes against her and the delta goes up to 0.30. She says that "Once I have your money I don't give it back". The adjustments she makes is to buy back the options and then sell more options further OTM with the same expiration. I am not sure how safe that would be but apparently she has survived some major moves against her, by having enough capital to make adjustments, while still coming out positive.

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Old April 1st, 2013, 03:33 AM   #1200 (permalink)
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As promised, I am issuing an order alert......

I have placed an order to buy 12 SBN322C at limit of 0.02 to close out my short position which I sold at 0.12

With 77 DTE I want to lock in my profits. So Ron, they are yours if you want to buy them!

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