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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 April 5th, 2013, 11:55 AM   #1251 (permalink)
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ron99 View Post
Kevin, are those TS charts from their regular platform or their futures platform?

That is from their regular Tradestation 9.1 platform (the one that does backtesting, automation, etc).

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 April 5th, 2013, 12:04 PM   #1252 (permalink)
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Quoting 
"The reduced amount of natural gas in storage still has the market's attention," said
Gene McGillian, a broker and analyst at Tradition Energy. "The supply outlook
is much tighter than people anticipated."

Falling stockpiles, due primarily to a colder-than-normal end to winter, have
been the key factor in pushing prices above $4 in recent weeks.

Now, some analysts are raising their price forecasts due to the supply drop.
Goldman Sachs on Friday said demand is growing at the same time that U.S.
production is holding steady. The bank now expects prices to average
$4.50/MMBtu in the second half of 2013.

Still, some investors and analysts are concerned that the latest rally has
pushed prices higher too quickly and that natural-gas futures may be set to
retreat.

"Once the cold winter weather passes, we think support is likely to prove
flimsy," said Credit Suisse analysts in a research report late last month. The
bank recommends that investors start preparing for a price decline.

Teri Viswanath, senior natural-gas strategist at BNP Paribas, pointed to data
from the Energy Department released last week that showed gas usage by electric
utilities fell by 0.6 billion cubic feet a day in January compared to last
year.

Ms. Viswanath said in a client note this week that "unexpected weakness"
could mean utilities aren't as keen on gas at these price levels, which could
mean price declines are ahead.


But Friday's gains look set to hold, at least for the time being, according
to Drew Wozniak, an analyst at ICAP Energy.

"It is looking like there is enough strength to keep us above $4 into the
weekend," he said.

Natural Gas Rises as Investors Stay Focused on Supplies

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Old April 5th, 2013, 12:23 PM   #1253 (permalink)
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@ron99

Thanks for that info. Also just want to reiterate thanks for all you've created with this thread.

Do you enjoy beer? I've got some homebrewed Stout and IPA that have aged nicely and I'd like to share with you as a small token of my appreciation if you are interested.

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Old April 5th, 2013, 01:33 PM   #1254 (permalink)
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To MJ888

On 5th March You wrote very interesting post about your previous trading style. Would You share with your current views of selling options?

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Old April 5th, 2013, 01:49 PM   #1255 (permalink)
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eudamonia View Post
@ron99

Thanks for that info. Also just want to reiterate thanks for all you've created with this thread.

Do you enjoy beer? I've got some homebrewed Stout and IPA that have aged nicely and I'd like to share with you as a small token of my appreciation if you are interested.

You're welcome. I don't drink any alcohol.

Seeing others succeed is gift enough.

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Old April 5th, 2013, 02:10 PM   #1256 (permalink)
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What would you guys do with Natural Gas? Selling deep OTM calls or deep OTM puts?

One thing i need to get over is being scared when a position goes against me. I was thinking about getting into OTM calls on /NG which expire in 21 days but chickened out and maybe did the right thing as today its up almost 5 %

my fear is going to get the best of me.

V

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Old April 5th, 2013, 02:24 PM   #1257 (permalink)
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vmaiya73 View Post
What would you guys do with Natural Gas? Selling deep OTM calls or deep OTM puts?

One thing i need to get over is being scared when a position goes against me. I was thinking about getting into OTM calls on /NG which expire in 21 days but chickened out and maybe did the right thing as today its up almost 5 %

my fear is going to get the best of me.

V

Every week, I look at 15 or so instruments. For most of them, I'm just like you, I have no idea what to do. In those cases I do nothing. And that it totally cool. You have to be willing to say "I don't know what to do" and just wait on the sidelines.

You have fear because you don't have confidence in your decision making. Asking semi-anonymous people on a board what they'd pick may help you with one trade, but won't give you the confidence and self sufficiency you need to succeed long term.

For this case and any other case, look at what it has done recently, what it has done historically seasonally, what the COT report says, etc. Develop a screening method you like, and try it. You will evolve this over time, and get more confidence as you get (hopefully) good results.

For each option you consider selling, you really have to establish criteria that makes sense to you and that you can live with.

I know I didn't answer your direct question, but hopefully I've addressed your fear issue a little bit.

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 April 5th, 2013, 03:19 PM   #1258 (permalink)
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@vmaiya73

I think Ron has made it pretty clear what he is doing with Nat Gas and you know what my position is. I don't think there is anything wrong with following some trades (that is certainly what I am doing in this thread), but you will need to understand why the trade is being taken and as Kevin mentioned, you need to determine when you will get out.

Most importantly you need to define and accept the risk. This is true with any type of trading. Before I got into this trade (or any trade) I determine the risk.

So to put it all out on the table here is my NGM35C trade:

I started looking at this trade based on Ron's recommendation. I looked at the fundamentals (like supply and the weather) that Ron pointed out by doing various Google searches. Essentially the supply side is weak (which has driven up demand recently), but demand side is largely driven by weather which has been warm and is going to get warmer. Additionally, a few pages ago Ron mentioned that supply side shifts will likely occur if prices move higher. Overall fundamentals are neutral short-term more bearish long-term IMO.

I went and looked at the seasonal tendencies (and even asked Ron about those a few pages ago because they break down into two types of seasonal variances) - Natural Gas Futures (NYMEX) NG - Seasonal Charts. I noticed that prices tend to either rise from recent lows or fall from recent highs. We aren't at recent lows so it would make sense that we more likely fall or consolidate around recent highs.

Next I went and looked to sell calls (since I'm neutral to bearish) in the intermediate term and I looked for delta at 0.02 and all the good things that Ron has mentioned in this thread regarding getting a decent return on our margin.

This morning I entered NGM35C at 0.005, 3 contracts, delta at 0.04 (things moved up pretty aggressively this morning), for $135 in net premium, $733 margin, $1465 buffer and DTE of 53 for an ROI of 3.07% per month.

Most importantly before I got into this trade I determined the risk I was willing to accept. Per Ron's rules (which I am attempting to follow verbatium to learn on a small account) I will exit should the price moves against me plus the increase in margin exceed my buffer. Going through the current options prices gives me an idea of where that is. If the price moves up to 4.8 I would be forced to bail. When I calculated this trade 4.8 was trading at a premium of $440 for 3 contracts. This is my anticipated max loss.

This gives me plenty of buffer regarding the current events to see whether my hypothesis is correct. As Ron points out, if I find that my hypothesis is wrong - say weather gets colder in the next few months then I will get out before or at my max loss.

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Old April 5th, 2013, 05:20 PM   #1259 (permalink)
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Thanks Eud and kevin for the advice,

I think I got myself into a bit of complacency. I read James Cordier's book only once and thought "why not, everybody else is giving it a shot, so I should to." So started and my first 5 trades I went 4-1 on all on ES futures but of course the market was moving up every day so it was quite easy. But I want to venture outside the ES but that fear is there which I need to get over (fear of failing!!!) and also need to control impulse of not trading way to many contracts at once.

thanks and have a great weekend everybody.

V

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Old April 5th, 2013, 06:59 PM   #1260 (permalink)
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vmaiya73 View Post
Thanks Eud and kevin for the advice,

I think I got myself into a bit of complacency. I read James Cordier's book only once and thought "why not, everybody else is giving it a shot, so I should to." So started and my first 5 trades I went 4-1 on all on ES futures but of course the market was moving up every day so it was quite easy. But I want to venture outside the ES but that fear is there which I need to get over (fear of failing!!!) and also need to control impulse of not trading way to many contracts at once.

thanks and have a great weekend everybody.

V


Back in January when I stumbled across this great thread, I felt the same way. "Selling options is like picking up pennies in front of steamroller," "All option sellers eventually blow out," etc. - I had heard it all and was scared to even try it.

So, I started with a small account - $5,000. That allowed me to sell 1 or 2 contracts of 3-5 different instruments. I am taking it easy for a few months, and maybe mid year I'll up my equity allocation to it. You could probably start with even less, as long as you only did a few trades.

The point is, and my recommendation for you, is to just dip your toe in the water with 1 contract trades with some of the non-ES instruments (it is funny, I am TERRIFIED to sell ES puts!). Your fear will subside as you do it, and all of the unknowns (how do I determine when to exit early, how volatile is my account equity, etc) all become apparent as you progress.


Good Luck!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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