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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,021 / 5,734
Last Reply:Yesterday (01:01 AM) Attachments:642

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Selling Options on Futures?

Old May 12th, 2012, 12:05 PM   #121 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
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spj77 View Post
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

Yes Cordier says a 0.2000 delta. But that doesn't match the 400-700 premium. Or how he traded.

For example, a Sep CL 82 put is $520 but the delta is 0.0610. A 0.2000 delta would be a Sep 95 put. I know that Liberty never put something like that on in my account when I had one there. He wasn't that crazy.

Yes I have lowered my delta and increased my cash excess over the years. After getting brokers calling you and telling you to immediately send money (I don't know why they don't suggest bailing on positions first) you don't want to go through that again.

And yes I have had sleepless nights because of my positions. And then you almost don't want to turn on the computer in the morning to see what happened.

After I lowered my delta and raised my cash excess I found that when you have 85-90% winners your account balance at the end of the year is higher than when you traded higher delta and only had 60% winners. And that is mainly because when you are trading higher delta, the losers are usually very big losers.

Ron

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Old May 12th, 2012, 12:08 PM   #122 (permalink)
Market Wizard
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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!

Look at the Tick Size column on this webpage. It gives the conversion from price to dollars.
https://www.optionsxpress.com/oxnetaccnt/educate/investing101/futures/products.aspx

I use optionsXpress for options. IB charges too much margin. Far higher than anybody else when you sell them. But if you are only buying options then margin isn't a worry.

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Old May 12th, 2012, 12:22 PM   #123 (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.

You definitely need to look at strikes further out of the money (OTM). A 19 is far too risky. I sold 16s.

If you feel you need to make ~$500 for each trade, then sell more put options at lower strike price. But you shouldn't limit yourself to a certain dollar amount per option. In many cases those will be too risky. Good returns can be made at lower strikes.

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Old May 13th, 2012, 01:01 PM   #124 (permalink)
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ron99 View Post
You definitely need to look at strikes further out of the money (OTM). A 19 is far too risky. I sold 16s.

If you feel you need to make ~$500 for each trade, then sell more put options at lower strike price. But you shouldn't limit yourself to a certain dollar amount per option. In many cases those will be too risky. Good returns can be made at lower strikes.

Thanks for your important suggestion Ron99. I was looking at premiums instead of volatility (but I had in mind how close or out of the money the option was).

Following your example.....Today, the Oct 16 puts have a premium of $123. If I sell 4 of these puts, would I need 4 times the margin required for one 19 put?

Another question, what is the best tool to determine the volatility of a commodity options?

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Old May 13th, 2012, 09:00 PM   #125 (permalink)
Market Wizard
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alfredoe View Post
Thanks for your important suggestion Ron99. I was looking at premiums instead of volatility (but I had in mind how close or out of the money the option was).

Following your example.....Today, the Oct 16 puts have a premium of $123. If I sell 4 of these puts, would I need 4 times the margin required for one 19 put?

Another question, what is the best tool to determine the volatility of a commodity options?

No, the margin isn't the same for 16s as for 19s, margin is based on a number of things including risk.

I think you need to learn about how margins work before you start to look at volatility.

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Old May 16th, 2012, 11:46 AM   #126 (permalink)
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Ron99: Going back to the Sugar Oct 16 puts you sold with a premium of $123 each, what commission are you paying here?

In my case, just the commission they charge is $40 for selling and buying it back for each contract. The commission is in this case very high percentage of the premium received.

How do you handle that?

Thanks,
Alfredo E.

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Old May 16th, 2012, 11:56 AM   #127 (permalink)
Market Wizard
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alfredoe View Post
Ron99: Going back to the Sugar Oct 16 puts you sold with a premium of $123 each, what commission are you paying here?

In my case, just the commission they charge is $40 for selling and buying it back for each contract. The commission is in this case very high percentage of the premium received.

How do you handle that?

Thanks,
Alfredo E.

Because of my years of trading at certain firms and the volume of trading that I do, my commissions are $2.99 or less plus exchange fees.

At OptionsXpress they charge $12.99 per side for futures options even if you only do 1 trade per month.
Get the Best Online Trading Value with optionsXpress

If you let an option expire OTM, most places do not charge you any fees at expiration.

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Old May 16th, 2012, 04:25 PM   #128 (permalink)
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Hi all,

I thought i would share my chart of Oct Sugar. I was wary of the downward movement but now it seems to be making a bottom and the Cummulative Volume Delta (lower pane) is showing bullish divergence. Today there was strong buying evident.

Brit

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Old May 19th, 2012, 08:03 PM   #129 (permalink)
Trading for Fun
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I can't believe I came across this thread. I've been unbeknownstly following in Ron's foot steps but I am a few years behind. I also read Cordier's book and have been selling options in two different optionXpress accounts. From reading this whole thread I can tell you I am currently learning some lessons that Ron learned a while back. I have a regular account that is doing really well but I have a self-directed IRA account in which I have made some mistakes mainly from being too impatient on entry and too stubborn before exiting. I currently have open positions in CL, LH, LC, NG, C, W, CC, SB and GC. I also plan for my wife and I to quit our jobs and get that house in the woods so we can watch the deer and turkeys while I trade.

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Old May 19th, 2012, 08:52 PM   #130 (permalink)
Market Wizard
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Favorite Futures: Options on Futures
 
Posts: 2,330 since Jul 2011
Thanks: 634 given, 3,910 received


Hi Raven,

Yep, the house in the woods is a good goal and then to enjoy when the trading day is over.

I too have self-directed IRAs (one for my wife and one for me through Millenium Trust) at OX. I trade those even more cautious than I do my regular account because if you blow that one up you just can't add unlimited money back into them. I usually do deltas of < 0.0100 on the options I sell in those accounts.

You have a nice diversity of commodities in your account.

Did you know that OX is switching from pit traded soft options to electronic traded options for the softs this summer? Sugar was switched last year but the rest are in the works.

Welcome to our small group.
Ron

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