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Selling Options on Futures?
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Selling Options on Futures?

  #1291 (permalink)
Market Wizard
Cleveland, OH
 
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I did some research on largest gains and drops for ES. This table shows the largest drops and gains within a 56 day period for the last 7 years.

What I did was start at the first day of the month when the prior contract was expiring. Then I checked the next 55 days' settlements to find the highest price and lowest price. I did this for all days for that contract until there were 56 DTE. I then found the largest drop and gain for that contract.

For example, the first line is Mar ES 2007. In includes Dec 1st, 2006 (about when this contract is gaining volume) thru Jan 20th, 2007. Jan 20th is the 56th DTE. I then performed these calculations on each of those dates.

Min(day 2 thru day 56)-price day 1.
Max(day 2 thru day 56)-price day 1.

So in other words, if you put on contracts each day from Dec 1st to Jan 20th this shows the worst day for a put or a call.

I then found the largest drop and the largest gain for all of those dates to give me those numbers for that contract.

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If you throw out the anomaly of 4th quarter 2008, the largest drop was 240.50. Which is interesting because Karen from the You Tube video was selling S&P puts 250-270 OTM. Just outside the largest drop.

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  #1292 (permalink)
Market Wizard
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Switching back to coal because of higher NG prices is already happening.


Quoting 
Natural gas used to generate electricity so far this year is below the high level during the comparable 2012 period, when low natural gas prices led to significant displacement of coal by natural gas for power generation. In early 2013, coal recovered some market share as natural gas prices rose. By late March, wholesale natural gas prices at the Henry Hub trading center were back to $4 per million British thermal units (MMBtu). In response, electricity generators used 16% less natural gas this March compared with March 2012.
...
March 2013 natural gas consumption in the electric power sector averaged almost 3.5 Bcf per day below March 2012, a 16% decrease.

Year-to-date natural gas use for electric power generation is down from 2012 - Today in Energy - U.S. Energy Information Administration (EIA)


Quoting 
Coal use in the power generating sector was up 14.2% in the first quarter 2013 versus the same time a year earlier, the EIA estimates.

NG may be higher now, but it shouldn't be going much higher because of the reduced use by power plants.

Also analysts are comparing NG inventory now with the 5 year average. But the 5 year average is artificially inflated by last year's record inventory.

Stocks right now are 1,673. The 5 year average is 1,739. But the 5 year average before last year was 1,567. So this year is still 106 higher than a more normal 5 year average.

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  #1293 (permalink)
Trading Apprentice
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That's a great study ron, thanks! What insights did you gain when you took a look at the data?

Mac

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  #1294 (permalink)
Market Wizard
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mackg867 View Post
That's a great study ron, thanks! What insights did you gain when you took a look at the data?

Mac

It confirms me selling ES puts more than 250 OTM. It also confirms that you really can't sell ES calls because if you go more than the largest gains of 200, there is very low premium and a very low ROI% at those strikes.

Remember that you need to be further out than 250 because if it drops 250 you will be forced out by increased margin even though you aren't ITM.

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  #1295 (permalink)
Market Wizard
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If you type "selling options on futures" into a google search, the number one listing is this thread.

Cool!

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  #1296 (permalink)
Trading Apprentice
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Interesting. I have seen some funds that avoid selling calls in lieu of selling puts with some sort of short delta position for protection. Seems to be right in line with what you concluded.

Mac

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  #1297 (permalink)
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I just had a chance to review those videos you posted a few pages back. Pretty amazing.

One thing that Karen mentioned in the 2nd video was that once a position moved from approximately 5% chance of ITM to 30% chance of ITM she would start looking at it more closely and adjust if needed. One of the adjustments she mentioned was rolling the position out to a further month.

Any thoughts on the value of doing this? I assume the purpose of this is to get the trade further out and buy time for a fundamental driven theory to play out. Seems to me this would make sense only if the long-term big picture supported it.

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  #1298 (permalink)
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ron99 View Post
I did some research on largest gains and drops for ES. This table shows the largest drops and gains within a 56 day period for the last 7 years.

What I did was start at the first day of the month when the prior contract was expiring. Then I checked the next 55 days' settlements to find the highest price and lowest price. I did this for all days for that contract until there were 56 DTE. I then found the largest drop and gain for that contract.

For example, the first line is Mar ES 2007. In includes Dec 1st, 2006 (about when this contract is gaining volume) thru Jan 20th, 2007. Jan 20th is the 56th DTE. I then performed these calculations on each of those dates.

Min(day 2 thru day 56)-price day 1.
Max(day 2 thru day 56)-price day 1.

So in other words, if you put on contracts each day from Dec 1st to Jan 20th this shows the worst day for a put or a call.

I then found the largest drop and the largest gain for all of those dates to give me those numbers for that contract.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


If you throw out the anomaly of 4th quarter 2008, the largest drop was 240.50. Which is interesting because Karen from the You Tube video was selling S&P puts 250-270 OTM. Just outside the largest drop.

Great research Ron! What kind of margin is OX charging for ES puts? Following the above formula(Karen's), the puts I get are about 2500 IM each at IB. That's for apx 80-100$ premium.
A very interesting and simple plan , but at 2500IM is there enough return?

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  #1299 (permalink)
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Mark59 View Post
Great research Ron! What kind of margin is OX charging for ES puts? Following the above formula(Karen's), the puts I get are about 2500 IM each at IB. That's for apx 80-100$ premium.
A very interesting and simple plan , but at 2500IM is there enough return?

As stated a few times on the thread IB doesn't give competitive margin rates anywhere near the CME SPAN rate. To emulate Karen's method as closely as possible I went out 50 DTE (close as I could get to 56 DTE) and down 250 points from today's close.

This would be the EWK31340P (3rd week of May on the ES at 1340). The margin for this put is $471.90 at OX, the premium is $57.50 and the delta is 0.02.

Of course this is a pretty poor time to pick up puts (with the market grinding up) so the return is about 2.1% ROI per month (not amazing). But you could easily pick up quite a bit more premium by waiting for the market to go down a bit first.

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  #1300 (permalink)
Market Wizard
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Futures Experience: Advanced
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Favorite Futures: Options on Futures
 
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Mark59 View Post
Great research Ron! What kind of margin is OX charging for ES puts? Following the above formula(Karen's), the puts I get are about 2500 IM each at IB. That's for apx 80-100$ premium.
A very interesting and simple plan , but at 2500IM is there enough return?

OX is SPAN minimum for ES. I suspect that competition from other brokers is why they have never been above SPAN minimum that I know of.

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