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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,161 / 5,734
Last Reply:December 9th, 2016 (01:01 AM) Attachments:642

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Selling Options on Futures?

Old April 11th, 2013, 05:32 PM   #1301 (permalink)
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eudamonia View Post
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.

If I heard it right, the lady said she goes out: Index-100 and then less 12% of that number. So taking todays's close on the SPX, its 1593-100 = 1493. Then 12% of 1493 = 179.16; so look for selling around 1314 with 56 DTE. Take any instrument the ES, SPX, OEX or SPY and you won't even get 1% ROI/month. Thats what makes me want to look at her trades if she will share

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Old April 11th, 2013, 05:49 PM   #1302 (permalink)
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eudamonia View Post
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

Actually EWK31340P is the end of the month (EOM) ES options. But everything else you posted is correct.

I did find out today working on this that OX charges the same margin for the regular ES options for the weekly and EOM options. On some that is more or some less depending where the option you are selling is in relation to the regular ES option.

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Old April 11th, 2013, 05:52 PM   #1303 (permalink)
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Barrington View Post
If I heard it right, the lady said she goes out: Index-100 and then less 12% of that number. So taking todays's close on the SPX, its 1593-100 = 1493. Then 12% of 1493 = 179.16; so look for selling around 1314 with 56 DTE. Take any instrument the ES, SPX, OEX or SPY and you won't even get 1% ROI/month. Thats what makes me want to look at her trades if she will share

eudamonia's calculation and getting 2.1% for ES is correct.

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Old April 11th, 2013, 06:17 PM   #1304 (permalink)
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ron99 View Post
eudamonia's calculation and getting 2.1% for ES is correct.

Oh! OK so you go only 10% OTM.

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Old April 11th, 2013, 06:22 PM   #1305 (permalink)
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Barrington View Post
Oh! OK so you go only 10% OTM.

Sorry, it works out to around 16% OTM at today's SPX close of 1593!

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Old April 11th, 2013, 06:32 PM   #1306 (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.

Please cross post in the master homework thread:
https://futures.io/elite-circle/20164-master-homework-statistics-thread.html

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Old April 11th, 2013, 06:33 PM   #1307 (permalink)
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I worked through getting a more real life accurate ROI% for selling options.

Using that 2.1% from the prior example.

Reducing the cash excess the last 14 days from 2X to 1X at 14 days (if the option is still far OTM) and then 0X at 7 days reduces the excess factor from 2X IM to 1.4. That turns the 2.1% into 2.8%.

The margin drops off when the option gets closer to expiration (as long as futures don't go the wrong way) Assuming flat futures, the margin will average 65% of the IM at 56 days (calculated using SPAN for ES options weekly and EOM). That turns the 2.8% into 3.8%.

Compound the 3.8% monthly and in a year that equals 56.4%.

So 2.1% sounds low but 56% sounds real good to me.

The real life formula now is

option premium-fees / (IM*.65*2.4) / DTE *30

This gives you monthly ROI%. Then this number needs to be compounded for a year. I did that using a spreadsheet table. (is there a way to do that in a formula?)

Does that calculation look correct?


Last edited by ron99; April 11th, 2013 at 07:54 PM. Reason: changed the word margin in 3rd paragraph to cash excess
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Old April 11th, 2013, 06:34 PM   #1308 (permalink)
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ron99 View Post
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.

I compare selling options on commodities to the risk of taking a tiger for a walk in the park but I would say that selling options on the ES is like kissing the tiger in the mouth......

I remember the day in 1987 when the Dow came down like 700 points in a few hours (if I remember correctly, the Dow at the time was around 2.000. Something like 35%. It would mean a drop of 5.000 points today).

When stocks come down they REALLY COME ALL DOWN. A frenzy.


That was the last day I sold options until a year ago. I will never sell or buy anything related to stocks.

My best to all of you.
Alfredo E.

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Old April 11th, 2013, 06:41 PM   #1309 (permalink)
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alfredoe View Post
I compare selling options on commodities to the risk of taking a tiger for a walk in the park but I would say that selling options on the ES is like kissing the tiger in the mouth......

I remember the day in 1987 when the Dow came down like 700 points in a few hours (if I remember correctly, the Dow at the time was around 2.000. Something like 35%. It would mean a drop of 5.000 points today).

When stocks come down they REALLY COME ALL DOWN. A frenzy.


That was the last day I sold options until a year ago. I will never sell or buy anything related to stocks.

My best to all of you.
Alfredo E.

Days like that have only happened what, twice in 50 years? You would never trade at all if you are worried about events like that.

And they happen in commodities too. Check out LC during the mad cow scare 2003.

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Old April 11th, 2013, 07:03 PM   #1310 (permalink)
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Barrington View Post
Sorry, it works out to around 16% OTM at today's SPX close of 1593!

We were using 250 down to cover the max 240 drop.

Margins are calculated based on the prior days' close. So using the 1582.75 ES settlement for 4/10 her formula would be 1305. Margin for a EWk31305p is 372. Premium at the start of today was $40. ROI% is 1.9. But this is 50 DTE.

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