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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,857 / 5,727
Last Reply:11 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old April 11th, 2013, 07:04 PM   #1311 (permalink)
10 out of 10
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ron99 View Post
I worked through getting a more real life accurate ROI% for selling options.

Using that 2.1% from the prior example.

Reducing the margin 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?

Thanks for putting together that calculation. I had suspected that things worked that way. I think these calculations are approximately correct. Also keep in mind that Karen said that in 2012 she "only" made 30% in the first 3 quarters which was due to lower current volatility. The crazy returns were made during 2009 and 2011 according to the 2nd video you posted.

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Old April 11th, 2013, 08:31 PM   #1312 (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.

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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.

Ron....You read my mind on what I was looking for and thinking about...So much that I haven't even been looking at much else lately ... I am looking at a trend following (re-entry with selling options) idea with the ES. That's some of what I previously mentioning as far as selling the weeklies. Still 'looking' but thanks again for looking back at this. I needed some 'safe zone' information.

I'm off to Colombia to see my lady all next week so I'll be out of the loop for a while. Hoping she gets her visa in the next few months. Still holding Silver puts and Crude calls that should expire worthless soon.

Hellofa line of thunderstorms heading through here tonight. Be safe everyone and trade well....

'Chris'

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Old April 11th, 2013, 08:39 PM   #1313 (permalink)
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ron99 View Post
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?

Ron:

Are you asking for the formula to do this in Excel?

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Old April 12th, 2013, 10:55 AM   #1314 (permalink)
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@ron99

My 0.005 NGM35C are taking some heat this morning but overall fundamentally not much has changed (bad weather seems to be the short term driver). I'm considering rolling these up to the NGN36C which would bring my delta down from 0.09 to 0.02. I'm not quite out of my buffer but likely with the margin increase tonight I will be. Thoughts?

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Old April 12th, 2013, 01:29 PM   #1315 (permalink)
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opts View Post
Ron:

Are you asking for the formula to do this in Excel?

Is there a formula for monthly compounding that can be put in one cell on excel?

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Old April 12th, 2013, 01:37 PM   #1316 (permalink)
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eudamonia View Post
@ron99

My 0.005 NGM35C are taking some heat this morning but overall fundamentally not much has changed (bad weather seems to be the short term driver). I'm considering rolling these up to the NGN36C which would bring my delta down from 0.09 to 0.02. I'm not quite out of my buffer but likely with the margin increase tonight I will be. Thoughts?

I put mine on 3/21. I had $696 excess ($348 margin). The margin as of today is up $143 and premium was down $20. So I am still riding it out.

But if you want to roll, that might work out. You need 4 Jul for each Jun. Margin is about the same

Next week's inventory will be an injection. Also spec longs will need to get out before May contract expires 4/26. That will create selling.

Spring will get here some day!

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Old April 12th, 2013, 01:40 PM   #1317 (permalink)
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ron99 View Post
Is there a formula for monthly compounding that can be put in one cell on excel?

Try this based off of the formula for future value.

=((1+A1)^12-1)

Just put your monthly ROI in cell A1.

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Old April 12th, 2013, 01:54 PM   #1318 (permalink)
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Favorite Futures: Futures options
 
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Posts: 310 since Jul 2010
Thanks: 299 given, 423 received


ron99 View Post
I put mine on 3/21. I had $696 excess ($348 margin). The margin as of today is up $143 and premium was down $20. So I am still riding it out.

But if you want to roll, that might work out. You need 4 Jul for each Jun. Margin is about the same

Next week's inventory will be an injection. Also spec longs will need to get out before May contract expires 4/26. That will create selling.

Spring will get here some day!

Thanks. I bought mine on 4/5. It's amazing what 2 weeks of extra time decay will do for you! Think I'm gonna roll it up.

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Old April 12th, 2013, 01:56 PM   #1319 (permalink)
Market Wizard
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Raven View Post
Try this based off of the formula for future value.

=((1+A1)^12-1)

Just put your monthly ROI in cell A1.

Thank you.

Real world ROI% with monthly compounding
=(1+ (option premium-fees / (IM*.65*2.4)) / DTE *30)^12-1

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Old April 12th, 2013, 04:01 PM   #1320 (permalink)
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A word of warning. When markets get crazy like they are today, margins could be raised by both the exchanges and the FCM/brokers. So keep plenty of excess right now.

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