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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,971 / 5,727
Last Reply:22 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old April 15th, 2013, 12:29 PM   #1341 (permalink)
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ron99 View Post
OX raised GC margins from 20% over SPAN to 30% over. SI from 10% to 20%. NG from 20% to 30% over.

I'm not in any GC at the moment but I'm really curious as to how folks might handle a major move like this if they were in GC puts. Obviously having free cash for margin is adviseable.

I haven't dug much into the fundamentals but from a technical perspective GC broke down out of a significant sideways channel on a weekly timeframe. The next support level on the weekly is the 1300/20 area. Beyond that is the 1250 area which is an approximate 50% retracement from the August 2011 high/October 2008 low.

Also it seems interesting to me that we are at the top of a major multi-month channel on the US dollar and approaching the 2007 highs in the S&P.

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Old April 15th, 2013, 01:31 PM   #1342 (permalink)
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britkid99 View Post
To anyone interested, I am trying to sell off my remaining LONG May CL 78 Puts which were cover for a calender.
Got 3 away at 0.04 today and have orders in for 1 @ 0.05 and 2 @ 0.09

Thought these were doomed to expire worthless but drop in CL has sparked some interest.
Pretty good returns with just 2 more days left?

Have I traded with you again Ron? Anyway watch out if interested.

I'm not buying CL puts right now.

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Old April 15th, 2013, 01:36 PM   #1343 (permalink)
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eudamonia View Post
I'm not in any GC at the moment but I'm really curious as to how folks might handle a major move like this if they were in GC puts.


Funny you should post this, because I was thinking this Gold plunge would be a great case study for selling options.

If I can get the right data (I asked Ron for help with some of it), I'll put together a story of Gilbert Goldoptionseller, my friend who sold a couple of Gold Puts at Thursday's close...

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 15th, 2013, 01:43 PM   #1344 (permalink)
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I thought so.


Quoting 
The gold futures markets opened in New York on Friday, April 12 to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract (see below) in what proved to be only an opening shot. The selling took gold to the technically very important level of $1,540 which was not only the low of 2012, it was also seen by many as the level that confirmed the ongoing bull run which dates back to 2000. In many traders’ minds it stood as a formidable support level... the line in the sand.

Two hours later the initial selling, rumored to have been routed through Merrill Lynch's floor team, was followed by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market — it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' — would seek to gain further momentum by prompting others to also sell their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance — probably hidden beneath the unimpeachable $1,540 level.

The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able to feel the impact. The estimated 400 tonnes of gold futures selling in total equates to 15% of annual gold mine production — too much for the market to readily absorb, especially with sentiment weak following gold's nonperformance in the wake of Japanese QE, a nuclear threat from North Korea and weakening U.S. economic data. The assault to the short side was essentially saying "you are long... and wrong."

Gold crushed by 400 tonnes or $20 billion of selling

That's 134,000 GC futures contracts sold requiring 804 million dollars of margin.


Last edited by ron99; April 15th, 2013 at 01:53 PM.
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Old April 15th, 2013, 07:27 PM   #1345 (permalink)
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Futures Edge on FIO

Are you a NinjaTrader user?

 
Just as I thought. GC & SI margins going up 19% on Wed.

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Old April 16th, 2013, 03:29 AM   #1346 (permalink)
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Ron,

Given how the implied volatility has gone up on both /CL and /GC why would you not consider selling deep OTM calls now then get out when things settle down?

Just asking for my ongoing education.

Thanks

V



ron99 View Post
What he said. It's a week too late to be selling calls.


I'd like to add a few thoughts and curious what you think.

Early yesterday was obviously a much better spot to to take a short call position in /GC but for the this discussion lets assume the position was put on sometime today or even tomorrow.

Why sell the 1820 calls when the 1600's have a 95%+ probability of expiring worthless.

With such a significant break on huge volume there is also new information that makes a push back above 1500 much less likely.

Margins went up but so did implied volatility and premiums. So if /GC does grind higher after the short call position is on volatility would likely contract from these extremes hedging the delta loss nicely and letting theta do its thing. A down day or two at some point and the position is very nicely profitable.

Just too much volatility not to sell and who really want to be short puts here?

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Old April 16th, 2013, 07:36 AM   #1347 (permalink)
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ron99 View Post
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.

...

Does that calculation look correct?

I wasnít able to get 1.4x excess, I must have misunderstood something. Can somebody check this calculation, please.

If we use 2x excess until 14 DTE, then 0x excess from day 7 until expiry and if the entry was at 56 DTE we would have:
56-14 days x 2 = 84
14-7 days x 1 = 7
7-0 days x 0 = 0
And the average excess would be (84 + 7 + 0) / 56 = 1.625

So thatís ( (DTE Ė 14 x 2) + (7 x 1) + (7 x 0) ) / DTE

It gives 1.65 excess at 60 DTE, and 1.58 excess at 50 DTE etc

Chris

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Old April 16th, 2013, 10:27 AM   #1348 (permalink)
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MGBRoadster View Post
I wasnít able to get 1.4x excess, I must have misunderstood something. Can somebody check this calculation, please.

If we use 2x excess until 14 DTE, then 0x excess from day 7 until expiry and if the entry was at 56 DTE we would have:
56-14 days x 2 = 84
14-7 days x 1 = 7
7-0 days x 0 = 0
And the average excess would be (84 + 7 + 0) / 56 = 1.625

So thatís ( (DTE Ė 14 x 2) + (7 x 1) + (7 x 0) ) / DTE

It gives 1.65 excess at 60 DTE, and 1.58 excess at 50 DTE etc

Chris

I had used a log scale calculation when I came up with 1.4. So the excess wasn't strictly dropping at 14 DTE and 7 DTE. It was a more gradual drop.

That more matches what I do because there are some options that I drop the excess sooner because I am so far OTM. For example, ESj3 1200p I moved to 1X excess at 24 DTE and zero excess at 14 DTE. Using 60 DTE that gives you 1.37.

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Old April 16th, 2013, 10:33 AM   #1349 (permalink)
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OX jacked up GC margin to DOUBLE SPAN minimum. I suspect IB jacked it up too.

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Old April 16th, 2013, 10:45 AM   #1350 (permalink)
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Yep, IB is raising margin on the metals.

Mac

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