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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 26th, 2013, 05:25 PM   #1461 (permalink)
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opts View Post
I do plan on selling on the ES with the 54 DTE per the 'video' but I still see more weakness in this market. I plan on watching the 54 DTE numbers and the 100 points away plus 12% from that which is now about the 1300 strike per the June contract.

Given my murky crystal ball indicator the 1300 should gain value per the weakness. Right now the BID is 1.00 = $50. I'll monitor things next week and if things continue to drop I'll either sell further out or stick with the 1300 for extra premium. I'd rather stay with the 1300 since that is the 'rule' more or less. Monday will be 54 DTE so we'll see...

Watch out for "sell in May and go away". There have been large drops in ES in May the last 3 years. Of course it may not happen this year, but be careful.

The DTE from the video was 56, 8 weeks. If you are doing those I would be selling at 57-58 DTE so that you catch the weekend time erosion of the premium.

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Old April 26th, 2013, 06:09 PM   #1462 (permalink)
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a266199 View Post
That's a good question...I think the only thing to do is what everyone else is doing...If you have an opportunity to cover at your stop price, you have to do it...if it goes past your stop...exit when/how you can.

Wait for some of the dust to settle and then re-initiate a new position much further OTM.

At least, that's my take.

Taking loss per plan may work if you are at desk and watching the market. But not for persons with Job/other occupation. Also the flash crash is speedy (with in 10-15) minutes and so even checking the market few times a day would not work...

Main question is how to protect the account from that risk and still earn decent return? Once broker has liquidated the account/positions (or you have taken stop loss of 20-30 times premium) there may not be much left in account to recover....

Thanks.

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Old April 26th, 2013, 06:33 PM   #1463 (permalink)
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ron99 View Post
Watch out for "sell in May and go away". There have been large drops in ES in May the last 3 years. Of course it may not happen this year, but be careful.

The DTE from the video was 56, 8 weeks. If you are doing those I would be selling at 57-58 DTE so that you catch the weekend time erosion of the premium.

Thanks my friend...Yes, I agree. Waiting for the weakness....

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Old April 26th, 2013, 06:40 PM   #1464 (permalink)
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Here is my updated table of gains and losses for ES that includes a 10 day span.

The 10 day and 90 day tables started on Nov 1st for the March contract. Feb 1st for June contract. May 1st for Sep contract. Aug 1st for Dec contract.

The 56 day table started one month later.

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Old April 26th, 2013, 07:57 PM   #1465 (permalink)
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ron99 View Post
I ignored my rules for getting out and kept them. Corn stayed above 6.28. The options just did expire OTM.

Lesson here is take the profit and don't try to squeeze the last penny out of the trade.

hi ron,

i have definitely read this thread but no doubt i have forgotten/misread some posts...on that note, if you dont mind sharing, what are your rules for exiting pre-expiry?

iirc the majority of your trades are left to expire.

thks.

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Old April 26th, 2013, 08:05 PM   #1466 (permalink)
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If when you put on a trade and the margin is 500 you should have 1000 cash excess.

If the loss on the premium plus the increase in margin wipes out your $1000 cash excess it is time to give up on that trade.

I'm switching and probably I will now get out early on 50% of my options. Depends on when the option goes to the lowest price possible and whether the ROI for keeping it to expiration is worth it. And if I can get out at a reasonable price.

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Old April 26th, 2013, 08:22 PM   #1467 (permalink)
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ron99 View Post
If when you put on a trade and the margin is 500 you should have 1000 cash excess.

If the loss on the premium plus the increase in margin wipes out your $1000 cash excess it is time to give up on that trade.

I'm switching and probably I will now get out early on 50% of my options. Depends on when the option goes to the lowest price possible and whether the ROI for keeping it to expiration is worth it. And if I can get out at a reasonable price.

yep, i know the 67/33 bit......just didnt know you had a stop target limit, as well as a stop loss.

and good point, if the ROI is close to say c90% (my subjective measure) of expected total ROI with a certain amt of DTE left then perhaps close out / else accept a possible large amt of risk for a v small payout.

loads to think about.

will be signing up for the webinar!

(p.s. and will set up a weekly thread over the weekend)

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Old April 26th, 2013, 11:48 PM   #1468 (permalink)
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Taking loss per plan may work if you are at desk and watching the market. But not for persons with Job/other occupation. Also the flash crash is speedy (with in 10-15) minutes and so even checking the market few times a day would not work...

Main question is how to protect the account from that risk and still earn decent return? Once broker has liquidated the account/positions (or you have taken stop loss of 20-30 times premium) there may not be much left in account to recover....

Thanks.

If you are worried a crash, you could always put on credit spreads. You won't get the same premium as naked positions, but the margin will be less, so you could sell more credit spreads...but when you sell more, the loss could be more as well (difference between strike prices minus premium received * # of spreads sold)...a lot of different ways to skin the cat, but just be sure that whatever the risk is, you are comfortable with it and losing the full boat on the trade before you place it.

I agree that there is always the chance of a flash crash...I remember watching it and wondering what the hell was going on...I wasn't in the market at the time, but remember the free fall.

While we have no idea what will happen in the market, all I can do is play the probabilities of certain things happening or not...while I know it can happen, I do not think it is likely ES will be -100 points next week...but that doesn't change the fact that it could happen.

Are you trading options? If yes, what product(s) are you trading them on and what is the strategy you are using?

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Old April 27th, 2013, 01:17 AM   #1469 (permalink)
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Bare with me on this one

I'm under the impression that a 25% move within 30 days would be more profitably capitalized on with a "strike price spread" of options - even if you bought two months out, or exercised with only a couple days left till expiration when buying one month out.

Absent there being options software to back test what would have happened if you made those trades - I cant be sure and have no context - not even being clear on the impact of exercising vs selling, how it differs from equities to futures contracts, ect.

Is it irrational to not let a broker optimize the orders b/c they can't give an exact figure either?

Thanks. Enjoy the weekend.

"Be right and sit tight." - Jesse Livermore

Last edited by whatnext; April 27th, 2013 at 01:21 AM. Reason: Grammar
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Old April 27th, 2013, 02:14 AM   #1470 (permalink)
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a266199 View Post
If you are worried a crash, you could always put on credit spreads. You won't get the same premium as naked positions, but the margin will be less, so you could sell more credit spreads...but when you sell more, the loss could be more as well (difference between strike prices minus premium received * # of spreads sold)...a lot of different ways to skin the cat, but just be sure that whatever the risk is, you are comfortable with it and losing the full boat on the trade before you place it.

I agree that there is always the chance of a flash crash...I remember watching it and wondering what the hell was going on...I wasn't in the market at the time, but remember the free fall.

While we have no idea what will happen in the market, all I can do is play the probabilities of certain things happening or not...while I know it can happen, I do not think it is likely ES will be -100 points next week...but that doesn't change the fact that it could happen.

Are you trading options? If yes, what product(s) are you trading them on and what is the strategy you are using?

I had considered credit spreads but as you mentioned the return is even lower and so not worth to me...

Regarding my strategy, it is kind of similar but on little longer term, like wait for ES to go down few days then sell options with 30-40 day expiry and about 2 significant support out (on weekly charts - so usually they are about 150-200 points away). I had sold weekly before but got burnt and in my personal experience I find it more profitable to buy weekly options rather than selling them...I know this thread is about selling options but it is just that I could not find a way to control risk on weekly options that is acceptable to me and that is why I am asking for any thoughts/ideas for that.....

I am still on board for selling longer term and deep OTM options with preparedness to delta hedge or roll further....

Thank you

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