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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,925 / 5,728
Last Reply:15 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old April 27th, 2013, 08:52 AM   #1471 (permalink)
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ron99 View Post
Here is an example of how not to trade (I got lucky and made a profit anyway. But I broke all my rules).

On 1/15/13 I sold 20 Ck3 600p for 2.000. On 3/21 they were down to the bottom, 0.125. I should have traded out by at least then. But I kept them on because I figured the corn price was over 7.25 and I can make the last bit of premium by waiting.

Well the grain report came out, corn crashed, and the premium jumped to a peak of 3.625. Losing money then and huge margin increase.

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.


What made you break your rules and keep those options, after the jump in premium? In hindsight, it was a good decision, but at the time, it had to be a little scary to violate your rules and stay in a trade that could have gone a lot more against you...

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Old April 27th, 2013, 09:18 AM   #1472 (permalink)
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seemasp View Post
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


This is the one issue that I am trying to determine if selling weekly options on the ES is a worthy prospect...not much premium for the OTM options and the inherent risk of a big drop in one or two days. Yes, risk is part of trading, but this might be too much risk. I have been thinking about 20 or 30 DTE and then waiting for a few down days in a row within those 20 or 30 days then sell....let the market drop and deflate itself somewhat so in the event this drop is the start of a larger move then a certain % of the total move has already happened.

Going to try to build on that for a while....

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Old April 27th, 2013, 09:24 AM   #1473 (permalink)
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opts View Post
This is the one issue that I am trying to determine if selling weekly options on the ES is a worthy prospect...not much premium for the OTM options and the inherent risk of a big drop in one or two days. Yes, risk is part of trading, but this might be too much risk. I have been thinking about 20 or 30 DTE and then waiting for a few down days in a row within those 20 or 30 days then sell....let the market drop and deflate itself somewhat so in the event this drop is the start of a larger move then a certain % of the total move has already happened.

Going to try to build on that for a while....


I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.

So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.

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Old April 27th, 2013, 10:56 AM   #1474 (permalink)
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kevinkdog View Post
I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.

So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.


Exactly.....I'm thinking look at the options listed every month. Wait for some kind of move down within the first 5 days??? to remove some downside (threat) action. If there is no move to the downside then wait until the next month.

Just kicking around ideas here .... suggestion welcome...

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Old April 27th, 2013, 11:45 AM   #1475 (permalink)
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kevinkdog View Post
What made you break your rules and keep those options, after the jump in premium? In hindsight, it was a good decision, but at the time, it had to be a little scary to violate your rules and stay in a trade that could have gone a lot more against you...

Fundamentals and the thinking that the drop from the report was overdone and the futures would rebound. Grain carryover to the next crop year is very low.

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Old April 27th, 2013, 12:25 PM   #1476 (permalink)
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kevinkdog View Post
I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.

So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.

Looking at the May week 1 ES weeklies, if you go to 10 days before expiration, Apr 23rd, a .02 delta is 1465. It settled that day at 0.55. That was only 90 away from the futures price.

The margin on Apr 23rd was $2146. Monthly ROI is only 1.2%.

But if you look at my largest drop table for 10 days, there are several times in the last 5 1/2 years when the futures dropped 160-180 (ignoring Dec 2008) in 10 days. That puts this option ITM.

So the question is, can you get out and not have a large loss when the market goes against you? And do the gains more than offset the losers? And is the ROI good enough to do this vs something else?

I'd rather sell Sep 300 KC calls and make 6+% per month ROI. Far, far less chance of being knocked out of them at a loss than weekly ES. But some people get bored with that and that is OK.

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Old April 27th, 2013, 05:08 PM   #1477 (permalink)
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ron99 View Post
Looking at the May week 1 ES weeklies, if you go to 10 days before expiration, Apr 23rd, a .02 delta is 1465. It settled that day at 0.55. That was only 90 away from the futures price.

The margin on Apr 23rd was $2146. Monthly ROI is only 1.2%.

But if you look at my largest drop table for 10 days, there are several times in the last 5 1/2 years when the futures dropped 160-180 (ignoring Dec 2008) in 10 days. That puts this option ITM.

So the question is, can you get out and not have a large loss when the market goes against you? And do the gains more than offset the losers? And is the ROI good enough to do this vs something else?

I'd rather sell Sep 300 KC calls and make 6+% per month ROI. Far, far less chance of being knocked out of them at a loss than weekly ES. But some people get bored with that and that is OK.

I agree....I might be beating a dead horse here....

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Old April 28th, 2013, 12:47 AM   #1478 (permalink)
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ES Options

The one key for me (and others that I know to be using this strategy) is to be patient and wait for ES to make a move. I definitely find myself frustrated during times of low volatility. There have been times where I've wanted to enter, but didn't.

ES typically balances no more than 3-4 days before vertical price discovery...that could be up or down. Volatility really expands a lot as price moves down, so much so that on 4/18, 1420 puts expiring on 4/30 (EOM) were bif for 2.00. On that day, ES was at about 1532...that's 110+ points.

While it certainly can happen, it's not likely that ES is going down in a straight line in 12 days to 1420 after coming from 1593. That would be a 173 point move in 12 days. But if it did happen, and I was in that trade, I would have been happy to take the loss on it. I'm fine with that.

It has been interesting to me to read through this thread and to hear of everyone's rules. I can see the advantages of just picking a delta and selling strikes that have that delta while making sure you have enough margin to account for 2X the initial margin upon entry...

While my percentage gains may not be as impressive as some others on the board, with my selective entries, in 8 months, my account is +23.76%...not setting the world on fire, but anything > 0 is a win.

I will be interested to see how this thread evolves through time and hope that people keep posting to keep it going.

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Old April 28th, 2013, 08:58 PM   #1479 (permalink)
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a266199, how many trades in the 8 months? What percent winners?

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Old April 28th, 2013, 10:50 PM   #1480 (permalink)
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My thoughts on Live Cattle:

1) Typically the seasonal turn is mid-May to mid-June.
2) Fundamentally demand spikes up during the 2nd quarter; however, prices are tempered due to heavy production
3) This year we have the smallest amount of production in 13 years.

August Live Cattle puts at 106 are 0.01 delta and are about 3% ROI. Thoughts?

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