Selling Options on Futures?

April 29th, 2013, 02:29 PM

ron99

IM @ OX $2,984.30. We use 2X for cash excess. Friday's settlement 0.95. 14 DTE for Friday. I'll use OX commissions and fees of 4.07.

((47.50-4.07) / (2984.30 x 3)) / 14 *30= 1.2% monthly ROI

Now I see it is bid at 1.90. If the margin does not go up by the same percentage as the premium today then ROI would be higher.

I haven't followed this enough to know how the margin would react today. Does the weekend time erosion make up for the increase in futures price today and margin doesn't increase? Or is it so close to ITM that the margin increases anyways?

Thank you for the walk through of the formula Ron, I appreciate it.

Margin on that strike is up from 2984.30 in your example to 3252.00 now and that strike is bid at 2.00. That brings up an interesting question about margin expansion in relation to price movement...that is why I was asking about whether PC-SPAN will calculate margin in different price scenarios...but you said it doesn't.

That increase with this strike's margin from when it was bidding .95 vs 2.00 was about 9% from 2984.30 to 3252. I haven't done any studies on this, but I have noticed that when I'm getting stopped, margin will have increased by about 750 - 1000 from the IM. I will be well out of the position by the time the IM is doubled.

I wonder if I modified that calculation to account for this, instead of IM x 3, it's something like IM x 30%, then the ROI for the strategy I'm using would be a little more representative.

Also, what is the "30" at the end of the calculation?

Thanks again

April 29th, 2013, 02:47 PM

The 30 gives you the monthly ROI. When you divided by 14 or the DTE that gave you the daily ROI.

So TOS changes margins during the day. OX doesn't. Or was TOS changing a higher margin than minimum from Friday.

Did that margin increase from where it was after Friday night but before this morning?

I just ran SPAN and it says margin is $3,007. I have no idea if the Trade Calc in OX is giving us the right margin.

April 29th, 2013, 02:49 PM

a266199

I wonder if I modified that calculation to account for this, instead of IM x 3, it's something like IM x 30%, then the ROI for the strategy I'm using would be a little more representative

Actually you would use 130% or 1.3 because you have to have 100% to cover the IM. Then you could add 30% for excess if that is what you use.

April 29th, 2013, 03:08 PM

ron99

Actually you would use 130% or 1.3 because you have to have 100% to cover the IM. Then you could add 30% for excess if that is what you use.

Yes, 130%...thanks...I actually thought of that after I hit send.

The margin in TOS updates in real time. I'm not sure if/what additional margin they tack on over exchange margin...but right now, that 1620 WK2 call is bid at 1.90 and margin is 3,237.00.

Ah, I see about the 30 and the month...thanks.

Any time I've calculated ROI, I just took the starting balance of my account - ending balance and divided the +/- by the starting balance.

Too bad I don't have historical margin values for all of my trades at entry...would like to see how it shakes out in your calculation.

Thanks again

April 29th, 2013, 03:25 PM

a266199

Yes, 130%...thanks...I actually thought of that after I hit send.

The margin in TOS updates in real time. I'm not sure if/what additional margin they tack on over exchange margin...but right now, that 1620 WK2 call is bid at 1.90 and margin is 3,237.00.

Ah, I see about the 30 and the month...thanks.

Any time I've calculated ROI, I just took the starting balance of my account - ending balance and divided the +/- by the starting balance.

Too bad I don't have historical margin values for all of my trades at entry...would like to see how it shakes out in your calculation.

Thanks again

Have you guys thought about selling spreads on the SPX? Right now the $1 spread on the 1620 Call expiring on 05/10 is bid at $1.20. That's $120 on $1,000 margin before commissions.

And the margin will not change no matter what, only the price of the call will increase/decrease. The MOST you lose is your $1,000 IF you don't get out of the trade in case it goes against you. Obviously, you will adjust/roll or just get out before your loss reaches the $1,000.

April 29th, 2013, 03:40 PM

To clarify, Buy the 1630 Call @1.10 and Sell the 1620 Call @2.35 (Yes the bid the just went up by 0.05).
The required margin will be $1,000 ($10 the difference between the strikes*100).

The reserve I hold would be $705 ($2.35*3 times) if my strategy is to get out when the price of the call doubles. The extra $2.35 is for the times when the price gaps up and I won't be able to cover exactly at 2 times the price.

The price of the call you bought will also increase but you need to have enough funds to FIRST buy back the sold option. You won't be allowed to sell the purchased option while your sell postion is open (or then you will have to put up the margin for a naked option).

April 29th, 2013, 04:10 PM

Barrington

To clarify, Buy the 1630 Call @1.10 and Sell the 1620 Call @2.35 (Yes the bid the just went up by 0.05).
The required margin will be $1,000 ($10 the difference between the strikes*100).

The reserve I hold would be $705 ($2.35*3 times) if my strategy is to get out when the price of the call doubles. The extra $2.35 is for the times when the price gaps up and I won't be able to cover exactly at 2 times the price.

The price of the call you bought will also increase but you need to have enough funds to FIRST buy back the sold option. You won't be allowed to sell the purchased option while your sell postion is open (or then you will have to put up the margin for a naked option).

The information you provide is interesting and bears further thought/discussion.

If I were to sell one vertical, 1620/1625 in SPX expiring in 11 days, the credit is .65 ($65) and the margin is $446.49 per spread (In TOS).

I understand my risk is the difference between the strike prices minus the premium received or, 1620 - 1625 = 5.00 * 100 = 500 then, 500 - 65 = 435 + comish for my risk.

You raise a good point about gaps...I take it that these options do not trade 24/5 like ES options do?

Also, what are the tax implications for trading SPX options vs options on futures? I like how I get one 1099 for my options on ES trades. What do you get for SPX options?

Are you actively trading spreads on SPX now? Could you also explain the calc you used with your reserve a little more?

This is interesting information...I'd like to hear more.

April 29th, 2013, 04:46 PM

Barrington

To clarify, Buy the 1630 Call @1.10 and Sell the 1620 Call @2.35 (Yes the bid the just went up by 0.05).
The required margin will be $1,000 ($10 the difference between the strikes*100).

The reserve I hold would be $705 ($2.35*3 times) if my strategy is to get out when the price of the call doubles. The extra $2.35 is for the times when the price gaps up and I won't be able to cover exactly at 2 times the price.

The price of the call you bought will also increase but you need to have enough funds to FIRST buy back the sold option. You won't be allowed to sell the purchased option while your sell postion is open (or then you will have to put up the margin for a naked option).

Surely your required margin is $1000 as you said above ( or 1000-125 received so $875 actually ), which is already more than your reserve of $705. Why would you need to add any more? This would equate to a 14% ROI, if successful

I am interested in learning more. There is also SPX futures options which is the daddy of and equal to 5 x ES contracts.
but as comparison the 1620 call premium is $237.50 but the margin on IB is a gargantuan $31,739 naked giving a 0.7% ROI

April 29th, 2013, 04:57 PM

eudamonia

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?

I haven't traded anything with hooves in quite some time. However, the bad weather and spike in grains may boost the meat futures. Ranchers are adding more wheat to their feed so it isn't just corn that is being held in the food mills. This may help your bullish thinking....check it.

April 29th, 2013, 06:37 PM

a266199

After I enter, the plan is to either let the contracts expire worthless or, if I take a loss, buy them back for 2X the average entry price.

When I first started, I had a rule that if I could realize 90% of the premium I sold on a monday/tuesday of the expiration week, I would close them. I have found that I have left money on the table doing that, so now, I just let them expire.

It really depends on what opportunities present themselves as to what I have on...right now, I'm flat.

On 4/17, I had 1465 puts and 1615 calls that I sold the week of 4/1 that were expiring on 4/19 and I also had 1465 puts that I sold on 4/15 that were expiring on 4/26. So, in that scenario, I had two positions in the same direction in two different expiration weeks.

The sell off on 4/15 didn't increase the premium received on the 1465s puts I sold the week of 4/1 (4/3 and 4/5 respectively) to the point to where I could add another bunch to that expiration week, so I initiated a new trade in the same strike for the following weeks' expiration.

Right now, stats show that there is a 75% probability that this weeks high in ES will be greater than the previous weeks high. If that does happen, the most common range extensions past the previous weeks high are 3 and 8 points respectively. The 70th percentile of range extension past the previous weeks high is 18 point.

So, if I'm going to think about selling calls, I am going to wait, at the very least, for this weeks high to break last weeks high by 3-8 points...and then I will start looking at WK2 call strikes.

On the put side, I like the 1440, 1465, 1475 strikes in general, but on this move up, they are obviously deflating...so, I'm not thinking about that right now. ES would have to start selling off for me to think about selling puts.

Not sure if that's more helpful or more confusing...sorry if it's more confusing.

a:

Where are you getting this from?? -> "Right now, stats show that there is a 75% probability that this weeks high in ES will be greater than the previous weeks high."

If that does happen, the most common range extensions past the previous weeks high are 3 and 8 points respectively. The 70th percentile of range extension past the previous weeks high is 18 point."

Thanks

Selling Options on Futures?

Discussion in Options

Selling Options on Futures?