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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,812 / 5,727
Last Reply:7 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old April 29th, 2013, 10:03 PM   #1501 (permalink)
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opts View Post
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

I run my own stats. I have a DB that has 322 weeks of data in it.

I use volume profiling and auction market theory for the basis of my market analysis. I have taken daily levels and took them to a larger time frame to create stats for what I trade on the weekly time frame

When the current week opens in the range of the previous week and is > the previous weeks' volume point of control (132 times), the current weeks' high is > the previous weeks' high (99 times), which equated to 75% of the time.

From there, I look at what those 99 weeks did in relation to the previous weeks levels. What is the most common extension past the previous weeks high? What is the edge of the first standard deviation? (68.4%)

Today, ES breached the previous weeks high and the HOD was 4 point higher than the previous week's high. Right now, unless something happens tomorrow, I will likely wait until Wednesday to initiate a trade. Tomorrow is likely to be balanced while participants await what the Fed has to say Wednesday.

Do you run stats or have a database?

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Old April 29th, 2013, 10:41 PM   #1502 (permalink)
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a266199 View Post
I run my own stats. I have a DB that has 322 weeks of data in it.

I use volume profiling and auction market theory for the basis of my market analysis. I have taken daily levels and took them to a larger time frame to create stats for what I trade on the weekly time frame

When the current week opens in the range of the previous week and is > the previous weeks' volume point of control (132 times), the current weeks' high is > the previous weeks' high (99 times), which equated to 75% of the time.

From there, I look at what those 99 weeks did in relation to the previous weeks levels. What is the most common extension past the previous weeks high? What is the edge of the first standard deviation? (68.4%)

Today, ES breached the previous weeks high and the HOD was 4 point higher than the previous week's high. Right now, unless something happens tomorrow, I will likely wait until Wednesday to initiate a trade. Tomorrow is likely to be balanced while participants await what the Fed has to say Wednesday.

Do you run stats or have a database?

Yes. I do some general stats using Excel at work. OptXpress has a probability calculator/graph but it is limited when looking at price. The next question is a viable source of price history data. What historical data vendor do you use?

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Old April 29th, 2013, 10:56 PM   #1503 (permalink)
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opts View Post
Yes. I do some general stats using Excel at work. OptXpress has a probability calculator/graph but it is limited when looking at price. The next question is a viable source of price history data. What historical data vendor do you use?

I use Sierra Chart for charts and data from the TT - Fix adapter. TT stands for Trading Technologies. When I first started with SC/TT-Fix, I built my own ES contract by combining all of the historical contracts for ES and then adjusting each of them accordingly at their rollover dates.

From that point forward, every day adds a new day of data to the file. So, this file is mine that I've built and accumulated and goes back to April of 2006.

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Old April 29th, 2013, 11:19 PM   #1504 (permalink)
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Roger that...

I started kicking around the notion of a weekly option selling strategy, or at least a net credit if there is a buy side, on the ES a few weeks back. Since the premiums on the calls can be a lot lower vs. the puts I started to think about selling the calls with 2 weeks to exp. and the puts with 1 week to exp. But, the puts may have to be a little close for that short amount of time left. I think the majority of people selling here are more adept to the 30, 40 DTE which I am part of also but if I could fine tune a method that is specific to one instrument such as the ES then I'd rather go that route....the brain churn continues......

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Old April 30th, 2013, 02:16 AM   #1505 (permalink)
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a266199 View Post
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?

No, SPX options trade regular market hours; M-F

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?

The SPX options get the special Section 1256 treatment which enables the investor to have 60% of a gain as long term, and the other 40% treated as short term even if the position is held for less than a year. Since I trade spreads only in my IRA, I don't get any 1099. But thatís what you would get if you trade in a taxable account

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

Yes have been actively trading credit spreads on weeklies for more than a year. This year haven't done as much volume as last year because it needs constant monitoring and this year had to be away quite a bit.

Well, if my strategy is to exit when the sold option doubles in value then I keep three times the amount of the selling price. In the above example the Call is sold @2.35, so will exit if it increases to 4.70. But keep $7.05 (2.35*3) as reserve in case the price gaps up and am not able to buy it back at 4.70. Also, the other side of the spread thats the option purchased will also increase in value (except its only a day to expiration) reducing the overall loss. I always close out the long option at the same time, too and take whatever I can get instead on letting it stay open in hope of it further increasing in price. Of course, if its worthless and then I don't close it since it saves on the commission.


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

I usually do the 10 points spread, as I find it optimal - most credit for the margin required.

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Old April 30th, 2013, 02:29 AM   #1506 (permalink)
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britkid99 View Post
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

The $1,000 margin is held in reserve and is not available for trade. Also, you need to have $1,000 in cash before you put on the trade. If you want to buy back the sold option that $1,000 is not available; its held till the option expires or is closed. Thats the case at least, at my brokerage house, maybe different at other brokerage houses.

Similarly, you can't sell the long option to fund the purchase of the short option since the long option is the anchor for the spread. Hence, even if the long option has increased in value it doesn't help if you want to close or roll over the short option.

If you don't have the cash or the option price gaps up and stays beyond your cash reserve, you just wait till expiration and lose the $1,000 since the SPX options are cash settled, there is no delivery of shares. Thats the reason I do it in my IRA since I can't add cash beyond the annual limit or borrow money in the IRA. So in case of major movement against my position, I don't have to worry about blowing up my IRA


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

IRA = Retirement Account

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Old April 30th, 2013, 11:03 AM   #1507 (permalink)
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Ahhhhhh....credit spreads on the SPX.....this is getting good.


Not that this thread wasn't good already....

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Old April 30th, 2013, 11:40 AM   #1508 (permalink)
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Hey guys, I want to hear more about your experiences trading ES and SPX credit spreads.......Good stuff

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Old April 30th, 2013, 03:58 PM   #1509 (permalink)
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NG production is rising with the higher prices.

Quoting 
DJ EIA: U.S. February Lower 48 States Natural Gas Output Up 1.3% Vs Revised January Level
By David Bird

NEW YORK--Natural-gas output in the lower 48 U.S. states rose 1.3% in
February from an upwardly revised January figure, to 73.22 billion cubic feet
per day, the highest level since November 2012, according to government data
released Tuesday.

February output was up 1.6% from a year earlier, the highest growth rate
since October 2012, figures from the Energy Information Administration show.

The EIA revised the January output figure up to 72.3 billion cubic feet per
day, from the 72.1 billion cubic feet per day reported last month. Even with
the upward revision January output was the lowest since April 2012. The
revision put January output at 0.6% below the year-earlier level, the first
year-on-year drop since February 2010.

In February, more than half of the 0.92 billion cubic feet per day gain came
from so-called other states, outside the traditional production areas of
Louisiana, New Mexico, Oklahoma, Texas and Wyoming, the EIA said.

"Other States had the largest volume increase at 2.1%, or 0.52 billion cubic
feet per day, as new wells were brought online in the Marcellus and Bakken
Shales," the EIA said.

Output from Texas rose 1.4%, or 0.30 billion cubic feet per day, as new wells
came online in the Eagle Ford Shale," the EIA said.

New Mexico's gas output rose 6.8% or 0.22 billion cubic feet per day from a
month earlier, as warmer weather returned, the EIA said.

"The Gulf of Mexico and Louisiana reported decreases of 2.0%, or 0.08 billion
cubic feet per day, and 1%, or 0.07 billion cubic feet per day, respectively,
as repairs and well maintenance required shut-ins," the EIA said.


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Old April 30th, 2013, 05:10 PM   #1510 (permalink)
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The US EIA released Feb info this week.

This shows NG usage by electric generating plants is down significantly even though the weather was colder this year.
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This shows that production was up.
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First chart is not adjusted for leap year. The other one is adjusted.

This is why, especially when you include below normal temps in the SE next 14 days, which reduces electrical demand to run air conditioning, that I think there is a lid on NG prices. The only bullish number is that nuclear plants are down more than normal right now.

Attached Thumbnails
Selling Options on Futures?-ng2.jpg  

Last edited by ron99; April 30th, 2013 at 05:29 PM. Reason: Removed incorrect chart.
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