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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,733 / 5,727
Last Reply:3 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old May 23rd, 2013, 11:46 AM   #1621 (permalink)
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Quoting 
Coffee futures were lower again on what appeared to be speculative selling tied to big production ideas from Brazil as the harvest has started and on chart patterns. Futures made new lows for the move and new contract lows. Brazil weather remains mostly dry, but some areas could see showers later this week, which would be beneficial to trees. Dry weather helps harvest progress. Trends have turned down due to the conditions and expected large production in Brazil. Buyers are not interested, but offers in the physical market are not big. It is speculators who keep pushing the futures lower. Current crop development is still good this year in Brazil, but it has been dry. Central America crops are mostly harvested and is too dry for good new crop flowering. Colombia is reported to have good conditions.

Interesting that they are saying that speculators are driving this.

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Old May 23rd, 2013, 11:56 AM   #1622 (permalink)
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Coal regains some electric generation market share from natural gas when prices get above $3.50-4.00.

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Coal regains some electric generation market share from natural gas - Today in Energy - U.S. Energy Information Administration (EIA)

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Old May 23rd, 2013, 12:09 PM   #1623 (permalink)
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eudamonia View Post
Some nice CLQ365P going at 0.04 this morning with crude down. That's $35 net premium with $78 margin and $156 buffer for a ROI of about 7% per month.

Interesting that Coffee is down below 130 now and the KCU33000C are still running 0.12.

At very volatile times like this I increase the excess for CL to 3X or even 4X.

The 78 + 156 equals 234. Margin on a 70 put is 195 at OX. The premium is $40 higher. So your 234 just barely covers a $5 drop in futures. And maybe even not that if volatility increases and that jacks margin and premium up more than expected.


It sure looks like the buyer of the 300 coffee calls is putting on a hedge. He wouldn't be bidding it so much higher if he was trying to make profit.

Also that is what happened last year. OI went up but OI didn't drop when the buyer could have taken a profit. OI stayed high to expiration.

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Old May 23rd, 2013, 12:24 PM   #1624 (permalink)
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ron99 View Post
At very volatile times like this I increase the excess for CL to 3X or even 4X.

The 78 + 156 equals 234. Margin on a 70 put is 195 at OX. The premium is $40 higher. So your 234 just barely covers a $5 drop in futures. And maybe even not that if volatility increases and that jacks margin and premium up more than expected.


It sure looks like the buyer of the 300 coffee calls is putting on a hedge. He wouldn't be bidding it so much higher if he was trying to make profit.

Also that is what happened last year. OI went up but OI didn't drop when the buyer could have taken a profit. OI stayed high to expiration.

Thanks for the advice. I will set aside 4X. That will cover a $6 move. I'm scaling in as we go down as well.

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Old May 23rd, 2013, 12:27 PM   #1625 (permalink)
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Futures Edge on FIO
Comparing March 2012 with 2013, NG supplied megawatthours have decreased by 8.4%. Coal increased by 24%.

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Old May 23rd, 2013, 12:34 PM   #1626 (permalink)
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eudamonia View Post
Some nice CLQ365P going at 0.04 this morning with crude down. That's $35 net premium with $78 margin and $156 buffer for a ROI of about 7% per month.

Also calculating ROI using today's premium but yesterday's margin will get you an incorrect ROI. If the premium is higher you can be assured that margin will be higher tomorrow.

It's best to use yesterday's settlement price for the option when calculating ROI and figure that margin and premium will move at about the same rates up or down.

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Old May 23rd, 2013, 01:16 PM   #1627 (permalink)
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Quoting 
Global markets sold off hard in the wake of Fed Chairman Ben Bernanke’s testimony yesterday in which he discussed the possibility of scaling back the amount of quantitative easing sometime within the next few Fed meetings. Although this comment caused the market to give back much of its gains, it wasn’t until the Fed minutes were released that the market began to roll over. With an almost 40 point swing in E-mini S&P futures from highs to lows it is clear that traders are very much concerned over an end to easing. The Fed minutes also showed that the hawkish members may be voicing their concerns more loudly and that the pressure to taper the program is increasing. The Fed is clearly split but leaning dovish.

Markets around the world responded sharply to the news with the Nikkei closing down more than 7% after trading higher early in the session. Weak economic data out of China also put pressure on markets. European markets also responded to the weakness and fears that U.S. stimulus may be coming to an end.

So is the most unloved rally of all time finally over? Keep in mind that in addition to the comments Bernanke made on a possible taper in the next few months he also expressed major concerns over what would happen if the Fed tightened monetary policy too early. He spoke of the substantial risks to economic recovery if the easing program is brought to an end too early.

With most of the Fed members still in Bernanke’s corner and the pattern of dip buying this year, many traders may look at this sell-off as an opportunity to buy into this market.

Will the Fed pull the plug on this rally?

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Old May 23rd, 2013, 03:34 PM   #1628 (permalink)
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cannot see how they can wind down QE for at least another 2 years - they are stuck in the biggest rut ever, who buys the bonds then? interests rates will have to rise which means they will default on their debt. inflation is now their friend - the race by the CBs to devalue their fiat currencies has been going on for last cpl of years. and heres most normal ppl thinking inflation is bad, bernanke says its good.

the massive overnight sell off in asia/japan was mainly driven by the JGB futures market being halted twice due to massive sell offs. japanese banks hold most the debt, and now they are undercapitalised due to price crash. japan is completely screwed.

theres some good vids online of kyle bass seminars explaining the japanese situation & why it cannot be rescued.

edit: heres one vid....
http://www.youtube.com/watch?v=ZY6IEpKRA7Y


Last edited by rosho01; May 23rd, 2013 at 04:05 PM.
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Old May 23rd, 2013, 03:36 PM   #1629 (permalink)
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Homerjay posts circa page 87


Homerjay View Post
Actually had to drop KC & SB from my system as had trouble getting reasonable fills at the strikes my system indicated, but it works great for markets like ES, GC, CL, W.

1) Yes the commissions are more than for naked options, but it's certainly worth it from an ROI perspective. I do often end up keeping the long legs until expiration as by the time I'm taking profits on the short legs the longs are worth very little, so keeping them saves on closing commission and gives me a portfolio that's actually black swan friendly (which is nice when selling options!)

2) No ever stayed until expiration as once I'm past 70% profit on the spread I bring in the shorts (and sometimes due to weekends/long weekends/luck I'm actually closer to 80% profit by the time I get my order in and filled). Margin increases haven't been too much of a problem because I hold a lot of cash and peel off some contracts if a margin increase takes me too far from my ideal position size. However with spreads any margin increases have a much smaller impact than with naked options.

3) I'm really risk averse and it's taken me over 12 years to get to my current level of profitability, so to me not making money = risk of losing money so if by 3 weeks into a trade I'm not reasonably profitable I close it out early (a time stop if you like on losses, breakeven or minor profits) so my losses are relatively small given the size of trades I do. Yes I'm probably giving up some trades that would ultimately be profitable but this rule works for me. Also with the double diagonal spreads one side will always be very profitable if one side is approaching a loss. My system is specifically looking to enter on a volatility spike so usually turmoil gets me in and a quieter day really allows the shorts to decay rapidly. The $ risk looks big but are position sized appropriately to my account size (Van Tharp has an excellent and very detailed book on position sizing, doesn’t cover option selling specifically but the principles are solid and can be made to work).

Hi homerjay,
sorry for v delayed response, just going through saved posts in this thread - so many good posts to wade through!

some questions if you have time to answer:
1. is your position sizing based on the Van Tharp method? His book is not in print, and cannot seem to find anywhere online. can you provide some basic detail re how you position size?

2. re the big GC sell off in april - did you have an open position? if so how did you manage the exit? and how did it impact your margin requirements?

3. do you put both ends of the reverse diagonal trade on @ the same time or do you wait for a possible rebound after a high vol move to get favourable price on the 2nd leg?

4. the bid/offer spread is often quite wide do you put your spread orders in @ midpoint? or do you try & work out fair value price? eg + OCT13 122 Call - NOV13 120 Call is -0.17 bid @ -0.01, wld you be happy to put a bid in close to the midpoint say @ -0.10?

5. re volatility measurement - are you using std deviation over the DTE for entry? also to manage trades do you use the greeks? & is that at portfolio level or on security / trade level?

thks for your time.

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Old May 23rd, 2013, 05:21 PM   #1630 (permalink)
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Tuesday May 28th, margins for Sugar will decrease 26% from $750 to $550.

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