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Selling Options on Futures?
Started: by ron99 Views / Replies:582,785 / 5,775
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Selling Options on Futures?

  #1681 (permalink)
Market Wizard
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opts View Post
Well SHugar Ron. You were supposed to say "Yes, that's exactly right!"

Wondering why the production in the Gulf is down. There has been so much news about the US slowly becoming oil independent because of the new drilling methods, oil fields, and more fuel efficient vehicles.

BP oil spill? Cost to drill and transport offshore vs onshore?

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  #1682 (permalink)
Market Wizard
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Here's the website I use to track Gulf storms.
Gulf Of Mexico - Water Vapor Loop (Flash) - Satellite Services Division/Office of Satellite Data Processing and Distribution

This one is less zoomed in. It covers the Caribbean.
Western Atlantic - Water Vapor Loop (Flash) - Satellite Services Division/Office of Satellite Data Processing and Distribution

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  #1683 (permalink)
Trading Apprentice
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New to Thread - Just read all 169 pages


`I think I read all 169 pages over a couple of week but at times I found myself skipping a couple of pages by accident. Please let me know if you have answered any of my questions below.

@ron99 - great job on the thread and wisdom

About:
Future Option trader with ~30% annual returns (for the most part have traded all cleared instruments)
Only trade the ES
I have use several brokers
Heavy statistical focus on where to trade the ES (used to use market profile but realized that sigmas provided a better pictures for my strategy)
Keep duration to 7 days (reduce risk and re-position back to the statistical movements)

I initially started selling deep OTM put options. I have a full time job (which might delay my responses to questions or comments). I cannot monitor real time and become concerned with volatility moves.

I switched to credit spreads (see sample below).

Sample:
Buy 1 ES FOP JUN 14 ’13 1570 Put
Sell 1 ES FOP JUN 14 ’13 1590 Put

Questions to all
Why not use credit spread? The spreads allow you to know your maximum loss.
My notional value (delivery value) of the portfolio when I was selling deep OTM put options was huge. Are there any concerns on notional? I assume you are run between 20 to 40 times cash to notional value.


Last edited by UnZane; June 9th, 2013 at 08:12 PM.
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  #1684 (permalink)
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US miles driven v stock market

interesting comparison between miles driven (US) and S&P....

Why Are Americans Driving Straight Into The Non-Recovery (And 800 On The S&P)? | Zero Hedge

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  #1685 (permalink)
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UnZane View Post
`I think I read all 169 pages over a couple of week but at times I found myself skipping a couple of pages by accident. Please let me know if you have answered any of my questions below.

@ron99 - great job on the thread and wisdom

About:
Future Option trader with ~30% annual returns (for the most part have traded all cleared instruments)
Only trade the ES
I have use several brokers
Heavy statistical focus on where to trade the ES (used to use market profile but realized that sigmas provided a better pictures for my strategy)
Keep duration to 7 days (reduce risk and re-position back to the statistical movements)

I initially started selling deep OTM put options. I have a full time job (which might delay my responses to questions or comments). I cannot monitor real time and become concerned with volatility moves.

I switched to credit spreads (see sample below).

Sample:
Buy 1 ES FOP JUN 14 ’13 1570 Put
Sell 1 ES FOP JUN 14 ’13 1590 Put

Questions to all
Why not use credit spread? The spreads allow you to know your maximum loss.
My notional value (delivery value) of the portfolio when I was selling deep OTM put options was huge. Are there any concerns on notional? I assume you are run between 20 to 40 times cash to notional value.

UnZ:

There is absolutely nothing wrong with writing credit spreads instead of outright uncovered positions. I recently opened up another account with TOS to specifically write credit spreads on certain stocks and maybe some ETF's. The commissions for those are lower vs. OX. But, the commissions for the futures options are lower for me at OX along with the margins so I now have two accounts. As far as the spread goes, you might have to write them a little closer because you now have to pay for an extra commission on the buy side in addition to maybe having a wider spread (higher max loss) to increase the premium you would receive. The only real drawback I see is that you might have to write the spread closer to the underlying which means your timing of the entry has to be a little 'better' as far as being correct in the market direction. If you are good at understanding the fundamentals of what is driving a current trend then your ahead of most people, it's the market entry timing that might be the key for you. Writing the options uncovered further away can give you more 'bad timing' room to still be correct. Right now the 1570 put is about 67 points away and the ES has been moving up/down 10, 20 points a day = volatility up. I'm watching the ES options also for the week. I stayed away from the indices last week because of all the news.

Anyway, nothing wrong with spreads. Whatever fits your style, time allotment, goals....if it works for you don't change it.


I meant the 1590 put is about 47 points away........

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  #1686 (permalink)
Market Wizard
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UnZane View Post
My notional value (delivery value) of the portfolio when I was selling deep OTM put options was huge. Are there any concerns on notional? I assume you are run between 20 to 40 times cash to notional value.

Could you explain this further. I don't understand.

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  #1687 (permalink)
Market Wizard
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UnZane View Post
`I think I read all 169 pages over a couple of week but at times I found myself skipping a couple of pages by accident.

Wow. Now that is an accomplishment!

Too bad there isn't a way to have a condensed version of the thread with the non-relative posts removed.

I suspect many people will not attempt to read 169 pages.

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  #1688 (permalink)
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Options on futures


ron99 View Post
I have been selling options on futures for years. But it is rare to find others doing it. I was wondering if there are others here doing it.

I have been doing it for 5 years. Learned it from James Cordier's book.

I have sold energy, grain, softs and metal options. Far out of the money. Usually less than 90 days from expiration.

I only trade futures, but I am very interested in trading options on futures

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  #1689 (permalink)
Trading Apprentice
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ron99 View Post
Could you explain this further. I don't understand.

Ron,
You asked how to calculate probability of an options finishing ITM. Below please find a calculation:

Excel:
1-NORMSDIST(LN(Strike/Tradeprice)/(historicalvol*SQRT(Daystoexp/365)))

The ES is trading at 1641, so my notional is 1641*50 = $82,050

If I sold 20 puts, my theoretical worse case leverage is $1.6M upon exercise. I can sell 20 puts with $60k at a 27 time leverage on my cash. It is worse with my spread strategy :-)

The leverage is huge.

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  #1690 (permalink)
Market Wizard
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Futures Experience: Advanced
Platform: QST
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Where do you get historicalvol, UnZane?

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