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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,629 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old June 16th, 2013, 12:51 PM   #1711 (permalink)
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ron99 View Post
When I calculate a Aug 1300 ES put with 64 DTE with 28.88 IV when ES futures are at 1631 I'm getting 0.96965. (I'm assuming that I convert 28.88 IV to .2888)

What does 0.96965 represent? I'm guessing it's the chances of being OTM not ITM.

If I remove the 1- at the front of the calculation the result of 0.03035 or 3.035% makes more sense to me.

So am I correct that
Excel:
NORMSDIST(LN(Strike/Futures Current Price)/(Implied Volatility*SQRT(DTE/365)))

in a percentage format would give me the chances of an option being ITM?

Correct! The formula is an adaptation of the black scholes model.

I attempt to understand all calculations before using them, so I do not use an indicator that I cannot build from scratch.


Last edited by UnZane; June 16th, 2013 at 05:48 PM.
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Old June 16th, 2013, 12:58 PM   #1712 (permalink)
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Barrington View Post
I just tried it on the OX Trade & Prob. Calculator - 1300 ES Put with 63 DTE and changed the IV to 28.88. It gives me 3.57% probability of ending ITM. ESU = 1622.75

Please remember that IV is different that historical vol. IV is derived from the strike you choose to sell, so deeper OTM options have higher IV. In essence, you need higher volatility for the price of the option to achieve the premium traded. Historical Vol represent the true vol of the underlying.

All that to said, your prob of ITM is higher if you use the IV from the strike traded.


Last edited by UnZane; June 16th, 2013 at 05:48 PM.
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Old June 17th, 2013, 01:41 PM   #1713 (permalink)
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Quoting 
Even with the rally, earnings have risen so much that valuations remain below historical averages. Stocks trade at about 15.9 times reported operating earnings, compared with the mean of 16 in data going back to 1954.

.

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Old June 17th, 2013, 01:58 PM   #1714 (permalink)
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Kinda OT Here is another reason why I have high admiration for the ICE exchange.

Quoting 
ICE Chairman and CEO Jeff Sprecher dropped a bomb during last week’s Sandler O’Neill’s Global Exchange & Brokerage Conference in talking about the new markets he is acquiring with ICE’s acquisition of NYSE Euronext.
...
He was referring to the cash equity and options worlds ICE will be entering with its acquisition of NYSE Euronext that participates in payment for order flow and internalization. “I have been very outspoken that I don’t believe you should pay for order flow,” Sprecher said. “When people talk about innovation and all they are really talking about is price cutting or front running, that is ridiculous. I am going to be very outspoken about trying to change elements particularly of the U.S. cash equities markets and I am being outspoken because with NYSE I think we should change them.”
...
Sprecher does not want to rely on the regulators. “I don’t think we should run to government and say ‘oh my God look at the terrible thing we done to ourselves, please save us from ourselves,’ I think we ought to take a leadership role and be open and transparent and say some of these things have gone too far and we have to walk back and build support for that with our customer base. If we do that and do it right, government will validate what we are doing, I am confident of that, and they will be appreciative that we are solving problems ourselves without having to turn to an already overworked SEC commission staff.”

ICE Throws Down Gauntlet on Payment for Order Flow | Dan Collins Report

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Old June 17th, 2013, 02:47 PM   #1715 (permalink)
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Futures Edge on FIO
@ron99,

Any thoughts on say September Cotton? Was looking at potentially doing some calls (due to seasonality) and what seems to be a somewhat overdone short-term technical bullishness.

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Old June 17th, 2013, 05:02 PM   #1716 (permalink)
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eudamonia View Post
@ron99,

Any thoughts on say September Cotton? Was looking at potentially doing some calls (due to seasonality) and what seems to be a somewhat overdone short-term technical bullishness.

Yes I was looking at that too. With Texas getting some rain the crop should be OK.

But Sep options have very little volume and OI. Dec is the contract with option volume. But it is 144 DTE.

I might do some.

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Old June 17th, 2013, 06:40 PM   #1717 (permalink)
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ron99 View Post
When I calculate a Aug 1300 ES put with 64 DTE with 28.88 IV when ES futures are at 1631 I'm getting 0.96965. (I'm assuming that I convert 28.88 IV to .2888)

What does 0.96965 represent? I'm guessing it's the chances of being OTM not ITM.

If I remove the 1- at the front of the calculation the result of 0.03035 or 3.035% makes more sense to me.

So am I correct that
Excel:
NORMSDIST(LN(Strike/Futures Current Price)/(Implied Volatility*SQRT(DTE/365)))

in a percentage format would give me the chances of an option being ITM?

The 1- is needed at the front when doing calls. It is not needed when doing puts.

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Old June 19th, 2013, 04:40 PM   #1718 (permalink)
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Anybody got an answer to this question?

Right now ESu3 is down 11.00. The Jul 1400 put settled at 1.05 yesterday.

So why is the ask only 0.95? It's the same for most of the options. The ask is less than yesterday's settlements when futures are way down.

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Old June 19th, 2013, 04:46 PM   #1719 (permalink)
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ron99 View Post
Anybody got an answer to this question?

Right now ESu3 is down 11.00. The Jul 1400 put settled at 1.05 yesterday.

So why is the ask only 0.95? It's the same for most of the options. The ask is less than yesterday's settlements when futures are way down.

Ron,

Your good friend volatility. The VIX is down 2%. The FOMC announcement has calm the market expectations.

UnZane

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Old June 19th, 2013, 04:49 PM   #1720 (permalink)
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ron99 View Post
Anybody got an answer to this question?

Right now ESu3 is down 11.00. The Jul 1400 put settled at 1.05 yesterday.

So why is the ask only 0.95? It's the same for most of the options. The ask is less than yesterday's settlements when futures are way down.

Ron,

You are dangerous. The VIX moved from down 2% to .5%.

UnZane

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