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Selling Options on Futures?
 Started: July 19th, 2011 (06:16 PM) by ron99 Views / Replies: 597,069 / 5,834 Last Reply: February 20th, 2017 (08:43 PM) Attachments: 654

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# Selling Options on Futures?

Orlando Florida

Platform: Multiple
Favorite Futures: ES

Posts: 13 since Jun 2013

ron99
 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.

Orlando Florida

Platform: Multiple
Favorite Futures: ES

Posts: 13 since Jun 2013

Barrington
 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.

Market Wizard
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Market Wizard
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@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.

Market Wizard
Cleveland, OH

Platform: QST
Favorite Futures: Options on Futures

Posts: 2,417 since Jul 2011
Forum Reputation: Legendary

eudamonia
 @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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Market Wizard
Cleveland, OH

Platform: QST
Favorite Futures: Options on Futures

Posts: 2,417 since Jul 2011
Forum Reputation: Legendary

ron99
 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.

 June 19th, 2013, 04:40 PM #1718 (permalink) Market Wizard Cleveland, OH   Futures Experience: Advanced Platform: QST Broker/Data: QST, DeCarley Trading, Gain Favorite Futures: Options on Futures   Posts: 2,417 since Jul 2011 Thanks: 663 given, 4,115 received Forum Reputation: Legendary 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.

Orlando Florida

Platform: Multiple
Favorite Futures: ES

Posts: 13 since Jun 2013

ron99
 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

Orlando Florida

Platform: Multiple
Favorite Futures: ES

Posts: 13 since Jun 2013

ron99
 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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