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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,184 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old August 1st, 2013, 09:28 PM   #1861 (permalink)
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ron99 View Post
Karen said she sold SPX options. But when I use the OX Trade Calculator it says margin is $135,000? Can somebody enlighten me on that?


I thought she only traded the ES options???

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Old August 1st, 2013, 09:55 PM   #1862 (permalink)
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Hey guys,

Karen sticks just with the index options --- SPX, NDX, and RUT-- I think reason being is for every contract you sell at least on the SPX its at a 1:1 ration; for example if the SPX value is at 1 then every contract you are going to get will get you 100 however for the /ES its at 0.5 : 1 so you will only be getting 1/2 the value therefore you have to sell more contracts.

The margin requirement however you have to request thru your broker; like Ron i was wondering how she can get her returns if you are putting up 135K ? But, if you have a PORTFOLIO MARGIN requirement then its significantly less. Example right now im looking on TOS at the SPX 1440 Put quarterly's that expire in 60 days at strike of 1.00 for me to sell 10 contracts my buying power will only be reduced by roughly 16K

hope it helps

V

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Old August 1st, 2013, 09:56 PM   #1863 (permalink)
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Also for tax purposes the index options are treated i believe at a 60/40 ratio; meaning the IRS will take 60% as long term gains and 40% as short term.

V

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Old August 2nd, 2013, 05:38 AM   #1864 (permalink)
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ron99 View Post
Karen said she sold SPX options. But when I use the OX Trade Calculator it says margin is $135,000? Can somebody enlighten me on that?

Ron,

SPX comes in stock options AND futures options. Your margin is likely a naked stock option quote rather than a futures option. SPX stock options have 100 multiplier so 1350 x 100 = $135000 naked risk. Whereas SPX futures is the big daddy of ES emini and has $250/point value against the ES's $50/point. So SPX futures is equal to 5 x ES contracts and options have a 250 multiplier.

Brit


Last edited by britkid99; August 2nd, 2013 at 05:54 AM.
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Old August 2nd, 2013, 06:28 AM   #1865 (permalink)
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ron99 View Post
I went back and watched the Karen Supertrader YouTube video again. I came away this time with a couple of points.

1. Keep it simple. She was asked if she tried this or that and she said no. She just sticks with what she does. She tried other things but found they didn't help.

2. Stick to the plan. She didn't pay attention to external news. She just sold the options on down days and adjusted her position if the market went against her by moving to lower strikes and/or selling some calls.

So then I was playing around with the ROI for different ES put options trying to find the best ROI time period. What I found was that the best time frame for selling ES options with a 0.0200-0.0300 delta was to only keep them for about 30 days or until the price is about 0.40.

It looked like when the price got below 0.40 that the price erosion slowed down. So keeping them past then lowered your ROI.

In the example below, the ESv3p1350 option, if kept to expiration, had a monthly ROI of 2.1%. But if you kept it for 28 days (assuming a flat futures market) and then traded out at $17.50 or 0.35 the monthly ROI is 4.4%.

You made $65. Minus fees you netted $56.86. Margin and 2X excess was $1392. 56.86/1392 is 4.1% in 28 days or 4.4% in 30 days.

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A 1250 for the same time frame and months was 2.9% monthly ROI. 1300 was 3.4%. 1400 was 4.5%. So lower prices and strikes didn't work as well. But higher strikes didn't get a much better ROI.

Going further out in time on the 1350s didn't help. Nov was 3.7%. Dec was 3.6%

If anybody finds a better delta or time frame let us know.


I have found very similar results with CL. When down to the last 30 days there is so little premium left
it is no longer worth waiting to expiry. In fact I have closed out every position prior to expiry but that has
a lot to do with IB's margins and the declining ROI received if waiting till expiry.

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Old August 2nd, 2013, 03:50 PM   #1866 (permalink)
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britkid99 View Post
Ron,

SPX comes in stock options AND futures options. Your margin is likely a naked stock option quote rather than a futures option. SPX stock options have 100 multiplier so 1350 x 100 = $135000 naked risk. Whereas SPX futures is the big daddy of ES emini and has $250/point value against the ES's $50/point. So SPX futures is equal to 5 x ES contracts and options have a 250 multiplier.

Brit

SP is the symbol for S&P 500 full size futures. SPX is for stock index. I'm pretty sure she said SPX.

I checked my OX profile and my Portfolio Margin is Disabled.

I found the explanation from them and it said under Basic Requirements For Transactions, 10% of the underlying market price (or strike price for O-T-M puts) + the premium.

So a Oct 1350 SPX put is $13,585.00. (85.00 is last trade premium). But the ROI is very poor on that so what am I missing?

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Old August 2nd, 2013, 05:06 PM   #1867 (permalink)
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ron99 View Post
SP is the symbol for S&P 500 full size futures. SPX is for stock index. I'm pretty sure she said SPX.

I checked my OX profile and my Portfolio Margin is Disabled.

I found the explanation from them and it said under Basic Requirements For Transactions, 10% of the underlying market price (or strike price for O-T-M puts) + the premium.

So a Oct 1350 SPX put is $13,585.00. (85.00 is last trade premium). But the ROI is very poor on that so what am I missing?

She specifically mentions that she is doing strangles and their is no additional margin for adding sold calls. That still doesn't yield a great ROI, but is somewhat better.

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Old August 2nd, 2013, 05:17 PM   #1868 (permalink)
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Hey guys,

Actually I think karen's method of selling .01-.02 Delta is not accurate. If you listen she says she does about 95% probaility of selling out of the money puts and 90% prob of out of money calls. These basically equate to a Delta of .05 and .1 respectively,

If you go to the Oct SPX option table and look at the 1485 strike for puts it has a delta of .05; one contract will net you roughly $265 and on a portfolio margin your buying power will be reduced by $2726

thanks

V

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Old August 3rd, 2013, 09:16 AM   #1869 (permalink)
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ron99 View Post
SP is the symbol for S&P 500 full size futures. SPX is for stock index. I'm pretty sure she said SPX.

I checked my OX profile and my Portfolio Margin is Disabled.

I found the explanation from them and it said under Basic Requirements For Transactions, 10% of the underlying market price (or strike price for O-T-M puts) + the premium.

So a Oct 1350 SPX put is $13,585.00. (85.00 is last trade premium). But the ROI is very poor on that so what am I missing?

Ah, I think I see the cause of confusion now. IB uses the single ticker SPX for the index, the futures and FOP via CME or Globex and the Stock options via CBOE. So if Karen is using IB as her broker, she could be trading SPX FOP's at least as IB and maybe other brokers refers to them. This would explain how she can strangle without incurring massive margins. See screen shot.

Attached Thumbnails
Selling Options on Futures?-spx.jpg  

Last edited by britkid99; August 3rd, 2013 at 09:22 AM.
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Old August 3rd, 2013, 10:16 AM   #1870 (permalink)
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Karen is at TOS.

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