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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,332 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old August 5th, 2013, 11:29 PM   #1871 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
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In regard to your inquiry about SPX options.

It is not a requirement to have a portfolio margining status in order to sell uncovered SPX puts and calls. It is true that the margin requirements would be less if you did choose portfolio margining over Reg T margin.

The requirements to have a portfolio margin account are.

A minimum of $100,000 in account equity is required to be approved to use portfolio margin.
Three years of confirmed options trading experience.
Three months of recent documented trading history to be reviewed prior to approval.
Checked an investment objective of “Speculation” on your account application
Approved for naked equity call writing / naked index put & call writing

Important: If your equity drops below the minimum requirement your account may lose eligibility for portfolio margining. Positions would then be margined at Regulation T levels which may result in additional margin calls.

You would need a level 5 Trading Level requirement in order to sell uncovered SPX options. You can request the trading level upgrade directly on the website. Please click on the Account tab and then click on profile from the account menu. On the right hand side there is a boxed area called related links. Click on "Request trade level upgrade" and then just follow the instructions.

I think it would be in your best interest to consult a tax expert to understand the tax consequences of trading options on futures versus equities.

I did want to point out that SPX options are European style options. This means there can be no assignments or exercises prior to the expiration date. They are also a cash settlement option. You would not be assigned or exercised actual shares. If your options were in the money after last trading day, they would cash settle against the calculated settlement price for that particular option.

Thank you,
Scott
OX

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Old August 6th, 2013, 11:07 PM   #1872 (permalink)
Trading Apprentice
Toronto, Ontario
 
Futures Experience: Advanced
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Long overdue response


rosho01 View Post
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.

Apologies for the very slow responce!

1. You can order his book from his own website at Trading Education. He doesn't cover option selling directly so had to apply the general principles, basically I spilt my trading dollars into 'units' and each trade gets the number of options that my margin for 1 unit will support rounded down. It's dynamic to my balance so changes for each trade (and each market given different margin amounts), since I trade 3 to 4 months out and a signal in any market 'blocks' new signals for about 2 months so size does change quite a bit over time. I use his concept of 'market money' so I risk a bigger % of profits vs 'investment dollars' until I hit my next equity goal (200k above my last one) at which point I reset to a smaller position size as I 'capitalize' gains as if they were part of my initial investment dollars.

2. My system had me selling call spreads only so I took my profits quicker than usual in this case.

3. At the same time, my system does the hard work so I just make the trades the day I get a signal (I use end of day data on the underlying as input into the system).

4. Typically I enter slightly less favourable to the midpoint to get a quicker fill, getting in on volatility spikes generally means there is more activity vs. selling on 'normal' days and I only trade the markets I consistently get reasonable fills in so have dropped the super wide spread markets.

5. I use my own custom indicator that uses an ATR like calculation at the weekly level on the underlying assets price movement as a % of closing price and compare that to the full history for that market (eg going back 40 years for some markets) and only enter in the top x% of values (and x varies by market). The ATR is adjusted so that downward price movement gets a higher weighting than up moves (because this seems to better indicate when a higher ROI will be achieved selling options). I actually use very little of the Greeks directly now that I trust and really understand what my system is doing, but given I'm mainly profiting from volatility collapse I still keep an eye on them. For example given the absolute low IV level in the S&P500 I'm not taking new signals for these index options until they return to more normal readings (which may take years, but I've got enough other markets to trade in the mean time) as otherwise I'm risking the same amount of dollars in 1 'unit' but taking in a relatively low amount of premium and a lower ROI expectation vs. commodity futures options.

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Old August 7th, 2013, 02:34 PM   #1873 (permalink)
Elite Member
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There is some activity and some attractive bids on the KCZ3 240 Calls. Enticing ROI for 93 days.

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Old August 7th, 2013, 03:22 PM   #1874 (permalink)
Market Wizard
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Barrington View Post
There is some activity and some attractive bids on the KCZ3 240 Calls. Enticing ROI for 93 days.

Interesting that the (market maker?) bids for 215-260 were higher than you would calculate based on how much futures were up. Strikes above and below those were more in line with the formula.

I got 20 @ 0.12. I would have done more if the market hadn't closed.

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Old August 9th, 2013, 02:27 AM   #1875 (permalink)
Trading Apprentice
Houston, TX/USA
 
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What is ROI?

Futures Edge on FIO

Are you a NinjaTrader user?

 
Hi, I've been lurking here for about a week. I'm wondering how you are getting your ROI estimates?

As a response to this thread, I got a paper trading account with OX. Alas, they don't offer paper trading for buying/selling options on futures so I really can't follow along at home with most of the discussions here since I can't even see a future's option chain.

Is it just as simple as looking at what the bid price is for the OTM contract you are looking to sell?

Thanks! And thanks Ron99 for this great thread.

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Old August 9th, 2013, 05:18 AM   #1876 (permalink)
Trading for Fun
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Strato View Post
Hi, I've been lurking here for about a week. I'm wondering how you are getting your ROI estimates?

As a response to this thread, I got a paper trading account with OX. Alas, they don't offer paper trading for buying/selling options on futures so I really can't follow along at home with most of the discussions here since I can't even see a future's option chain.

Is it just as simple as looking at what the bid price is for the OTM contract you are looking to sell?

Thanks! And thanks Ron99 for this great thread.

Hi Strato,

This thread is HUGE now, it must be very daunting for somebody just coming to it now.

The posts around #1307 and #1317 show how Ron calculates the ROI.


Chris

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Old August 9th, 2013, 11:49 AM   #1877 (permalink)
Market Wizard
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Today is one of our favorite days. EXPIRATION DAY!

Our KC Seps are expiring today.

I don't know if I have ever had this many contracts for one month. 2,057 calls.

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Old August 9th, 2013, 11:59 AM   #1878 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,324 since Jul 2011
Thanks: 634 given, 3,905 received


Strato View Post
Hi, I've been lurking here for about a week. I'm wondering how you are getting your ROI estimates?

As a response to this thread, I got a paper trading account with OX. Alas, they don't offer paper trading for buying/selling options on futures so I really can't follow along at home with most of the discussions here since I can't even see a future's option chain.

Is it just as simple as looking at what the bid price is for the OTM contract you are looking to sell?

Thanks! And thanks Ron99 for this great thread.

and you're

For the price you need to look at the midpoint between the bid and ask.

I'm surprised OX doesn't allow you to see option chains.

Does OX allow you to use the Trade Calculator when paper trading? You can get bid and ask there but it will be a pain.

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Old August 9th, 2013, 08:47 PM   #1879 (permalink)
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ron99 View Post
Today is one of our favorite days. EXPIRATION DAY!

Our KC Seps are expiring today.

I don't know if I have ever had this many contracts for one month. 2,057 calls.

Good stuff Ron. Sept CL calls next week. Got plenty of those that will be Z E R O D I N E R O in value!!!

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Old August 10th, 2013, 11:11 AM   #1880 (permalink)
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ron99 View Post
Today is one of our favorite days. EXPIRATION DAY!

Our KC Seps are expiring today.

I don't know if I have ever had this many contracts for one month. 2,057 calls.

Can you reveal roughly what percentage of you account margin was tied up with KC? Do you have some rule for the maximum per instrument? I ask because I am allotting 15% max to each instrument, but maybe I am too conservative, or maybe too risky.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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