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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,280 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old August 22nd, 2012, 08:24 AM   #181 (permalink)
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traderwerks View Post
What did you use to calculate delta ? ( I am just wondering )

@traderwerks

You don't need to calculate it. It is part of the option quote.




@ron99

Does that rule out selling Puts on Corn as well, in your opinion.

How do you feel about NG, Ron. I am thinking about 2.00 Puts or a 2.00/4.00 strangle.

Brit

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Old August 22nd, 2012, 10:31 AM   #182 (permalink)
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traderwerks, I get my deltas from my data provider. Most of them have that info.

You can get free option deltas at the exchanges but that is only the prior day's delta. But that is probably good enough for most option trading.

CME contracts Find the report for the commodity you want. For example PG63 is energy options.
Daily Bulletin | Build a Report

ICE contracts go to Category=End of Day Report, Report=ICE Futures US Options, then pick product.
https://www.theice.com/marketdata/reports/ReportCenter.shtml


britkid99, corn puts? maybe OK. I don't know what will happen to prices if the ethanol mandate is lowered. Also be aware that grain prices normally drop into the end of Sep before the quarterly grain stocks report and then rise after that. But this year is anything but normal.

On NG, normally NG drops and bottoms the end of Aug. So selling puts the beginning of Sep is a good idea. But because of fracking and over production that commodity is also not following normal trends. Be aware of hurricanes in the Gulf of Mexico which are most numerous in Sep. Also the end of Oct and Nov you need to watch NG inventory. There is a possibility of running almost out of storage room because they will make a new high for NG in storage this year.

Which contract month are you thinking for NG?

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Old August 22nd, 2012, 12:59 PM   #183 (permalink)
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ron99 View Post
traderwerks, I get my deltas from my data provider. Most of them have that info.

You can get free option deltas at the exchanges but that is only the prior day's delta. But that is probably good enough for most option trading.

CME contracts Find the report for the commodity you want. For example PG63 is energy options.
Daily Bulletin | Build a Report

ICE contracts go to Category=End of Day Report, Report=ICE Futures US Options, then pick product.
https://www.theice.com/marketdata/reports/ReportCenter.shtml


britkid99, corn puts? maybe OK. I don't know what will happen to prices if the ethanol mandate is lowered. Also be aware that grain prices normally drop into the end of Sep before the quarterly grain stocks report and then rise after that. But this year is anything but normal.

On NG, normally NG drops and bottoms the end of Aug. So selling puts the beginning of Sep is a good idea. But because of fracking and over production that commodity is also not following normal trends. Be aware of hurricanes in the Gulf of Mexico which are most numerous in Sep. Also the end of Oct and Nov you need to watch NG inventory. There is a possibility of running almost out of storage room because they will make a new high for NG in storage this year.

Which contract month are you thinking for NG?

Was looking at current or next month but premiums and margins are very low which would mean buying more and that increases the commision costs.

I don't have anything going at the moment, did a 75/110 strangle on CL last month but the put premiums have dropped away with the recent push in oil prices. That's why i am looking around for other possibilities.

I totally missed the run up in grains and appreciate your comments. There seems to be so much to wrap your headaround

Do you use the seasonality charts from MRCI at all in your own research?

Regards
Brit

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Old August 22nd, 2012, 02:08 PM   #184 (permalink)
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britkid99 View Post
Do you use the seasonality charts from MRCI at all in your own research?

All the time. In addition to that I have made my own charts of the years since 2006 overlaid on each other.

I look at the last 5 years and determine if the current markets are following the 15-year line shown on the MRCI charts. Then I look at current fundamentals to see if the market will be prone to follow the seasonality or not.

NG usually drops starting June 15th until Aug 31st. But since this year the inventory was so overwhelming and the price was so low I kinda knew that one wouldn't work this year. But even then a short call far enough out of the money would still have made money this year if you had enough excess to ride out the up swings.

When I look at MRCI's recommended trades, I reject 90% of them for various reasons. Too short a time frame, not a commodity I trade, fundamentals are wrong this year, not working the last few years, current market is too volatile. I then throughly research the rest and decide if they are doable.

I have a spreadsheet where I keep a list of the ones that are possibilities. I also add some I found that they don't have. I track the actual performance of them over the last 5 years on a dollar basis per day held.

Attached is an Oct sugar seasonal chart of mine. The up trend from early June to mid July works well. I sold SB puts and then I also felt confident enough to buy calls. I bought Oct 22.00 calls for 0.82 on 5/9/12. Sold them for 1.50 on 7/26/12.

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Old August 22nd, 2012, 05:00 PM   #185 (permalink)
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ron99 View Post
traderwerks, I get my deltas from my data provider. Most of them have that info.

You can get free option deltas at the exchanges but that is only the prior day's delta. But that is probably good enough for most option trading.

CME contracts Find the report for the commodity you want. For example PG63 is energy options.
Daily Bulletin | Build a Report

ICE contracts go to Category=End of Day Report, Report=ICE Futures US Options, then pick product.
https://www.theice.com/marketdata/reports/ReportCenter.shtml

Thanks, EOD is all I need.

Do you know where I can find historical ATM IV for futures options for the last year or two ? I would like to get an idea on the range that would be considered normal , high and low.

Speaking of volatility, are there any retail platforms that have volatility quoting ? I know ORC and EOS trader do, but I am not in that league.

Math. A gateway drug to reality.
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Old August 23rd, 2012, 08:36 AM   #186 (permalink)
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ron99 View Post
I track the actual performance of them over the last 5 years on a dollar basis per day held.

Attached is an Oct sugar seasonal chart of mine. The up trend from early June to mid July works well. I sold SB puts and then I also felt confident enough to buy calls. I bought Oct 22.00 calls for 0.82 on 5/9/12. Sold them for 1.50 on 7/26/12.

I like that idea. Do you use excell to create your own charts? Can you explain your phrase "on a dollar basis per day held". Is it not a daily price chart of successive Oct contract prices.

Also it looks like Feb is a resonable time to sell Calls above previous highs.

Brit


Last edited by britkid99; August 23rd, 2012 at 08:50 AM.
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Old August 23rd, 2012, 10:59 AM   #187 (permalink)
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traderwerks View Post
Thanks, EOD is all I need.

Do you know where I can find historical ATM IV for futures options for the last year or two ? I would like to get an idea on the range that would be considered normal , high and low.

Speaking of volatility, are there any retail platforms that have volatility quoting ? I know ORC and EOS trader do, but I am not in that league.

I have never used IV so I can't help you. Sorry.

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Old August 23rd, 2012, 11:41 AM   #188 (permalink)
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britkid99 View Post
I like that idea. Do you use excell to create your own charts? Can you explain your phrase "on a dollar basis per day held". Is it not a daily price chart of successive Oct contract prices.

Also it looks like Feb is a resonable time to sell Calls above previous highs.

Brit

Yes I use Excel. Excel gets each day's settlement price from my data provider. They are linked. I just copy and paste the values for each date for a row that contains all of the contracts currently being tracked. Takes only a couple of minutes each day.

It did take a while to set these up by getting daily settlements from my data provider and copy and pasting them into the spreadsheet.

The charts are just settlements. Correct. The dollar basis per day held is not on those charts. What that is is I take the average profit of the trade divided by the average days held.

So for example if you buy Oct Sugar futures on 6/05 and sell them 7/27 you held them 52 days. The Oct Sugar price rose an average of 4.59 during that time frame. The average profit the last 6 years for that trade is $5,145 or $99 basis per day. (That profit is if you make the perfect trade and get in on the low day and get out on the high day. Actual results will be lower. This is different than how MRCI does their trades. I like to see if the start or stop date is usually the same or if it varies. That helps me to decide when to get in or out.) I then use that to compare trades of varying length to see which are the most profitable per day.

Now if you are selling Oct Sugar puts instead of buying futures your profit will be less but you can see from these averages which trades are less likely to move against you.

This year I sold Oct SB puts and I also bought 10 Oct SB calls. I didn't do any futures to hold down my risk.

The charts show you how many of the last 5-6 years the contract moved the same way. If it is 5-6 years the contracts always moved the same way you can feel some confidence it will probably move that way again. But remember "that past performance is not indicative of future results". Some years the perfect trade will not work.

You also can see from the chart that Oct SB is highly variable in Aug & Sep. Some years up some down. If you are selling option for that time frame then you want to be further OTM because it is harder to predict direction of the market. But for selling SB puts in June you can move your strike a little closer to the futures price.

On some other commodities you have to know what was happening in the world and decide whether to use that years' chart. I don't use data from 2nd half 2008 for CL & GC because that was not a normal time. This year's summer grain data won't be usable in the future because of the US drought.

Yes selling SB calls in Feb is a good idea. Just check the current year's fundamentals to see if there might be any reason SB would be rising Feb, Mar, Apr.

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Old August 28th, 2012, 12:03 PM   #189 (permalink)
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ron - optionsxpress margin

Hi Ron,

Thank you for starting this thread. I am a derivatives trader and enjoying the discussion.

I am moving back to optionsxpress at the moment.

Could you be so kind and let me know what margin they have for the DEC12 65P and the DEC12 150C at this time (or the time when you get to reply)?

Cheers.

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Old August 28th, 2012, 12:40 PM   #190 (permalink)
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Mobiius View Post
Hi Ron,

Thank you for starting this thread. I am a derivatives trader and enjoying the discussion.

I am moving back to optionsxpress at the moment.

Could you be so kind and let me know what margin they have for the DEC12 65P and the DEC12 150C at this time (or the time when you get to reply)?

Cheers.

Hi Mobiius. Welcome to the forum and this thread.

I am assuming you mean CL and you are selling them.

I don't know if I mentioned this earlier in the thread, but optionsXpress (OX) has a small problem with calculating margin on spreads on options. They calculate the margin on the first one too high. But it is correct on all spreads after the first one. They are aware of the problem but they have no idea when they will be fixing it. It happened when they bought out another firm years ago and merged the software from them with theirs. So it will take a major rewrite of the software code to fix it.

OX says the margin on your spread is $844.97 for the first one. It is $399.46 for all spreads after the first one. OX is currently charging 10% more margin on CL than SPAN minimum. Some firms charge more, some a lot more (IB is one), some charge SPAN minimum.

Using the $399 for margin and putting 2X for excess, $798, and using yesterday's settlement of $350 I get a monthly ROI of 10.9%. That's a very good return.

Deltas are .0210 and .0252 on the put and call. A little risky but not too bad.

The seasonal trend is flat in Sep but up in Oct. It was up in Oct 2007, 2009, 2011. It was flat in 2010. I ignore what happened in some commodities in fall 2008.

Current fundamentals are probably neutral.

These are the things I go through in evaluating a possible trade.

If someone wanted an even safer trade, a Dec CL 60P & 160C have a margin requirement at OX of $259, deltas of ~.0100 and a monthly ROI of 7.4%.

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