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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,770 / 5,727
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Selling Options on Futures?

Old August 23rd, 2013, 04:12 PM   #1981 (permalink)
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datahogg View Post
Yes the option will have a delta of 0.2 - 0.3 for my use. But the option with a delta of 0.2 with no change will
be equivalent to 20 shares of the underlying (for a call.) My point was that verticals with a sold option with a
delta of 0.20 - 0.30 can be hedged to almost eliminate the delta risk.

But then aren't you having to constantly buy and sell the hedge to keep it delta neutral?

I think you are losing us because you are talking about stock options and we trade options on futures. They are different beasts.

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Old August 23rd, 2013, 04:48 PM   #1982 (permalink)
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datahogg View Post
Yes the option will have a delta of 0.2 - 0.3 for my use. But the option with a delta of 0.2 with no change will
be equivalent to 20 shares of the underlying (for a call.) My point was that verticals with a sold option with a
delta of 0.20 - 0.30 can be hedged to almost eliminate the delta risk.

Do you adjust on ongoing basis to keep the delta risk hedged?


What kind of returns do you target with this approach?

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Old August 24th, 2013, 10:11 AM   #1983 (permalink)
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ron99 View Post
But then aren't you having to constantly buy and sell the hedge to keep it delta neutral?

I think you are losing us because you are talking about stock options and we trade options on futures. They are different beasts.

Please pardon me from getting off topic. It is all yours.

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Old August 25th, 2013, 12:55 AM   #1984 (permalink)
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Seasonal Chart for USO in Excel


ron99 View Post
Nice chart. What version of Excel is that?

That chart looks similar to ES charts on the timing and trends.

For most futures you will need each month rather than continuous unless you are only trading the last 30 DTE. The back months do move differently than the front.

Futures like ES, GC, SI, KC continuous is OK. Make sure you switch contracts on them right before first notice happens. Otherwise screwy numbers.


The chart is generated in Excel 2003. You might be referring to the variety of unusually toolbars. These are all VBA API's that I have written into excel.

Thanks for your feedback. It is early days for me as I look into seasonality. I am keen to hear others views and have this influence my thinking. In the absence of futures data the chart uses USO. This is a starting point. The key feature of the chart is how each year is normalized so the years are comparable much like a percentile.

I hear what you are saying about the differences between the front and back month. I am just becoming aware of this and starting to think about it. On my CL strangles as I have said I do stay close to 30 DTE.

I guest the questions the chart raises are:
1. Does this seasonal chart for USO reflect the continuous CL?

How could this chart help my trading?

I am thinking of seasonality as a clue to what to expect. If seasonal sales rallying and actual is rallying then I might leg into my strangle in two stages. First shorts puts and then 3-4 days latter shorting calls. I thinks someone once said to me that that is favorable beta, but i am not sure about this technical reference. For me if the first leg is in 20% profit and then I get a better risk reward probability. I try to do this over the week when the most recent month becomes the current month.

I will have a look at comparing seasonality of USO to XSP/SPY. This might be a postive next step unless yourself or some might like to suggest how I cold progress this study.

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Old August 25th, 2013, 10:27 PM   #1985 (permalink)
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Old August 25th, 2013, 11:34 PM   #1986 (permalink)
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Rolling Out of Trouble...

Rolling Out of Trouble...Or Into More Trouble?


With the recent surge in Soybeans, I thought I'd share with what I just did with some November Soybean Calls.


I sold some 1600 Calls last week, which with the 3x excess margin that Ron recommended, equated to about 18% of my equity (I like to target 15%, and I went a bit over on this one).

Friday the price of Beans soared 40 cents/bushel, and tonight (Sunday) it has risen another 45 cents or so.

My initial guess was that if on close of Monday, Beans stay up 45 cents, I'll still be OK with regards to the "Ron Loss Rule" (when increase in option price combined with increase in margin, takes away all your excess, it is time to exit). No need to exit yet.

BUT even so, I am not feeling good about the trade. My delta went from .04 to .12 or so - in less than 2 trading days. I'm feeling some heat.

So, I decided that instead of exiting the position completely, I would roll up to a higher strike price. My goal was to exit the 1600s with a loss, and sell enough 1800s to end up profit wise where I started (right after selling the 1600s).

I was able to do this, but at the expense of dedicating more margin to the trade (up to around 22%, from 18%). I guess there is no free lunch. I also am short more 1800s than I was 1600s.

Good news: my delta is around .03 now
Good News: if 1800s expire worthless, I'll still make money overall on the trade
Bad news: I now am short more 1800s than I was 1600s, so if things go really bad, losses will multiply more quickly.


Anyhow, I thought I'd share this with you, in case you find yourself in a similar position. Rolling to deeper Out of the Money options may be a solution, if you don't want to outright exit. I do suspect, however, that most times the outright exit is the best option.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old August 25th, 2013, 11:36 PM   #1987 (permalink)
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kevinkdog View Post
Good news: my delta is around .03 now
Good News: if 1800s expire worthless, I'll still make money overall on the trade
Bad news: I now am short more 1800s than I was 1600s, so if things go really bad, losses will multiply more quickly.


Anyhow, I thought I'd share this with you, in case you find yourself in a similar position. Rolling to deeper Out of the Money options may be a solution, if you don't want to outright exit. I do suspect, however, that most time the outright exit is the best option.



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Old August 26th, 2013, 01:32 AM   #1988 (permalink)
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Rolling in the deep


kevinkdog View Post
Rolling Out of Trouble...Or Into More Trouble?


With the recent surge in Soybeans, I thought I'd share with what I just did with some November Soybean Calls.


I sold some 1600 Calls last week, which with the 3x excess margin that Ron recommended, equated to about 18% of my equity (I like to target 15%, and I went a bit over on this one).

Friday the price of Beans soared 40 cents/bushel, and tonight (Sunday) it has risen another 45 cents or so.

My initial guess was that if on close of Monday, Beans stay up 45 cents, I'll still be OK with regards to the "Ron Loss Rule" (when increase in option price combined with increase in margin, takes away all your excess, it is time to exit). No need to exit yet.

BUT even so, I am not feeling good about the trade. My delta went from .04 to .12 or so - in less than 2 trading days. I'm feeling some heat.

So, I decided that instead of exiting the position completely, I would roll up to a higher strike price. My goal was to exit the 1600s with a loss, and sell enough 1800s to end up profit wise where I started (right after selling the 1600s).

I was able to do this, but at the expense of dedicating more margin to the trade (up to around 22%, from 18%). I guess there is no free lunch. I also am short more 1800s than I was 1600s.

Good news: my delta is around .03 now
Good News: if 1800s expire worthless, I'll still make money overall on the trade
Bad news: I now am short more 1800s than I was 1600s, so if things go really bad, losses will multiply more quickly.


Anyhow, I thought I'd share this with you, in case you find yourself in a similar position. Rolling to deeper Out of the Money options may be a solution, if you don't want to outright exit. I do suspect, however, that most times the outright exit is the best option.

Kevin,
It is the Bad News part that is the rub. I have been here before. I try not to roll like this any more. The first thing I do with any strangle I short is decide where I become a buyer ATM (next month). This is normally resistance or support. When one leg is threatened I consider becoming a buyer ATM. The critical point here is when it occurs in the cycle and how many DTE. This significantly effects how I think about what I might do. The second thing I do now is roll and spread. For example if I am threatened on the short call with 10 contracts I will look to buy it back and then do a new strangle short 10 puts and calls (in the same month). Again this is critically effected by DTE. As I try to focus on the last 30 DTE in most cases, if I get clear the first 7 to 10 days of a trade then these options above are viable when a position is threatened in my view. But I am not expert and I am always learning on the job even after doing this for a number of years.

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Old August 26th, 2013, 08:34 AM   #1989 (permalink)
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Thinking out loud here...

If we, the US, target Egypt in some kind of military fashion look for a spike in oil.

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Old August 26th, 2013, 09:34 AM   #1990 (permalink)
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kevinkdog View Post
Rolling Out of Trouble...Or Into More Trouble?


With the recent surge in Soybeans, I thought I'd share with what I just did with some November Soybean Calls.


I sold some 1600 Calls last week, which with the 3x excess margin that Ron recommended, equated to about 18% of my equity (I like to target 15%, and I went a bit over on this one).

Friday the price of Beans soared 40 cents/bushel, and tonight (Sunday) it has risen another 45 cents or so.

My initial guess was that if on close of Monday, Beans stay up 45 cents, I'll still be OK with regards to the "Ron Loss Rule" (when increase in option price combined with increase in margin, takes away all your excess, it is time to exit). No need to exit yet.

BUT even so, I am not feeling good about the trade. My delta went from .04 to .12 or so - in less than 2 trading days. I'm feeling some heat.

So, I decided that instead of exiting the position completely, I would roll up to a higher strike price. My goal was to exit the 1600s with a loss, and sell enough 1800s to end up profit wise where I started (right after selling the 1600s).

I was able to do this, but at the expense of dedicating more margin to the trade (up to around 22%, from 18%). I guess there is no free lunch. I also am short more 1800s than I was 1600s.

Good news: my delta is around .03 now
Good News: if 1800s expire worthless, I'll still make money overall on the trade
Bad news: I now am short more 1800s than I was 1600s, so if things go really bad, losses will multiply more quickly.


Anyhow, I thought I'd share this with you, in case you find yourself in a similar position. Rolling to deeper Out of the Money options may be a solution, if you don't want to outright exit. I do suspect, however, that most times the outright exit is the best option.

I've done this before. Last time was this spring when my $5 NG calls were feeling heat. I rolled up to $6. Worked fine.

The other thing you can do so that you don't have to put on so many 1800 calls is add some puts. This also reduces margin.

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