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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,254 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old August 30th, 2012, 05:54 PM   #201 (permalink)
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Hi Brit - do you have a set methology as to when to rebalance (weekly)? I'm assuming your put position has made your strangle unbalanced for a little bit unless you did that a little while ago? But, I would speculate that you may wait a day or two to see if the negative (or positive) delta movement will correct back to neutral.

To be clear your strategy is to stay in a delta neutral position that allows you to pay half (or there abouts) the margin thus you recieve a greater calcuation of profit as, if you still abide by a 2X or similiar cash position that we've been discussing on this thread, you may require less cash on hand but recieve the premiums of both puts and calls? Plus, if rebalancing is required and the risk is still acceptable you recieve more premiums to rebalance your delta position?

Besides this, is there other benefits you've found that makes you delta neutral?

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Old August 30th, 2012, 07:39 PM   #202 (permalink)
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Hi Brit - do you have a set methology as to when to rebalance (weekly)? I'm assuming your put position has made your strangle unbalanced for a little bit unless you did that a little while ago? But, I would speculate that you may wait a day or two to see if the negative (or positive) delta movement will correct back to neutral.

To be clear your strategy is to stay in a delta neutral position that allows you to pay half (or there abouts) the margin thus you recieve a greater calcuation of profit as, if you still abide by a 2X or similiar cash position that we've been discussing on this thread, you may require less cash on hand but recieve the premiums of both puts and calls? Plus, if rebalancing is required and the risk is still acceptable you recieve more premiums to rebalance your delta position?

Besides this, is there other benefits you've found that makes you delta neutral?

I am currently looking at positions daily as the deltas are fairly high and I don't want the position to run away from me. I am only about 25% invested at the moment so have plenty left for adjustments. I will keep enough margin back to cover a full hedge with futures if necessary.

This is somewhat experimental (zero hedge) rather than a tried and tested methodology of mine. These positions are still young, only taken out last Friday and this is the first adjustment i have made.

If CL reverses back up then I will happily sell some more puts if my net delta approaches 0.5
If CL keeps going down and delta goes to -1.0 then I will think about scaling in with futures.
If we get a serious decline I don;t mind riding 10 short CL contracts from 90 down to 80

Either way the aim is calm calculated trading rather than panic covering at a loss.

Brit

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Old August 30th, 2012, 08:16 PM   #203 (permalink)
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I suppose if your comfortable with that risk it makes sense. I would lean more towards selling alot more of the 125calls as the 110c would add substantial more risk from where you started (80p/120c). But, what are the chances of it getting to 110 (up 15% or so) in a month? But, you'd get the same amount of premium with the 125 if your delta hedging.



Ok, sorry... I'm dumb. Just thought you don't mind taking on that risk if your sure of your call that CL isn't going to 110 BECAUSE the margin (and commission) cost may be less if you sell just a few (4) of the 110c then many of the 125 calls.

But, I'm not 100% sure why you are trying to create a delta neutral stance because if you have to sell puts or calls (or futures) to hedge your position, then what you are doing is adding more margin to your strategy that is actually watering down your results.

This is how I understand it so correct me if I'm wrong. With a strangle you pay half as much margin? So say instead of $800 margin for a put and a call ($400 each), you pay only $400. Now that you are adding a call that means you are paying another $400? So that is about $800 for 3 contracts (1 put and 2 calls). So in effect you are paying $266 instead of $200.

I'm going down a tangent, so before I go too far maybe let me know how I'm doing before I continue.

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Old August 31st, 2012, 05:40 AM   #204 (permalink)
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But, I'm not 100% sure why you are trying to create a delta neutral stance because if you have to sell puts or calls (or futures) to hedge your position, then what you are doing is adding more margin to your strategy that is actually watering down your results.

This is how I understand it so correct me if I'm wrong. With a strangle you pay half as much margin? So say instead of $800 margin for a put and a call ($400 each), you pay only $400. Now that you are adding a call that means you are paying another $400? So that is about $800 for 3 contracts (1 put and 2 calls). So in effect you are paying $266 instead of $200.

I'm going down a tangent, so before I go too far maybe let me know how I'm doing before I continue.

Mobiius,
Firstly the idea of a delta neutral position is that you are not worried about direction of the underlying because when delta is zero gains on one side are mostly matched by loss on the other. Action only needs to be taken when the net delta grows to an uncomfortable amount, in my opinion around 0.5

I am expecting CL to stay within the 90-100 range for the time being and would only use futures if those levels are breached (still $10 away from my closest option strike)

As far as the margin goes, the overall margin had increased slightly due to the put side going up and the call side going down (I don't have the exact numbers). Lets say from your analogy we started at $400 dollars for both sides, but now the put side is $450 and the call side $350. If i have 10 of each my margin is now $4500 but the call side is only "using up" $3500 so leaving ne with a spare $1000 which i could "spend" by selling 3 calls using $333 margin each. So balancing the delta to zero has also balanced the margin, which had gone up anyway.

You are quite right about 125 calls could have been used but the delta is so low on those that it would have required selling 20 to get me back to delta neutral. With 120 calls I would have needed to sell another 10

Brit

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Old August 31st, 2012, 11:26 PM   #205 (permalink)
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Futures Edge on FIO
ron / brit:

Thanks for all of the info here. Even though my trading 'career' began about 15 years ago with futures it was not until recently that I came across the idea of selling options on futures. The way I see things is I will never trade another stock again. I was writing covered calls but I got tired of all of the CEO's lying about too much and all those people who saw there retirement funds get devastated because of too many greedy hogs. I want no part of that. I trade FOREX for a few pips a day but writing options on futures is uniquely profitable.

Reading through the thread I think one of the most important pieces of advice, with everyone already knowing not to over-trade your account or make a trade just because you think you have to be in a market, was from ron99 about having enough liquid cash in your account to cover the increase in margin when a position starts to move against you. Overloading your account with not enough cash will kill your trading career.

There has been more common sense and real advice/info in this thread than in any book ever written. Yes, I read the book from LTG about selling options on futures also but this thread could simply be the second book in that series.

Currently I trade with OptionsXpress and I agree with the post several pages back: The customer service is excellent. All of my fills have been exactly at my limit price or better. I use limit orders only. And yes, their charts are cumbersome, hard to work with, and plain old just don't look good. I'm using the free NinjaTrader download along with the free Kinetick EOD data...works fine.

Thanks guys.

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Old September 1st, 2012, 04:27 AM   #206 (permalink)
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Hi Opts,

I use multicharts with tradestation/IB feed and IB execution for our futures trading. To get our biggest bang for our buck we must go with optionsxpress for options as IB's options margin is just way out of wack. Do you do futures trading through optionsxpress? How have they been? We are not completely married to IB anymore as we don't do automated trading with them at the moment so I'm looking to have an all in one solution with OX as I can utilize the excess cash from our futures systems for our options trades. The only great thing though with IB is that we can have a management account that separates all our systems so we can allocate funds to separate 'sub accounts' which is good for clarity.

Ron - Do you use OX for futures? How have they been (besides more expensive commissions than IB)?

Back on topic:

Ron99 (or Brit)- You've mentioned you like to have a 100% stop. To clarify, does that mean if you sold a contract at $0.10 then you have a mental stop at @ $0.20?

Cheers.


Last edited by Mobiius; September 1st, 2012 at 04:47 AM.
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Old September 1st, 2012, 05:03 AM   #207 (permalink)
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Sorry, forget about the futures questions. They have way to high commissions and they don't offer certain things yet like MIT orders.

cheers.

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Old September 1st, 2012, 08:37 AM   #208 (permalink)
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Mobius:

OX is the only account I have. I don't plan on trading futures contracts, I only trade the options so I can't comment on the contracts. However, there have been no issues trading the options.

One thing I should mention is that their smart phone trading ap does not have the ability to receive futures quotes. So if you plan on trading through your phone you must do that through the web access ability of your phone, which is a little quirky also. If you have an option position you can see the current quote in your watch-list and you can close the position in the trading ap. They are working on the quotes part of the ap. They do have an ipad ap as well.

My FOREX trading is done through FXDD and Metatrader.

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Old September 1st, 2012, 09:13 AM   #209 (permalink)
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Hi Opts,

I use multicharts with tradestation/IB feed and IB execution for our futures trading. To get our biggest bang for our buck we must go with optionsxpress for options as IB's options margin is just way out of wack. Do you do futures trading through optionsxpress? How have they been? We are not completely married to IB anymore as we don't do automated trading with them at the moment so I'm looking to have an all in one solution with OX as I can utilize the excess cash from our futures systems for our options trades. The only great thing though with IB is that we can have a management account that separates all our systems so we can allocate funds to separate 'sub accounts' which is good for clarity.

Ron - Do you use OX for futures? How have they been (besides more expensive commissions than IB)?

Back on topic:

Ron99 (or Brit)- You've mentioned you like to have a 100% stop. To clarify, does that mean if you sold a contract at $0.10 then you have a mental stop at @ $0.20?

Cheers.

I use IB with my UK Pension account as it is the only choice available. Their margins are full exchange requirement for options and futures. On the plus side it does stop you from overtrading I suppose.

Your understanding of the stop is correct. If selling deep OTM it will rarely happen. If in an equal strangle and one leg is stopped and the other leg goes to expiry it would become a break even trade.

Brit

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Old September 1st, 2012, 09:53 AM   #210 (permalink)
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Hi Brit,

I'd like to ask you something regarding IB margin on short futures options, you mentioned above they charge full futures margin, are you saying they don't use Span margin?reason I ask is I'm looking to move an account from Optionsxpress to IB, as a net option seller the commissions are ouch particularly for trade adjustment, when done on ratio writes, it gets very expensive. I have my main account with deep discount, and I'm very happy there with their 50c commish plus exch. fees and service, but following pfgbest and mfg, don't want to put all in one basket.

Obviously span margin is key, so need to make sure on that.

Thanks

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