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Selling Options on Futures?
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Selling Options on Futures?

  #2201 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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Bakes View Post
BlueRoo/Turch,

A penny for your thoughts. I have followed Ron's methods fairly closely over the last year for very good results. I guess my main deviation from Ron's trading is where i find it worthwhile to make a trade. From memory Ron is more than willing to sell CL @ 0.02-3, whereas for me, because of our higher commission charges here in Aust i do not see that as worthwhile. I generally look to sell most options at around 0.05-6. Do you guys generally look at slightly higher Premium per option than the guys in the US because of our higher commission charges?

Regards,

Bakes

Yes with higher commissions you need higher premium. But the main thing to look at is ROI in combination with risk.

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  #2202 (permalink)
Market Wizard
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ron99 View Post
Yes with higher commissions you need higher premium. But the main thing to look at is ROI in combination with risk.

Are you using delta to measure your risk, something else?

For example, I might be inclined to accept a 3% monthly ROI for .02 delta, rather than a 4% ROI for .04 delta. But, I always wonder with delta being so low if I am just splitting hairs - thinking I have less risk, but really just leaving money on the table.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #2203 (permalink)
Market Wizard
Cleveland, OH
 
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kevinkdog View Post
Are you using delta to measure your risk, something else?

For example, I might be inclined to accept a 3% monthly ROI for .02 delta, rather than a 4% ROI for .04 delta. But, I always wonder with delta being so low if I am just splitting hairs - thinking I have less risk, but really just leaving money on the table.

Mainly delta but with adjustments based on each commodity and my experience with each commodity.

For CL I stay at least 25 out on puts 30 on calls no matter what the delta says.

For some of the softs like SB you have to go to higher deltas to just get positions on.

ES puts I follow delta.

For example, a Jan CL 81.50 put has a .04 delta. A 76 put has a .02 delta. In this instance I definitely go with lower delta, lower return.

There just isn't a strict number you can use. You need years of experience to fine tune your ideas to know the comfort level for you with risk vs reward.

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  #2204 (permalink)
Market Wizard
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Trade Calculator

I just received this e-mail from Options Express:

"Hello Mr. Davey,

Thank you for your continued patience. I have received an update from our Technical department regarding trade calculator and errors that have been reported. They have confirmed the issues have been resolved therefore you should now be able to use without any problems. "



Hopefully now if it fixed for good!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #2205 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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kevinkdog View Post
I just received this e-mail from Options Express:

"Hello Mr. Davey,

Thank you for your continued patience. I have received an update from our Technical department regarding trade calculator and errors that have been reported. They have confirmed the issues have been resolved therefore you should now be able to use without any problems. "



Hopefully now if it fixed for good!

Email them back and tell them to fix the error that was there before the whole thing crashed. See my previous post 2187.

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  #2206 (permalink)
Market Wizard
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ron99 View Post
Email them back and tell them to fix the error that was there before the whole thing crashed. See my previous post 2187.

Done. I just sent them example of CL error. I saw it with Beans too just now, but I swear I looked last night and did not see it (I must be getting old).

I did not bother mentioning the spread miscalculation, as that seems like a whole other can of worms (I think you has said you were told it would require a big code rewrite).

Thanks for pointing this out.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #2207 (permalink)
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ron99 View Post
For example, a Jan CL 81.50 put has a .04 delta. A 76 put has a .02 delta. In this instance I definitely go with lower delta, lower return.

I'm trying to understand some lingo and using your example here to learn some things. If the Jan 76 put shows a Return on Capital (using thinkorswim here) of 100%, shouldn't that mean that in 67 days at expiration, my max profit for selling one (shown as $8, as the bid is .08 right now) should be equal to my reduction in buying power due to margin (shown as $280)? Or is this ROC an annualized number? (if so, I don't see the math working either way)

Another options newbie question: if I sold this put and if crude took a nice dive down to the low 80s, the value of the put that I sold would obviously rise. But let's say that at expiration, Jan crude is trading at 82.00. I still will have collected the premium, and all will be well, right? It's just that I didn't make as much as if I had sold a call instead, correct?

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  #2208 (permalink)
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josh View Post
I'm trying to understand some lingo and using your example here to learn some things. If the Jan 76 put shows a Return on Capital (using thinkorswim here) of 100%, shouldn't that mean that in 67 days at expiration, my max profit for selling one (shown as $8, as the bid is .08 right now) should be equal to my reduction in buying power due to margin (shown as $280)? Or is this ROC an annualized number? (if so, I don't see the math working either way)

Another options newbie question: if I sold this put and if crude took a nice dive down to the low 80s, the value of the put that I sold would obviously rise. But let's say that at expiration, Jan crude is trading at 82.00. I still will have collected the premium, and all will be well, right? It's just that I didn't make as much as if I had sold a call instead, correct?

Josh, IF this were to happen, yes you would be fine, however depending on the timing you may not sleep too well during the drop. As an example lets say you got .08 for your put, then the market dove down to price 82, now that put would be worth say $1.90, so you sold it for $80 and now its trading at $1900, on how every many contracts you sold, ouch. So you can't just look at the end date. Hope this helps

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  #2209 (permalink)
Market Wizard
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josh View Post
I'm trying to understand some lingo and using your example here to learn some things. If the Jan 76 put shows a Return on Capital (using thinkorswim here) of 100%, shouldn't that mean that in 67 days at expiration, my max profit for selling one (shown as $8, as the bid is .08 right now) should be equal to my reduction in buying power due to margin (shown as $280)? Or is this ROC an annualized number? (if so, I don't see the math working either way)

Another options newbie question: if I sold this put and if crude took a nice dive down to the low 80s, the value of the put that I sold would obviously rise. But let's say that at expiration, Jan crude is trading at 82.00. I still will have collected the premium, and all will be well, right? It's just that I didn't make as much as if I had sold a call instead, correct?

A .08 price is $80 not $8.

You collect the whole premium of a put at expiration if the settlement price of the future is above your strike price. In this case $80 minus fees.

Yes if you hold onto the 76 put and CL is 82 you keep the $80. But in the mean time your margin and premium will rise substantially. If you have enough excess you could ride it out. But in most cases you will not have enough excess to ride out that big of a move.

Your last question depends on what you sold the call for not where futures ended.

Option selling has limited profit. You only get what you sold it for. No more.

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  #2210 (permalink)
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Thanks john and ron. Sorry about the mistype, I meant $80! Ron, I did not take into consideration the increase in margin requirement that would occur if crude were to drop as in this example. In futures the margins don't change very often, so this is not something I typically have to deal with, but it makes sense that as an exercise becomes more likely, that you are asked to have more capital on hand in the event of an exercise. Thanks guys for humoring my basic questions.

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