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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,237 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old October 31st, 2013, 06:33 PM   #2301 (permalink)
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wisconsin rapids wi/usa
 
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new member CL CD

Hello all:

I've been following this forum for a couple months and have read it from the begining. Thanks to all who have participated and to ron99 for starting it. It is rare to find others trading commodity / futures options, and rarer to find a thread that stays civil considering the wide range of options to trade and the personalities of the traders involved. Thanks to Mike for keeping everyone involved friendly.

I started trading futures 20 or so years ago, made mistakes that diminished 1 acct. Tried again and did better but didn't get any place profit wise. Quit for a while and read lots of books, articles, internet forums and posts. After awhile I figured my trading personality was more risk averse than most traders. I read Cordier's books and felt very comfortable with his theory of selling OTM options on futures.

I traded options for 8 months a few years ago and made money. Traded currencies, oil, 30 yr bond, mostly. I couldn't trade the softs elec. . Wished I could cause I like the coffee market at times. I quit again to return to help a friend run his business, a field I have dealt in for 30 plus years. But I had made about a 20% return on a small acct for those 8 months trying to be conservative but not succeding all the time and overtrading the acct some. I wanted to keep trading but knew I needed to help my buddy out. Now about 4 years later he's doing well and doesn't need me for support.

So now I had the opportunity to branch into another part of the industry I grew up in (automotive) but it is more physically demanding but well paying, so I'll keep at it for now and try to do some FOTM option trades to get back in and hopefully bring in some $$. I hope to be able to trade to help with retirement in a couple of years.

Sorry for the above schpiel, too long.

I made my first trades today..... STO Mar CL 75 put for .24 & STO Mar CD 91 put for .0028
My plan is to keep them for 60 days give or take, wring out most of the prem. and go from there. We'll see.
The delta on the CL was .04 and the CD was .13 Higher than ron would approve of but I traded the currencies before CD BP SF and did well with them as they didn't move very fast typically, and if a large move evolved I was able to manage the trade by rolling up, down , or out fairly easily. The CD usually traded range bound.

I look forward to any comments, positive or otherwise. Because of not being near a putor always it may take me awhile to respond.

Thanks to all who read this and I look forward to contributing and learning from those here in the future.

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Old October 31st, 2013, 06:37 PM   #2302 (permalink)
Market Wizard
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datahogg View Post
This seems like a very workable exit strategy. The only question I have is that with this exit the loss that might be taken seems to be fairly large compared to the max gain that could be made for the position. Is this exit strategy positioned to increase the probability that the position will result in success? Is this the best choice of
"wiggle room "to allow the underlying to move and result in the higher probability of gain?

thanks again HH.

It is mainly to be able to ride out short moves against you without having to bail at a loss.

Because of the small size of the premium we sell, the loss/profit ratio will always look ugly.

Is this best choice? I can't say for sure. But I do know that my success increased a lot when I went from 50% cash excess to 66% cash excess.

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Old October 31st, 2013, 06:44 PM   #2303 (permalink)
Market Wizard
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Welcome muffin58.

I am glad to see people take the time to read the whole thread. It shows me they are dedicated and serious about learning the system. Those people are more likely to succeed than people who want to take shortcuts.

Sorry about the OT stuff that slows you down.

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Old October 31st, 2013, 07:46 PM   #2304 (permalink)
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ron99 View Post
I don't think I have ever did a strangle as one order. Always have legged in. I am too far OTM to get decent bids for a strangle.

Also I tend to put on puts on down days and then put on calls on up days.

Same here! I rarely do both legs on the same day. But I tired it a couple of times limiting at the quoted prices on both legs and still the order just sat there. Cancelled it and legged it one at a time and filled in just fine.

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Old October 31st, 2013, 08:36 PM   #2305 (permalink)
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muffin58 View Post
I made my first trades today..... S STO Mar CD 91 put for .0028 ...but I traded the currencies before CD BP SF and did well with them as they didn't move very fast typically, and if a large move evolved I was able to manage the trade by rolling up, down , or out fairly easily. The CD usually traded range bound.


I'm curious - does anyone else out there sell deep out of the money options on currencies? I'm talking in general, not just this particular trade.

I ask because I've thought about it, and the downside scares me. Any currency you sell relies on 2 governments not doing anything crazy - the currency government for whatever you are trading, and the US gov't, since everything is quoted in dollars. I just don't trust any government or central bank, especially the US gov't these days

Am I alone in this paranoia (which for me also extends into Gold and US Treasuries, although I do sell options in those)? Maybe I am missing a good thing by being irrationally scared...



edit: Of course, if the US dollar suddenly gets devalued or some FED action causes USD to skyrocket or plummet, most other futures will see impact, so maybe my concern is overblown.

I was look at Dec Euro calls, and they have over 3% ROI, so maybe selling a call, and buying a higher call, will limit the potential downside, and still provde a good ROI. I might just try it.

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

Last edited by kevinkdog; November 1st, 2013 at 12:23 PM.
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Old November 1st, 2013, 12:12 PM   #2306 (permalink)
World'sWorstTrader
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Open Interest

Has anyone ever sold a naked put for an underlying with very low open interest, and later been unable to buy
back (close out) the naked put?? Is this a danger to watch for??

Thanks HH.

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Old November 1st, 2013, 12:32 PM   #2307 (permalink)
Market Wizard
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datahogg View Post
Has anyone ever sold a naked put for an underlying with very low open interest, and later been unable to buy
back (close out) the naked put?? Is this a danger to watch for??

Thanks HH.

Yes this can be a danger especially if you are in a strike that doesn't trade much volume. I have been forced out and it was very painful. More so than a strike with good volume. But I have never been unable to get out.

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Old November 1st, 2013, 06:46 PM   #2308 (permalink)
Market Wizard
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CL margins dropping 9.8% on Wed.

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Old November 1st, 2013, 08:29 PM   #2309 (permalink)
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I get the print edition, but here is a link to an article by Michael Gross (co author of the complete guide to option selling) in Futures Magazine Harvesting profits from corn fundamentals

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Old November 3rd, 2013, 06:05 PM   #2310 (permalink)
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I get the print edition, but here is a link to an article by Michael Gross (co author of the complete guide to option selling) in Futures Magazine Harvesting profits from corn fundamentals



great reading by Michael Gross. I've followed his books and subscribed to their weekly newsletter.

I would be careful of selling puts too early this year tho. There are too many farmers that have put up storage to take advantage of selling at oportune times and not just selling off the combine. Plus the acerage reports are finding more corn the last couple of weeks. Ending stocks could go up again. A friend of mine is combining this week and is pulling almost 200 bu per acre off some of his acres. VEERRYY HIGH. And the low is still not in. There is an old adage, If the low is late for corn, there will probably be a lower low come spring. I believe that may be the case this year. I think $4 corn is possible.

I am watching this to sell puts but am not seeing a bottoming pattern. Will watch the crop reports on Nov 8.

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