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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,059 / 5,728
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Selling Options on Futures?

Old November 6th, 2013, 12:09 PM   #2321 (permalink)
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kevinkdog View Post
Are you counting all 4 commissions in your calcs?

Yeah, they're included in the "Potential P/L" column.

e.g. for ECZ31.42C the potential P/L is ( (0.0000 - 0.0004) * 125000 ) - $5.12 = -$55.12.

My fees at OX for these options are $5.12 each. I had the wrong figure for fees in the strangle calc, the correct figure improves the ROI slightly to 8.42%.

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Old November 6th, 2013, 12:33 PM   #2322 (permalink)
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MGBRoadster View Post
Yeah, they're included in the "Potential P/L" column.

e.g. for ECZ31.42C the potential P/L is ( (0.0000 - 0.0004) * 125000 ) - $5.12 = -$55.12.

My fees at OX for these options are $5.12 each. I had the wrong figure for fees in the strangle calc, the correct figure improves the ROI slightly to 8.42%.


At least right now, you could probably only get .00015 credit for the put portion, not .0002. That will lower your ROI. It looks like the call part could give you .0002 credit.

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I noticed that even though price quotes are out to 5th decimal, Options Express only allows 4 digit orders. Here is a screenshot, where I tried to place a limit order at .00075 (OEX rounded it to .0008). I have sent OEX an e-mail about this.


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Last edited by kevinkdog; November 6th, 2013 at 12:39 PM.
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Old November 6th, 2013, 02:13 PM   #2323 (permalink)
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datahogg View Post
So if the ratio is much > 6 the risk reward is probably too great?

Or does this mean that the probability of success is higher than with a ratio of 2-6 and acceptable.

Thanks HH.

A ratio over 5:1 means your ROI is low. A 2:1 ratio means good ROI.

A margin-premium ratio tells you nothing about risk. The delta does that.

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Old November 7th, 2013, 08:29 AM   #2324 (permalink)
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MGBRoadster View Post
Yeah, they're included in the "Potential P/L" column.

e.g. for ECZ31.42C the potential P/L is ( (0.0000 - 0.0004) * 125000 ) - $5.12 = -$55.12.

My fees at OX for these options are $5.12 each. I had the wrong figure for fees in the strangle calc, the correct figure improves the ROI slightly to 8.42%.

Looks nice. I had recently been thinking about selling puts under the GBPUSD. I always have long futures, to the value of my account, on to hedge currency variations anyway, so I would not be so worried about puts going ITM and being assigned long futures.

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Old November 7th, 2013, 08:52 AM   #2325 (permalink)
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britkid99 View Post
Looks nice. I had recently been thinking about selling puts under the GBPUSD. I always have long futures, to the value of my account, on to hedge currency variations anyway, so I would not be so worried about puts going ITM and being assigned long futures.

When I looked last week, BP puts were around 1-5-2% monthly ROI, and calls were over 3%.

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Old November 7th, 2013, 09:23 AM   #2326 (permalink)
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kevinkdog View Post
When I looked last week, BP puts were around 1-5-2% monthly ROI, and calls were over 3%.

But as I am already using the margin for my futures hedge even 1-2% would be "free"

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Old November 7th, 2013, 10:01 AM   #2327 (permalink)
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britkid99 View Post
But as I am already using the margin for my futures hedge even 1-2% would be "free"

That makes the decision easier!

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Old November 7th, 2013, 12:54 PM   #2328 (permalink)
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MGBRoadster View Post

... the difficulty with the more complex combos is that you could be left exposed if you have to leg in. Maybe a combo order would get filled around a news spike. There may be one on the Euro for the bid rate announcement tomorrow.

I did a minimum sized test to see if this would work. For some reason OX wouldn't let me place an iron condor on EC, so I placed two separate credit spreads about half an hour before today's Euro news release. One side filled after a few minutes, and the other got filled on the news spike.

Both sides are showing a small profit now.

May be worth some further tests.


Chris

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Old November 7th, 2013, 02:57 PM   #2329 (permalink)
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Currency Trading Note

Note that Options Express only supports currency option pricing to 4 decimal places. Yet, I have seen 5 decimal pricing with both the Euro and the Yen. Here is the rule from CME:

http://www.cmegroup.com/trading/fx/g10/euro-fx_contractSpecs_options.html

"$.0001 per euro increments ($12.50/contract). Also, trades may occur at $.00005 ($6.25), $.00015 ($18.75), $.00025 ($31.25), $.00035 ($43.75), and $.00045 ($56.25), when price is below five ticks of premium."


So, just be aware of this if you trade thru Options Express. You can trade at 1, 2, 3, 4 ticks but not at .5, 1.5, 2.5, 3.5 or 4.5.

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Old November 7th, 2013, 05:47 PM   #2330 (permalink)
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Wow, I had no idea there was a 70+ page thread dedicated to options..

I'm not gonna lie, it was when I first went over to options and got consistently short gamma that I started reaping some serious profits. I never really made it in daytrading, and honestly the ES is one of the most efficient markets out there so I didn't expect to either. All academia consistently finds ES to be efficient especially on a minute basis, same for other daytrading instruments, although there is some weak (very weak) evidence of trending behavior at times. But it's well documented in academic literature that being short risk premium has massive profit potentials and often at S&P beating returns, re. the CBOE put-writing index, studies on vol arbitrage etc. etc. One of my fav instruments is the VXX (which is going through yet another reverse:split, in fact if one was to account for all reverse splits through history, it would start at 6000 or so in 2004 (model)), although I personally go straight to VIX futures or ES future options (one of my fav trades is from Atticus on elitetrader, basically a vol "box" ATM/OTM swap, making "skew" premium, see: Forums - trading option pitchforks

But ever since the dawn of vola ETFs/ETNs, the short premium is becoming very crowded as people are becoming more and more aware of this. I think eventually vol markets will come closer and closer to efficiency. Although lot of the skew premia etc. has to do with having to price moves outside of 2nd std. deviation, and anything at that level relies more on human psychology than rational calculus. And as fear is stronger than greed, let's hope it remains so in the future to continue to enable outsized returns.


Last edited by PeterOhlson; November 7th, 2013 at 05:53 PM.
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