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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,280 / 5,728
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Selling Options on Futures?

Old November 7th, 2013, 06:29 PM   #2331 (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.

Welcome to the thread.

I've tried following what atticus says for years at ET. I must be too dumb. However, I get the distinct impression that there are several posters over there including him who are much more interested in how great a trader they are perceived to be on a web forum than actually providing any useful information.


Last edited by eudamonia; November 7th, 2013 at 06:37 PM.
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Old November 7th, 2013, 07:08 PM   #2332 (permalink)
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eudamonia View Post
Welcome to the thread.

I've tried following what atticus says for years at ET. I must be too dumb. However, I get the distinct impression that there are several posters over there including him who are much more interested in how great a trader they are perceived to be on a web forum than actually providing any useful information.

I think the same can be said about any forum anwhere. Also, information provision is only one small part of participating in any forum, it can also be about debate or even just passing time. but people like atticus i feel have provided a great deal to the forums and has some very valuable insights, ie. the linked thread above. it's one of the best ways i've seen to exploit skew...


kevinkdog View Post
Can you give an example of a short gamma trade? Most of this thread is about selling theta, so I'm curious what you do.

Short gamma is the flipside of being long theta, so any long theta trade would be short gamma. that is where the risk goes, along with volatility risk. if you move further out from expiration, volatility risk overtakes gamma risk. i do the same as anyone in this thread, i am long theta, although i use almost no discretionary methods, it's pretty much pure exploitation of systemic alpha, not subjective timing of trades. i can afford such luxuries as again, vola markets are vastly inefficient. i'd love to learn how to subjectively time trades but my personality is that of a quant. i need quantification and fixed rules to abide by...this is why i left daytrading, because i couldnt find just one set of rules that would consistently return a profit...every method i saw always had this little text at the bottom; oh you also need to pay attention to support / resistance, price action, news bla bla. i cant quantifty that so i left it for good


Last edited by PeterOhlson; November 7th, 2013 at 07:15 PM.
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Old November 7th, 2013, 07:16 PM   #2333 (permalink)
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PeterOhlson View Post
I think the same can be said about any forum anwhere. Also, information provision is only one small part of participating in any forum, it can also be about debate or even just passing time. but people like atticus i feel have provided a great deal to the forums and has some very valuable insights, ie. the linked thread above. it's one of the best ways i've seen to exploit skew...



Short gamma is the flipside of being long theta, so any long theta trade would be short gamma. that is where the risk goes, along with volatility risk. if you move further out from expiration, volatility risk overtakes gamma risk. i do the same as anyone in this thread, i am long theta, although i use almost no discretionary methods, it's pretty much pure exploitation of systemic alpha, not subjective timing of trades. i can afford such luxuries as again, vola markets are vastly inefficient. i'd love to learn how to subjectively time trades but my personality is that of a quant. i need quantification and fixed rules to abide by...

Sorry, I am confused. I sell, so I believe I am short theta. You are long theta? Are you long calls and puts? Sorry for my misunderstanding.

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Old November 7th, 2013, 07:19 PM   #2334 (permalink)
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kevinkdog View Post
Sorry, I am confused. I sell, so I believe I am short theta. You are long theta? Are you long calls and puts? Sorry for my misunderstanding.

long any option is not long theta. if you are long any option you are by definition short theta. so by logic short any option would be long theta, and short gamma. and short volatility....

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Old November 7th, 2013, 08:48 PM   #2335 (permalink)
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PeterOhlson View Post
long any option is not long theta. if you are long any option you are by definition short theta. so by logic short any option would be long theta, and short gamma. and short volatility....

Yes, you are correct. I get mixed up because I am selling time premium. I was also confused by your statement "Short gamma is the flipside of being long theta, so any long theta trade would be short gamma." since flipside means opposite. But I understand that short gamma = long theta.

Thanks for clarifying!

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Old November 7th, 2013, 09:46 PM   #2336 (permalink)
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kevinkdog View Post
Yes, you are correct. I get mixed up because I am selling time premium. I was also confused by your statement "Short gamma is the flipside of being long theta, so any long theta trade would be short gamma." since flipside means opposite. But I understand that short gamma = long theta.

Thanks for clarifying!

No problem. Yes that's the essence of it, short gamma = long theta. And of course long theta = short volatility as well. Plus there are some higher order greeks like vanna & vomma, but unless one is managing a very large book or unusualy complex structure they are of no concern. Although I've been burned by DgammaDspot (gamma of gamma) before, when delta hedging at fixed intervals, because when you get close to expiry your theta and gamma can change lightning fast if the underlying is trading close to your short option. This has to do with pinning risks etc. etc.

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Old November 8th, 2013, 12:30 AM   #2337 (permalink)
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PeterOhlson View Post
Wow, I had no idea there was a 70+ page thread dedicated to options..

This thread is over 230 pages

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Old November 12th, 2013, 12:07 PM   #2338 (permalink)
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The OI for KC options is the lowest since 2009. Very low prices are bad for option sellers. Low volume.
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Old November 12th, 2013, 01:19 PM   #2339 (permalink)
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Wondering if selling the NGF calls (4.75) expiring 12/26 is a good bet at this time. According to the seasonals it seems that NG tops in December and starts to trend lower. Of course, its if I'm reading it right!

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Old November 12th, 2013, 01:36 PM   #2340 (permalink)
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Coffee Options @Ron99


@ron99

We agree that coffee options aren't the best place for option sellers at the moment due to low volatility and interest.

Although we are typically advocates of short option strategies, we are actually buying calls in this market....

We like the March 130 calls. They are deep out of the money but they have three months to come alive. Any large spike higher in prices could positively impact the value of this option, even if coffee prices never see the vicinity of the strike price.

Keep in mind, this is a "lottery ticket" play. The risk is low and limited to the premium paid for the option, but the upside is theoretically unlimited.

As far as short options go, we don't have anything new on the horizon but many of our clients are holding short December Euro 132 puts, short January bond 126 puts and short ES 1800 calls. All are moderately profitable (at the moment). We'll be looking for quick exit strategies in each of them if the opportunity presents itself.

*There is substantial risk of loss in trading futures and options.

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Last edited by decarleytrading; November 12th, 2013 at 03:51 PM.
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