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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,944 / 5,728
Last Reply:16 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old November 12th, 2013, 01:55 PM   #2341 (permalink)
Market Wizard
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Barrington View Post
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!

Yes the recent trend is for NGf to drop into expiration. 6 of last 7 years. Only 2010 was it higher. But with fracking and horizontal drilling the chances of NG making long moves up are small.

That will change when LNG exports start flowing. But that is years away.

I have been strangling the NG market.

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Old November 12th, 2013, 02:35 PM   #2342 (permalink)
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ron99 View Post
Yes the recent trend is for NGf to drop into expiration. 6 of last 7 years. Only 2010 was it higher. But with fracking and horizontal drilling the chances of NG making long moves up are small.

That will change when LNG exports start flowing. But that is years away.

I have been strangling the NG market.

I thought about strangling too but have to get close to the price to get decent premiums. So worried about a steep drop.

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Old November 12th, 2013, 02:44 PM   #2343 (permalink)
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Barrington View Post
I thought about strangling too but have to get close to the price to get decent premiums. So worried about a steep drop.

Yes too late to sell Jan puts.

I sold Feb 2.70s @ .006.

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Old November 12th, 2013, 04:23 PM   #2344 (permalink)
World'sWorstTrader
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5% chance in the money.


ron99 View Post
Interesting that she went through some of the stuff we go through. TOS was calling her because she was showing up on their risk lists. They didn't say if she had to scale back her trading because she was on the risk list.

He was just amazed that a retail trader was doing that well.

Also she usually rides the contracts out to expiration.

She also mentioned that you have to research for hours and hours and hours.

On the screen there was a column for % chance ITM. Is that a TOS calculation? Anybody here know how that is calculated?

She said she sold options that were 5% chance going ITM or less. She also rode them until they were 30% chance ITM before getting out.

There is a column available on the TOS option quote than can give the % chance of ITM. I sold some ES puts today with a 2% chance of being in the money. 98% chance of being out of the money. And a delta of 0.0093 .
ESZE - 1440 P. TOS also in the analyze tab will give a chart of the ITM & OTM probabilites.
Per Ron99's rule I will be looking to exit at about 1665 under present conditions, but this will change with time.
It is difficult to estimate the chance of being 30% in the money. Too many variables that can change.
But I will compare the two.

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Old November 12th, 2013, 05:30 PM   #2345 (permalink)
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Futures Edge on FIO

Are you a NinjaTrader user?

 
KC margin dropping 38% on Thursday. Now we really need bidders.

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Old November 12th, 2013, 05:44 PM   #2346 (permalink)
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ron99 View Post
KC margin dropping 38% on Thursday. Now we really need bidders.

Is OX margin still 20% over SPAN for KC?

Also curious about CL. Still 20% over?

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Old November 12th, 2013, 06:31 PM   #2347 (permalink)
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Raven View Post
Is OX margin still 20% over SPAN for KC?

Also curious about CL. Still 20% over?

yes & yes

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Old November 12th, 2013, 09:03 PM   #2348 (permalink)
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From what I understand, treating delta as roughly equivalent to the probability of expiring ITM assumes that prices are distributed lognormally. And whether that is the case or not can be debated. But assume a stock is trending higher for some time. For example BA, which is up 79% YTD and in a nice steady trend. Clearly, the distribution of prices is not lognormal, but is following an established trend. To me, the implication is that the trend is likely to continue. So clearly, a delta value for a BA option is not likely to really give an accurate indication of expiring ITM/OTM. So doesn't one need to examine the underlying to determine the usefulness of delta, on a case-by-case basis?

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Old November 13th, 2013, 07:45 AM   #2349 (permalink)
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josh View Post
From what I understand, treating delta as roughly equivalent to the probability of expiring ITM assumes that prices are distributed lognormally. And whether that is the case or not can be debated. But assume a stock is trending higher for some time. For example BA, which is up 79% YTD and in a nice steady trend. Clearly, the distribution of prices is not lognormal, but is following an established trend. To me, the implication is that the trend is likely to continue. So clearly, a delta value for a BA option is not likely to really give an accurate indication of expiring ITM/OTM. So doesn't one need to examine the underlying to determine the usefulness of delta, on a case-by-case basis?

Delta isn't really dependant on lognormal prices because it's calculated on basis of IV, which already account for possible fat tails. So delta would be an accurate representation of risk of ITM, presupposing option markets correctly price probabilities. There are many studies on the predictive power of IV, and most agree that it's the best measure for future volatility there is. But still, it tends to severely overestimate downside movements. For instance the 1680 ES put for Nov 15th on ES has a delta of 1. That means opt. markets imply a 1% possibility of a 5% crash in ES in just 3 days. It might sound rational but historical data says otherwise...these crashes don't occur merely as often as option markets seem to think they do. But this is is exactly why selling options is so profitable to begin with...

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Old November 13th, 2013, 11:50 AM   #2350 (permalink)
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Comparison.


I am using the TOS platform to compare the (Span Margin + loss for position) -> 3 * initial margin (IM) (possible exit) and the 30% probability of in the money that may be the exit rule used by Karen referred to in the Tasty Trade video.

Using the TOS simulation mode I sold the following:

/ES put (ESH4 Jan 1505 ). 5% prob. expiring ITM. Delta=0.04. IM=1038. 65 DTE. @2.06 ($137.50) .

Looking to the Profit/Loss chart, (Span Margin + loss for position) -> 3 * initial margin (IM)
will occur at approximately at 1645 with a loss of $470.00 .

Looking at the probability column for the Jan put options a 30% probability of being in the money occurs
at approximately 1695 with a loss of $180.00 .

This assumes that nothing changes but price, which is not the actual case. So this is a very approximate
comparison of the two.

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