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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,534 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old November 28th, 2013, 08:06 PM   #2461 (permalink)
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BNP forecasts NG to stay under $4 through winter 2014

Daily GPI / NGI The Weekly Gas Market Report / Price
BNP: $4 NatGas Ceiling Through Winter; Price Recovery Possible in 2014

David Bradley

November 11, 2013


Barring unexpectedly cold weather this winter, rising natural gas production will prevent prices from eclipsing $4/MMBtu, but an inventory deficit is likely to reemerge by next summer, prompting a price recovery, according to BNP Paribas' Teri Viswanath, director of commodity strategy.

BNP Paribas' latest price forecast sees natural gas at $3.55/MMBtu in 4Q2013, $3.90/MMBtu in 1Q2014, and $4.20/MMBtu by 4Q2014.

"Compared to last year, when imminent production declines held the limelight, current consensus has seemingly focused upon a rising surfeit that will prolong the structural imbalance in the market," Viswanath said in a note Thursday. "With supply uncertainty significantly lessened, with the development of onshore shale resources, weather now takes on a heightened role for natural gas balances by driving the call on marginal production and hence, price changes. As such, extreme weather conditions are now required to push prices out of their current narrow-range doldrums."

Most forecasters have not been calling for a harsh winter this year. Temperatures across the United States over the next three months will be a decidedly mixed bag, with early cold in central and eastern areas expected to fade in the first days of 2014, according to forecasters at Weather Services International (WSI) (see Daily GPI, Oct. 22). WSI's gas-weighted heating degree day forecast numbers for November are 3% higher than the 1981-2010 average but are slightly lower than normal for December, January and February. The National Oceanic and Atmospheric Administration is expecting a normal winter over the eastern consuming region. Forecasters at the Farmers' Almanac, on the other hand, expect the winter will be colder than normal for most of the United States (see Daily GPI, Aug. 27).

With the exception of localized spikes during periods of high demand, natural gas prices aren't expected to increase significantly this winter, according to the Federal Energy Regulatory's Winter 2013-2014 Energy Market Assessment (see Daily GPI, Oct. 17). And the U.S. Energy Information Administration (EIA) -- which expects the Henry Hub spot price for natural gas to increase to $4.00/MMBtu next year, compared with an estimated $3.71/MMBtu this year -- expects average winter temperatures this year to be roughly in line with the 10-year average (see Daily GPI, Oct. 9).

"Based on this prognosis, we see higher heating demand at the start of winter giving way to losses toward the end of the season, netting a y/y decline for this segment," Viswanath said. "Further exacerbating this winter imbalance is our expectation of domestic production growth. In our opinion, these two factors will convert the current inventory deficit to a surplus by the end of winter."

Working gas in storage is likely to decrease to 1.86 Tcf by the end of March, according to BNP Paribas, but an unexpected deviation from average temperatures resulting in a surge of heating demand "could force a very different storage outcome." Significantly higher heating degree days could drive March inventories as low as 1.54 Tcf, while a warmer scenario and weaker heating demand could leave nearly 2.13 Tcf in storage at the end of winter, the analyst said.

At the end of March 2013 there was 1.69 Tcf in storage, according to EIA data, and the five-year average for the last week of March is 1.82 Tcf.

There may be some light at the end of the natgas price tunnel in 2014, according to Viswanath.

"In our opinion, low prices this winter will fuel price-induced demand that will ultimately lead to tighter balances next summer. And while this incremental demand is unlikely to counteract the effects of an extremely warm winter, the possibility of summer time re-balancing leaves the door open for price recovery...as inventories adjust to the impact of summer demand growth, we see sustained price gains emerging."

The Wall Street consensus natural gas price runs steadily higher than the Nymex price, with the premium for 4Q2013 at 9.4%, according to Bloomberg data.

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Old November 28th, 2013, 10:17 PM   #2462 (permalink)
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Barrington, you shouldn't copy and paste an entire copyrighted article.

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Old November 29th, 2013, 09:09 AM   #2463 (permalink)
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Hi Ron

I am new to this thread and have read about 50% of it. Thanks for sharing your experience with selling options on futures.

I notice on one of your thread that you signed up with Decarleytrading.com. Are you able to let us know what they charge for commission on options on futures? I notice that there is a self directed online standard and pro. Can you tell us what is the minimum balance for the pro to get lower commission.

I have Ib account but I understand that the margin are too big for this style of trading. Is Decarley margins acceptable?

Thanks

Terry

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Old November 29th, 2013, 09:58 AM   #2464 (permalink)
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tbs8877 View Post
Hi Ron

I am new to this thread and have read about 50% of it. Thanks for sharing your experience with selling options on futures.

I notice on one of your thread that you signed up with Decarleytrading.com. Are you able to let us know what they charge for commission on options on futures? I notice that there is a self directed online standard and pro. Can you tell us what is the minimum balance for the pro to get lower commission.

I have Ib account but I understand that the margin are too big for this style of trading. Is Decarley margins acceptable?

Thanks

Terry

Welcome Terry

She charges a reasonable fee. The margins are exchange minimum.

Your other questions are best answered by Carley.

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Old November 29th, 2013, 11:37 AM   #2465 (permalink)
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couple of questions Ron

Futures Edge on FIO
Ron:
I have a couple of questions on your trading style.
If I get to personal I will understand if you prefer not to answer.
If I could start with questions on your NG feb 2.75-5.00 strangles maybe I can better understand. What were the deltas when you initiated the position? Do you put most of the position on in a short time frame (couple days) and if not how do you proceed based on the movement of the futures contract? Do you ladder the options if the futures begin moving directionally? You have said that you sell calls on up days and puts on down days. I understand the added volatility at these times, but if the contract moves as it has the past month upward, are you not affected? I ask this last question financially and emotionally. My trading style has been to not go as far otm and trade fewer contracts. I adjust as is comfortable for me but I am quite risk averse and if a position moves (using the ngg14 contract) from 3.50 to 4.00 I would probably be rolling out and up on the calls.
I believe I should be adjusting my trading style to your way of trading lower deltas and more contracts and the above questions have come up.
I have the ability to adjust currently because I'm a small trader trying to get going again. Small positions 1-4 lots. If I had to roll a larger amount of contracts I think it would not be financially feasible. But if you're far enough otm and short on time that may not be a concern.
I know my trading may be more emotional for me as I haven't traded for a long period of time at one stretch.
I may be getting closer to the chance to trade and retire and believe I could but may have to refine my style to be profitable enough to make it happen. As I trade now I don't think I can.
Thanks for your time and all you do here. This is the best thread out there on this topic. Josh

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Old November 29th, 2013, 12:42 PM   #2466 (permalink)
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ron99 View Post
Barrington, you shouldn't copy and paste an entire copyrighted article.

Oops!! Point taken.

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Old November 29th, 2013, 01:41 PM   #2467 (permalink)
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See answers in blue.

muffin58 View Post
Ron:
I have a couple of questions on your trading style.
If I get to personal I will understand if you prefer not to answer.
If I could start with questions on your NG feb 2.75-5.00 strangles maybe I can better understand. What were the deltas when you initiated the position? I don't keep track of what the delta was when I put it on. Maybe .05? On some commodities I break my rules and go to a higher delta. I do that on NG because it is range bound.

Do you put most of the position on in a short time frame (couple days) and if not how do you proceed based on the movement of the futures contract? It all depends on the situation. Sometimes all at one time. Sometimes over a week or two. Sorry for the vague answer. Experience will tell you when. But even then your timing could be off.

Do you ladder the options if the futures begin moving directionally? Depends if I have room in the account.

You have said that you sell calls on up days and puts on down days. I understand the added volatility at these times, but if the contract moves as it has the past month upward, are you not affected? Some. The put offsets the call for a while. But then you run out of offset. So then you rely on the cash excess you have for the strangle.

I ask this last question financially and emotionally. My trading style has been to not go as far otm and trade fewer contracts. I adjust as is comfortable for me but I am quite risk averse and if a position moves (using the ngg14 contract) from 3.50 to 4.00 I would probably be rolling out and up on the calls.
I believe I should be adjusting my trading style to your way of trading lower deltas and more contracts and the above questions have come up.
I have the ability to adjust currently because I'm a small trader trying to get going again. Small positions 1-4 lots. If I had to roll a larger amount of contracts I think it would not be financially feasible. You roll to more contracts further OTM. It shouldn't cost more in most cases.

But if you're far enough otm and short on time that may not be a concern.
I know my trading may be more emotional for me as I haven't traded for a long period of time at one stretch.
I may be getting closer to the chance to trade and retire and believe I could but may have to refine my style to be profitable enough to make it happen. As I trade now I don't think I can.
Thanks for your time and all you do here. This is the best thread out there on this topic. Josh

I am going to be brutally honest. I hope this doesn't offend you. But I hope this can help you and others reading this make the proper decision for themselves.

One thing that hits me when I read this is that you mention "trading may be more emotional for me" and "I am quite risk averse". Normally I recommend that people like this not trade futures and options. But your definition of these things may be different than others.

If you are emotional or risk adverse then these things will affect your trading. Probably detrimentally.

There will be big swings. You will lose a lot money quickly. You need to be able to make the proper decisions during those moments and be able to trade logically and not emotionally during and after those events.

Now maybe selling far OTM options is something you can handle. I can't tell from one post. But even far OTM options will have very bad days.

For example, earlier this year when I had on GC puts and GC dropped $200 in 2 days. I lost $68k in two days on 43 contracts. I had sold 1200, 1250 & 1300 puts when GC was 1600 and they were <60 DTE.

If you can handle events like this then by all means go ahead and trade. But traders need to be cool and calm when this happens. And it happens to everyone. But it does happen less to far OTM option sellers.

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Old November 30th, 2013, 10:46 AM   #2468 (permalink)
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ron99 View Post
For example, earlier this year when I had on GC puts and GC dropped $200 in 2 days. I lost $68k in two days on 43 contracts. I had sold 1200, 1250 & 1300 puts when GC was 1600 and they were <60 DTE.

If you can handle events like this then by all means go ahead and trade. But traders need to be cool and calm when this happens. And it happens to everyone. But it does happen less to far OTM option sellers.

Ron did this loss occur when the (margin + losses) -> approached 3 * IM, and your exit criteria came into play, or did the market move so fast that losses occurred before you could act? Just curious.

thanks HH.

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Old November 30th, 2013, 01:02 PM   #2469 (permalink)
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datahogg View Post
Ron did this loss occur when the (margin + losses) -> approached 3 * IM, and your exit criteria came into play, or did the market move so fast that losses occurred before you could act? Just curious.

thanks HH.

The market moved so fast it blew by my exit criteria.

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Old November 30th, 2013, 06:50 PM   #2470 (permalink)
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Dear Ron

It would be very instructive if you could you let us know

1. how you handle your position when the $200 drop against you. I mean what did you do when GC was dropping at that speed. Did you cut your position or try to roll them down? What other actions could you have taken? What was going through your mind at that point.

2. After that massive drop, did you then stay away from GC and move to other instruments?

Selling options on futures works most of the time, but we need to learn how to survive large moves like this.

Your insights would be most appreciated

Thanks

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