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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,792 / 5,734
Last Reply:23 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old December 1st, 2013, 10:42 PM   #2471 (permalink)
Market Wizard
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tbs8877 View Post
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

The first day, a Friday, GC was down $63. I stayed in my options. GC had been down one day and up the next the 7 previous trading days. I was still $200 below futures.

When things opened dramatically down on Sunday night I bailed on all GC positions. That means hitting the asks and not trying to be cute and get a better fill. Because each minute you waited the higher the asks went.

A long time ago I had tried to cover losing options with futures. I lost more money than if I got out of the options because futures reversed and I lost money on the futures and the options.

I also had to bail because I was getting into a margin call situation. Margin was going up 19% on Wed.

My mind was saying that this crash was going to stop any minute. But on Sunday night everybody was selling futures to cover longs and the snowball just kept getting bigger rolling down the hill.

If I had bought lower puts to cover what I already had on I would have been locking in a loss.

I have stayed away from GC since then because the ROI went below my acceptable level because of the margin increase.

I suppose the perfect hindsight thing to do would have been to dump the contracts on Friday. But there have been many times when I dumped contracts only to have the market reverse and the contracts were winners if I had held on.

The other thing you could do is to sell covered options with not many dollars of a maximum possible loss. Your ROI will be lower but you won't have to worry about this.

Someone should do a study to see if the lower ROI of selling covered options is better or worse than selling naked options and taking a hit once in a while.

All accounts of mine together lost 12% that month. I am well into positive territory for the year. The main reason it didn't totally wipe me out was because I am diversified.

We are playing where the contracts have a small chance of running us out on a major move. This was one of them. It is just a fact of trading. Nobody is going to have 100% winners every year.


Last edited by ron99; December 2nd, 2013 at 03:54 PM.
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Old December 1st, 2013, 10:47 PM   #2472 (permalink)
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thanks ron

Thank you for the quick response on my questions Ron.

Looking forward to your response on tbs8877 questions.

You didn't hurt my feelings or disuade me. I look forward to your posts as they're always genuine. Gracias

Muffin58

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Old December 2nd, 2013, 10:32 AM   #2473 (permalink)
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ron99 View Post
The other thing you could do is to sell covered options with not many dollars of a maximum possible loss. Your ROI will be lower but you won't have to worry about this.

Someone should do a study to see if the lower ROI of selling covered options is better or worse than selling naked options and taking a hit once in a while.

All accounts of mine together lost 12% that month. I am well into positive territory for the year. The main reason it didn't totally wipe me out was because I am diversified.

We are playing where the contracts have a small chance of running us out on a major move. This was one of them. It is just a fact of trading. Nobody is going to have 100% winners every year.

Selling put verticals will reduce risk, but there is a down side to selling put verticals because of volatility skew.

The following video will describe the Jade Lizard.

Utilizing A Jade Lizard Options Strategy - YouTube

The bought (long ) put will have a higher implied volatility (IV) than the sold put.
It is just the opposite for the call vertical. The sold call will have a higher IV than the long option.
The Jade Lizard will sell a naked put along with a call vertical.
If gains are closed maybe half way to expiration, the naked put will do much better than the put vertical.
HH.

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Old December 3rd, 2013, 11:14 AM   #2474 (permalink)
World'sWorstTrader
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Open interest

Just as a rule of thumb or guide line, what would most consider a minimum open interest required before
entering a trade.

thanks HH.

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Old December 3rd, 2013, 11:31 AM   #2475 (permalink)
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datahogg View Post
Just as a rule of thumb or guide line, what would most consider a minimum open interest required before
entering a trade.

thanks HH.

Zero if it is far enough OTM.

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Old December 3rd, 2013, 12:09 PM   #2476 (permalink)
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ron99 View Post
Zero if it is far enough OTM.

Agreed. OEX does not allow entry into options with zero Open Interest, unless you call them to place the orders. DeCarley does allow it.

The problem, obviously, is being able to exit these low OI or low volume positions to get out, should the position move against you. You likely will have to be very open to exiting at whatever price you can get, but that is somewhat true for any position you have.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old December 4th, 2013, 12:02 PM   #2477 (permalink)
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ron99 View Post
OX lowered their markup on margin for several commodities.

CL dropped from 20% to 10%
HO dropped from 30% to 20%
RB dropped from 30% to 20%
NG dropped from 10% to 0%

KC is still 50%!!! OJ is 10% All other major commodities are at 0%.


It looks like OEX has made some more changes:

HO dropped to 10%
RB dropped to 10%

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

Last edited by kevinkdog; December 4th, 2013 at 12:02 PM. Reason: changed to 10%
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Old December 5th, 2013, 11:20 AM   #2478 (permalink)
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VEGA/THETA

Just for information I am listing values for some /ES futures option
contracts and the ratio of VEGA/THETA. THETA is time decay.
VEGA is the risk factor for implied volatility (IV). All put
options listed have a delta very close to 0.02 .
For sold puts initially VEGA is the controlling factor for the
option value. As time passes, VEGA decreases and THETA
increases. The largest decrease in the ratio looks to be
from 02/22/14 to 01/18/14. Additional insights welcome.


Month Ticker Strike Ratio Expiration
Dec ESZ3 1580 P 1.05 12/21/13
Jan ESF4 1480 P 3.28 01/18/14
Feb ESG4 1390 P 6.0 02/22/14
Mar ESH4 1330 P 7.9 03/21/14
Apr ESJ4 1270 P 9.67 04/18/14

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Old December 5th, 2013, 05:28 PM   #2479 (permalink)
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ROI vs DTE

I always wonder if I am selling options too far out, just to get a better ROI. Or, maybe I am selling with too few DTE, and missing out on a lot time premium.

So, I decided to look at the data.

I took options with delta<.05 (deep out of money), in a wide range of instruments (21 to be exact). I ended up with 1,333/2 unique options, calls and puts.

I then plotted the DTE (Days to Expiration) vs. the average monthly ROI.

At least for today, it looks like- ON AVERAGE - it is best to sell options around 16 days, or around 42 days.

I'll redo this analysis every so often, and then maybe we can draw some solid conclusions.

As a side note, looking at all the options I have sold during the past year, the average DTE when I sold was 35 days. I thought it was just because I like shorter term options, but maybe it is because the ROI is better there, too.

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I did not look at it (yet), but I suspect that each instrument has a different curve, and a different "optimum" DTE.

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

Last edited by kevinkdog; December 5th, 2013 at 09:23 PM. Reason: actually 667 unique options - I had it doubled
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Old December 6th, 2013, 06:19 AM   #2480 (permalink)
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Nat Gas


Hi Ron,

Whats your read on Natural Gas, it took a big jump last session but all weather reports are saying milder weather ahead. I was thinking of selling some more Calls but being in Australia it a bit hard to get a read on your weather. Is there something else driving this move?

Would be nice if it played nice so my Feb 5200 Calls looked more attractive

Regards,

Bakes

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