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Selling Options on Futures?
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Selling Options on Futures?

  #2481 (permalink)
Trading Apprentice
West Palm Beach, Florida
 
Futures Experience: Advanced
Platform: TOS and IB
Favorite Futures: piano
 
Posts: 7 since Dec 2012
Thanks: 3 given, 0 received

Hi,

I am basically new to trading options on futures and when I look at the YM January option, strike 15000 put,
then the bid / ask spread is 53 / 65 (on IB platform).

So how much do you shave off here and still have a reasonable chance of getting filled?

The spread is 12, so shaving off 3 and trying to sell at 56, would that be okay?


Also, do options on futures have the same trading times as options on equities, i.e. from 9:30am til 4:00pm?

Thanks for your help, Richard

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  #2482 (permalink)
Trading for Fun
Lancashire UK
 
Futures Experience: Intermediate
Platform: Tradestation, Interactive Brokers, OX
Favorite Futures: ES Z CL EURJPY
 
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gismeu View Post
Hi,

I am basically new to trading options on futures and when I look at the YM January option, strike 15000 put,
then the bid / ask spread is 53 / 65 (on IB platform).

So how much do you shave off here and still have a reasonable chance of getting filled?

The spread is 12, so shaving off 3 and trying to sell at 56, would that be okay?


Also, do options on futures have the same trading times as options on equities, i.e. from 9:30am til 4:00pm?

Thanks for your help, Richard

Hi Richard,

I'm learning too, and I've never traded YM options, but here's how I'd approach this.

First I'd find a strike price that gives an ROI that I'm happy with. The initial margin for the 56 strike option on my IB account is GBP3554, so that's about USD5828. That gives an ROI of around 1.14% per month. I like to look for a better return.

I don't use my IB account to trade options on futures because of the margin.

The delta is about 0.13. I think Ron recommends 0.02 - 0.03, and Kevin goes up to 0.05, so I'd look for a strike further out.

If you right click on the strike price in Optiontrader and choose Contract Info > Description it gives you the trading times. It looks pretty similar to the underlying to me.


Hope this helps,

Chris

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  #2483 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: ES, NQ, CL, /6E futures options.
 
Posts: 267 since Oct 2012
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kevinkdog View Post
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.

This is good information. Thank you. I have heard the number 40 for selling as being good before. Time is only one factor. I think that implied volatility (IV) can be a large factor. Selling on a day when IV is high will give an advantage. I sold some /NQ puts yesterday when the /NQ IV was at 100% (relative to 1 year range). Today I show a gain. VIX is down today. Thanks for your plot.

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  #2484 (permalink)
Elite Member
Portland OR
 
Futures Experience: Intermediate
Platform: None
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Posts: 56 since Dec 2012
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Bakes View Post
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

The NG rally started yesterday after the EIA Energy Report was released. Stocks declined below the 5-year average, last year's numbers and also from the previous week.

The question is not whether NG will touch the stirke price but if the position can be held through the gargatuan margin increases that will be coming. And if If you have a broker like mine (OEX) you are looking at another 20-30% on top of SPAN.

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  #2485 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
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Barrington View Post
The NG rally started yesterday after the EIA Energy Report was released. Stocks declined below the 5-year average, last year's numbers and also from the previous week.

The question is not whether NG will touch the stirke price but if the position can be held through the gargatuan margin increases that will be coming. And if If you have a broker like mine (OEX) you are looking at another 20-30% on top of SPAN.

FYI, Options Express is currently at SPAN minimum for Natural Gas. They are +10% for Crude Oil, and +50% for Coffee.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #2486 (permalink)
Elite Member
Portland OR
 
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kevinkdog View Post
FYI, Options Express is currently at SPAN minimum for Natural Gas. They are +10% for Crude Oil, and +50% for Coffee.

Yes, I know that currently OEX margin is equal to SPAN. But from past experience, as the volatility and SPAN margin increases substantially, OEX starts pumping up their excess requirement over SPAN. So if this rally continues I expect OEX to start increasing the excess over SPAN.

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  #2487 (permalink)
Trading Apprentice
West Palm Beach, Florida
 
Futures Experience: Advanced
Platform: TOS and IB
Favorite Futures: piano
 
Posts: 7 since Dec 2012
Thanks: 3 given, 0 received


MGBRoadster View Post
Hi Richard,

I'm learning too, and I've never traded YM options, but here's how I'd approach this.

First I'd find a strike price that gives an ROI that I'm happy with. The initial margin for the 56 strike option on my IB account is GBP3554, so that's about USD5828. That gives an ROI of around 1.14% per month. I like to look for a better return.

I don't use my IB account to trade options on futures because of the margin.

The delta is about 0.13. I think Ron recommends 0.02 - 0.03, and Kevin goes up to 0.05, so I'd look for a strike further out.

If you right click on the strike price in Optiontrader and choose Contract Info > Description it gives you the trading times. It looks pretty similar to the underlying to me.


Hope this helps,

Chris

Hi Chris,

thanks for your reply!

I only used IB for the quotes, I have an account with Globalfutures where I will be trading my futures.

Also, my plan is to put on credit spreads and somebody here said to me that you would put the order in individually
(option by option), not like with equity options, where you put it on as a spread.

Another thing is that I want to hedge my trade, if I am wrong, with shares or in this case I believe it is IYY, but first
I need to open that trade with the options.
If I were to take smaller 'Deltas' then the credit received for the spread would be so low that the commission would eat up all of the money I get, that is why I need higher delta.

Which brings me back to my original question, how much do you guys shave off an option price?

Best and thanks, Richard

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  #2488 (permalink)
Trading Apprentice
west palm beach + Florida
 
Futures Experience: Advanced
Platform: IB
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Posts: 31 since Mar 2013
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NG Rally


Barrington View Post
The NG rally started yesterday after the EIA Energy Report was released. Stocks declined below the 5-year average, last year's numbers and also from the previous week.

The question is not whether NG will touch the stirke price but if the position can be held through the gargatuan margin increases that will be coming. And if If you have a broker like mine (OEX) you are looking at another 20-30% on top of SPAN.

While I do not have any crystal ball, I am using price action along with seasonals. While seasonals turn negative in a week or two, the recent price action is too bullish for any significant downturn in next week or two. The recent rally has started almost three weeks back on colder weather and accelerated (broke out of range) yesterday.

My take is, it will go to about 4.5 to 4.75 (and another 2 to 4 weeks) before going down. Just my two cents...

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  #2489 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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Barrington View Post
Yes, I know that currently OEX margin is equal to SPAN. But from past experience, as the volatility and SPAN margin increases substantially, OEX starts pumping up their excess requirement over SPAN. So if this rally continues I expect OEX to start increasing the excess over SPAN.

Hopefully they will not do that, but your warning is very good.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #2490 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,677 since Jul 2011
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kevinkdog View Post
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.

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

A more beneficial graph would be by commodity. There is a huge difference between different commodities. And also between calls vs puts.

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