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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,059 / 5,728
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Selling Options on Futures?

Old December 7th, 2013, 01:48 PM   #2491 (permalink)
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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 8-14 day forecast on this webpage is what most NG traders use.
Climate Prediction Center

As you can see it has changed from below normal to normal and above normal. I think the rally has run out of steam.

The specs got short late Oct-early Nov and then have had to cover their shorts. They have done that now and I think they are done covering and the weather is changing so it is about topped out.

Blue Line is DCOT futures only net positions for specs. Green is futures price on the report day (Tuesday).

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One thing that I do is use 3X margin for cash excess for NG. The margin is low and a quick movement can eat up the excess quickly. For example if IM is $300 I will have $900 cash excess or $1200 total margin & excess to cover the contract.

The ROI is still good even with the extra excess.

I also stay above $5 on NG calls right now. Too risky below that strike.

Friday's drop in price during the day was a classic "take your profit on an up week on Friday before the weekend" move.

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Old December 7th, 2013, 01:52 PM   #2492 (permalink)
Market Wizard
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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

I doubt many here trade YM so that is why you are not getting many answers. Some commodities you can split the bid/ask and get filled (NG for one). Some you have to hit the bid. Some you can place ask and someone will come up and buy it.

It takes experience to know which is which.

A lot of options on futures trade 23 hours a day. Energies, metals, ES are some.

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Old December 7th, 2013, 01:52 PM   #2493 (permalink)
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ron99 View Post
The 8-14 day forecast on this webpage is what most NG traders use.
Climate Prediction Center

As you can see it has changed from below normal to normal and above normal. I think the rally has run out of steam.

The specs got short late Oct-early Nov and then have had to cover their shorts. They have done that now and I think they are done covering and the weather is changing so it is about topped out.

Blue Line is DCOT futures only net positions for specs. Green is futures price on the report day (Tuesday).

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


One thing that I do is use 3X margin for cash excess for NG. The margin is low and a quick movement can eat up the excess quickly. For example if IM is $300 I will have $900 cash excess or $1200 total margin & excess to cover the contract.

The ROI is still good even with the extra excess.

I also stay above $5 on NG calls right now. Too risky below that strike.

Friday's drop in price during the day was a classic "take your profit on an up week on Friday before the weekend" move.

So, you use an extra 1x margin for NG? That is a good idea. I rolled a bunch after Thursday's spike, and with 1x extra, I would have been good without rolling...

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 7th, 2013, 02:06 PM   #2494 (permalink)
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kevinkdog View Post
So, you use an extra 1x margin for NG? That is a good idea. I rolled a bunch after Thursday's spike, and with 1x extra, I would have been good without rolling...

I also use 3X for CL and I definitely use a lower delta for CL. I think the deltas are too low in CL. Instead of deltas I like being at least $25 away from futures on puts and $30 on calls.

After being forced out of good trades years ago because of a short term spike I find that it is better to keep extra cash, get a slightly lower ROI, but have far more winners.

On Friday I rolled some NG 500 calls to 550s in my low risk accounts. But for the majority I kept the 5s. For every 2 5s I sold 5 5.50s. Lost a little bit of profit potential on the roll but it is still VG.

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Old December 8th, 2013, 02:50 AM   #2495 (permalink)
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ron99 View Post
I also use 3X for CL and I definitely use a lower delta for CL. I think the deltas are too low in CL. Instead of deltas I like being at least $25 away from futures on puts and $30 on calls.

After being forced out of good trades years ago because of a short term spike I find that it is better to keep extra cash, get a slightly lower ROI, but have far more winners.

On Friday I rolled some NG 500 calls to 550s in my low risk accounts. But for the majority I kept the 5s. For every 2 5s I sold 5 5.50s. Lost a little bit of profit potential on the roll but it is still VG.

Ron, on your roll, did you keep the same expiration or did you go farther out? If you kept the same expiration and rolled at no cost (I'm assuming that. You didn't say whether you paid to roll up to the 5.50s), how would your profit potential be reduced?

TIA.

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Old December 8th, 2013, 02:45 PM   #2496 (permalink)
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Hello.....Beginner seeking some advice

Hi,

I have just joined this site and I found this thread which is exactly what I'm looking for. I have recently started getting into options and also read the James Cordier book which Ron99 mentioned and I found very interesting and I liked the non-nonsense approach to options. I have two questions which I hope people can provide some answers to given their experience of trading:

Question 1
I have already read the information on the first page of this thread which is very valuable but I wanted to ask what other 'fundamental advice' people would give to a beginner? Note: My plan is to sell naked PUTs/CALLs as well as short strangles and I will obviously let them expire and keep the premium as outlined in the James Cordier book. I am also going to start looking at the various commodity options as well and I'm keen to try trading some of the other index similar to 'Karen The Supertrader' as mentioned on the first page of this thread


Question 2
How do people identify options with a good margin to payout ratio? My current broker is Interactive Brokers and I have found that it is pretty difficult to find options with a decent profit to margin ratio. For example, my first naked on the ES is follows:

SOLD 5 PUTs ES FOP (EW) Jan 31'14 1600 PUT @ 4.0.

Premium: 1,000
Delta: -0.0568
Initial Margin: 23,247
Maintenance Margin: 18,599

I have a 250k account and such a high margin and relatively low profit will impact how many trades I can make per month. I know that the James Cordier recommends a ratio of 1:2 or 1:3 (profit:premium) but I can't find assets with these types of ratios.....

Any other tips, advice, etc, would be greatly appreciated.

Thanks,

njr1

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Old December 8th, 2013, 03:08 PM   #2497 (permalink)
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njr1 View Post
Hi,

I have just joined this site and I found this thread which is exactly what I'm looking for. I have recently started getting into options and also read the James Cordier book which Ron99 mentioned and I found very interesting and I liked the non-nonsense approach to options. I have two questions which I hope people can provide some answers to given their experience of trading:

Question 1
I have already read the information on the first page of this thread which is very valuable but I wanted to ask what other 'fundamental advice' people would give to a beginner? Note: My plan is to sell naked PUTs/CALLs as well as short strangles and I will obviously let them expire and keep the premium as outlined in the James Cordier book. I am also going to start looking at the various commodity options as well and I'm keen to try trading some of the other index similar to 'Karen The Supertrader' as mentioned on the first page of this thread


Question 2
How do people identify options with a good margin to payout ratio? My current broker is Interactive Brokers and I have found that it is pretty difficult to find options with a decent profit to margin ratio. For example, my first naked on the ES is follows:

SOLD 5 PUTs ES FOP (EW) Jan 31'14 1600 PUT @ 4.0.

Premium: 1,000
Delta: -0.0568
Initial Margin: 23,247
Maintenance Margin: 18,599

I have a 250k account and such a high margin and relatively low profit will impact how many trades I can make per month. I know that the James Cordier recommends a ratio of 1:2 or 1:3 (profit:premium) but I can't find assets with these types of ratios.....

Any other tips, advice, etc, would be greatly appreciated.

Thanks,

njr1

Using Interactive Brokers is a big problem. Their margin requirement is too high. SPAN minimum (which is what Options Express requires for ES, at least for US people) is $1236 per contract, or $6180 total. That has a huge impact on your return.

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 8th, 2013, 03:40 PM   #2498 (permalink)
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njr1 View Post
Hi,

SOLD 5 PUTs ES FOP (EW) Jan 31'14 1600 PUT @ 4.0.

Premium: 1,000
Delta: -0.0568
Initial Margin: 23,247
Maintenance Margin: 18,599

I have a 250k account and such a high margin and relatively low profit will impact how many trades I can make per month. I know that the James Cordier recommends a ratio of 1:2 or 1:3 (profit:premium) but I can't find assets with these types of ratios.....

Any other tips, advice, etc, would be greatly appreciated.

Thanks,

njr1

This is just my opinion, but the volatility of ES presently is very low. A delta of 0.0568 seems a little high for the low
IV. I am waiting for the IV of the ES options to increase, but I do have some puts sold a few weeks back at
1440 (Dec), 1545 (Dec), and 1515 (Jan). As an example the IM of the 1515(Jan) put was 1432.
Good luck HH.

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Old December 8th, 2013, 09:51 PM   #2499 (permalink)
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mu2pilot View Post
Ron, on your roll, did you keep the same expiration or did you go farther out? If you kept the same expiration and rolled at no cost (I'm assuming that. You didn't say whether you paid to roll up to the 5.50s), how would your profit potential be reduced?

TIA.

Kept same expiration.

I did not roll at no cost. First there were commissions and fees. Second the premium for the higher calls was not exactly equal to the lower calls.

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Old December 8th, 2013, 10:12 PM   #2500 (permalink)
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ron:
how far out ( month) are you going at present on the CL options to sell the 25 otm puts and 30 otm calls?

NG up again tonite. Thought it may turn down based on the extended temps. Not yet.
Moved my NGH 530 calls out to NGH 600. this is what I meant when I said I was risk averse.
My CL options are feb 80, 81 ,83 puts and mar 75 puts, 110, 115 calls. Had 105 calls also but dec 3 move scared me out.
Muffin58

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