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Selling Options on Futures?
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Selling Options on Futures?

  #2671 (permalink)
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ron99 View Post
The March NG 5.00 calls are bid 3 ticks higher than settlement. But the March NG 7.00 calls are bid 8 ticks higher than settlement??? The 8s are bid 5 ticks up??? Same thing for other nearby strikes.

Why do lower strikes have lower bids and asks?

My take - it is expansion of volatility in March contract (fear of running out of gas). Volatility of at the money call is 40% but 7 strike is almost 70%. Crazy difference. That is making some very good trades available (pitchfork one mentioned about 1-2 month earlier by someone). However most of us are hanging by a thread and probably not have any desire for increasing NG position.

Also as posted by SMCJB earlier, it would take another 2-3 more weeks before the March April spread would peak (and March volatility along with it).

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  #2672 (permalink)
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Rumor is a certain major Houston based Hedge Fund may have capitulated and covered their short position from a major Chicago firm.

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  #2673 (permalink)
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ron99 View Post
The next two NG weekly inventory numbers come out on Friday the 27th and Jan 3rd.

27-Dec EIA Release EARLY Estimates.
First estimates coming in, still subject to a lot of changes.
First survey I have seen had 15 respondents and an average of 173.1, median 175 and a standard deviation of 10.2
Range was 165 to 187

Last year same week -74
5 year average same week -125

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  #2674 (permalink)
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SMCJB View Post
27-Dec EIA Release EARLY Estimates.
First estimates coming in, still subject to a lot of changes.
First survey I have seen had 15 respondents and an average of 173.1, median 175 and a standard deviation of 10.2
Range was 165 to 187

Last year same week -74
5 year average same week -125

Weather for the reporting week (to be released on 12/27) was above normal temperatures while the draw estimates are much above normal. Any insights into why the draw this year is way above average? Also what sort of possibility you think of running out of gas /getting close to it? What is the minimum storage level historically so far and how much cushion it was historically and outlook for it this year?

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  #2675 (permalink)
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seemasp View Post
Weather for the reporting week (to be released on 12/27) was above normal temperatures while the draw estimates are much above normal. Any insights into why the draw this year is way above average? Also what sort of possibility you think of running out of gas /getting close to it? What is the minimum storage level historically so far and how much cushion it was historically and outlook for it this year?

Temps for the eastern half of US, except for Florida, were below normal for this week.

Temps on Sun thru Wed were 10+ degrees below normal in Upper Midwest & NE including NY.
http://www.cpc.ncep.noaa.gov/products/tanal/temp_analyses.php


Last edited by ron99; December 21st, 2013 at 09:55 AM.
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  #2676 (permalink)
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NG Trade Opportunity

Here is a ratio trade opportunity that the high volatility in March NG options has given.

Buy 1 March 425 call for about 0.46 and sell 5 March 6 calls for about 0.114 for net credit of about $1100.

Margin requirement would be about 1000 (and I would leave at least about 5 to 7k spare for this).

No hedging or any action till March future reaches about 5.70 or so - at that time buy the spread back for about break even or at significant credit (if at least 3-4 week time has passed). If NG never goes there then credit is yours to keep.

Just something that I put on this morning...

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  #2677 (permalink)
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seemasp View Post
Here is a ratio trade opportunity that the high volatility in March NG options has given.

Buy 1 March 425 call for about 0.46 and sell 5 March 6 calls for about 0.114 for net credit of about $1100.

Margin requirement would be about 1000 (and I would leave at least about 5 to 7k spare for this).

No hedging or any action till March future reaches about 5.70 or so - at that time buy the spread back for about break even or at significant credit (if at least 3-4 week time has passed). If NG never goes there then credit is yours to keep.

Just something that I put on this morning...

you could sell a dollar higher buying march 525 for 0.182 and sell the 7 calls for about 0.62
still making about same amount and being with a dollar higher

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  #2678 (permalink)
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aron1234 View Post
you could sell a dollar higher buying march 525 for 0.182 and sell the 7 calls for about 0.62
still making about same amount and being with a dollar higher

Yes that can work and many other combinations.

I went for 425/600 combination as I anticipate current trend to end in next month or so around 500 to 525. After confirmed reversal (around 450 to 425 region) I would sell 425 calls or close the spread and wanted to get some money back at that time as well. With 525/700 ratio you will get very little back but then you have much more cushion or safety. Each combination has own benefits and risks. Mine is bit aggressive style.

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  #2679 (permalink)
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seemasp View Post
I anticipate current trend to end in next month or so around 500 to 525.

If you expect the market to rally 10-15% why are you putting on a trade that will lose money if you are right?

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  #2680 (permalink)
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SMCJB View Post
If you expect the market to rally 10-15% why are you putting on a trade that will lose money if you are right?

I am not totally sure of continued uptrend and it can reverse anytime but after reversal you do not get much credit in this type of trade.

Also even with uptrend I do not see much loss unless market really spike up (go for 70-80 cents in a week). It can surely happen but probability is low. I may see some loss in next few days (if volatility continues to go up) but after a week or two, theta decay and volatility loss (as options come close to money) will start slowing down losses in 600 calls and will be offset to large extent by gains in 425 calls. If 4 weeks pass by and we are 50 cent higher - using current feb call values which has about same level of volatility - the 600 calls would be about 8 cents (value of feb 5.5 call right now) and 425 call would be about 77 cent - leaving credit of about 37 cents.

So you get credit to setup spread and then credit to close it as well. At least that is my hope. I welcome any other viewpoints/insights as I do not know all for sure and still learning this.

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