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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,770 / 5,727
Last Reply:5 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old December 29th, 2013, 06:13 PM   #2731 (permalink)
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crito View Post
thanks guys,

i'm looking at a coffee strangle, what do you think?
the put would be triggy, the call seems ok.
anybody know the fundamentals on coffee, would we have made a bottom yet? if i look at the continues data coffee hasn't been this low for mannnnny years but againd that doesn't say it can't go lower ;-)

I like to put (green) lines in my charts from opening the position (down for put, or up for call) to the exp. date.
so the fut should stay above the shorted put line or below the shorted call line as we move foward. (I let it cross in the first few weeks)
Than copy the line (create parallel and place it at bad locations in the past, as you can see the put has a fair change of be a looser, the call not so much). And yes i know time decay is not linear.

just saw at the page before ron mentioned the march call 135
perhaps sell the call & wait for a downswing to sell the put.

just found on page 32 a link to the monthly ice pdf
https://www.theice.com/publicdocs/futures_us/ICE_Monthly_Softs_Fast_Facts.pdf

although i still think the put is a risky trade, this is interesting.
does anybody know at what price farmers start burning their stock out of frustration? (the minimum production costs?)
A part of it in italic...
Coffee open interest has been falling lately
and commercials are holding a rather long
position. What is important to note about
this is that the increase in the commercial
net position is not from shorts increasing
their holdings, but rather longs increasing
the size of their coverage. This would imply
less worry about prices falling going forward
and more risk of prices going higher. Given
how far the market has fallen already it
makes sense fundamentally, even though
there are no strong indicators yet the
market has reached bottom.




Interested in your thoughts,

regards.


@Ron99, you mentioned you like at least 2%/month, is that based on the maint. margin for the contract or do you take the 33% or 66% 'spare money' in account?
lets take this above coffee call as a sample
premium is 0.28 * 375 = $105, days 55, MM (ib) = $731
so it makes %105/ $731 in 55 days = 14.9% in 55days, which is 14.9% * (31 / 55d ) = 8.39%/month
but that 8.39% is based on the MM at opening, you use only 33% of your money (i still use 50%)
so taking that in account you have $731 * 3 = $2193 sitting in the bank (for margin safety) to make $105 (in the 55days)
that gives this trade 8.39 / 3 = 2.799% /month, (or 33.5%/year) which is still nice.

Where did I mention coffee 135s? I can't find it.

Farmers don't burn their crops.

A 100 put in KC is too risky especially using 50% of your money.

I always use IM for ROI calculations because that is what is required to put on the option. I also use the cash excess in the calculation.

30 DTE, sell option for $30 with $500 IM + $1000 excess = 2% Monthly ROI.

crito, if you sell options that close to ITM with that little cash excess you will get burned badly. I can guarantee it.

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Old December 29th, 2013, 06:17 PM   #2732 (permalink)
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nomad4x View Post
I second that, I don't post here much as I subscribe to the theory is you don't have much to add why add something of no value.

However, The above comment is really important, if you have a trade that goes against you or not as planned, skimming through the pages of this thread will either make you see something you personally overlooked, or glean some insight from a number of traders who have been doing this for a number of years.

I personally think this might one of the best threads on this forum, and this is probably the best forum on the interwebs for trading!


I've been trading for 15 years and selling options for 8. I would state that when you start out at this game, take is slow and keep your size manageable. 2 or 3 contracts going not as planned is a lot easier to manage than 5 or 10 or more.

Thanks to all the contributors of this thread and forum!

Welcome.

For one who says he is "One who has little to say" this is an excellent post. I bet with all the years of trading experience you have you can offer more excellent thoughts on trading.

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Old December 29th, 2013, 10:51 PM   #2733 (permalink)
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nomad4x View Post
I don't post here much as I subscribe to the theory is you don't have much to add why add something of no value.

hey nomad4x

how do you know its of no value? speaking up (asking questions per se) is not such a bad thing......in other words even the most off topic, valueless (in perhaps your opinion), inane questions can produce (from responses) nuggets of info of value to at least one audience participant.

caveat: take everyones opinion with a pinch of salt


Last edited by rosho01; December 29th, 2013 at 10:57 PM.
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Old December 30th, 2013, 12:33 AM   #2734 (permalink)
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nomad4x View Post
I've been trading for 15 years and selling options for 8.

Based on your experience, I certainly would enjoy hearing what you had to say!

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 30th, 2013, 03:39 AM   #2735 (permalink)
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Futures Edge on FIO
@Ron,

>Where did I mention coffee 135s? I can't find it.
sorry it was kevindog he is short the call 135 (kch) see chart in post #2717
By the way thanks for that kevindog, always nice to see what others have going.

> if you sell options that close to ITM with that little cash excess you will get burned badly. I can guarantee it.
Do you refer to both call & put kc & NG options I suggested or only the put KC?

>Farmers don't burn their crops.
Well they do (rarely) but the point is more that there comes a point where demand is so low that a farmer out of pure frustration prefers to burn his crop than to sell it for less than the production cost. Yes very irrational but I guess at that point its more emotion.
Itís also more a saying than that it happens. Bottom line, I was wondering if anybody knows the production costs of coffee so we know a hard bottom.

>A 100 put in KC is too risky especially using 50% of your money.
I guess you understand but just to clarify, I donít use 50% of my money for this position alone. I have portfolio of shorted options where this was just one candidate I looked at. I have been selling future options for 5 years with success. Iím excited I found some people that do the same, happy to share ideas. And I guess 50% on IB may as well be 33% on your platform. (only read till page 34 now but if not done yet we may want to do a few test setups on the margin differences, seen the differences mentioned by other in different countries on IB)

>I always use IM for ROI calculations because that is what is required to put on the option. I also use the cash excess in the calculation.
ok just a matter of different opinions but good to know. Initial Margin is as you say only needed to start the position and since we all keep enough excess money that is never a problem. Personally I find the maintenance margin more important since that is what you have to keep (at minimum) in the bank to keep the position in the air. And so I think its more fair to calculate the roi based on MM iso IM. But if you purely look at the numbers, IM is slightly higher so it builds in more safety. Even more fair but an administrative nightmare would be to keep track of the MM during the trade and use the highest value to calculate the % made on the trade (afterwards).

Now we discuss margin anyway, do you think that Karen (video) may have lower margin requirements because of higher net worth? This referring to how she starts looking at the position at 0.3delta/30%. But again she didnít start with millionsÖ
Alternatively she could do something totally different but didnít want to tell about that so, as they say send us into the bush ;-)

regards...

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Old December 30th, 2013, 06:38 AM   #2736 (permalink)
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kevinkdog View Post
Based on your experience, I certainly would enjoy hearing what you had to say!

I can say with out a doubt that when my option writes have gone against me. it was a combination or the sum of these things.

Never trust the models probabilities. Just because it says you have a 100% probability and a delta of 0.00 doesn't mean you won't have to adjust or that it won't bite you in the tail Time is a big factor here, you can find a number of trades that look great but they have way too much time to bite you.

Getting greedy: experience says $30.00 is a lot better than $40.00 in premium when you have a lot more room for the instrument to trade.

Not being disciplined, this is the only game where you HAVE to use a mental stop. As soon your position hits 50%, 100% or 200% you have to follow the plan! Not doing so will loose more money.

This is probably the only game in town where you get buyers remorse, you have to learn to deal with emotions. Selling options is a lot like Poker, you have to make decisions based on all the information in hand, and you have to make assumptions on incomplete information. Thus why we employ rule sets, probabilities and does it look good on the chart!

I've come to believe adjusting is an art unto itself! there are more than one way to do it, and no matter what you do, the next day you'll see another (better) way of doing it.


know your market, Selling CL or Natgas (other Markets) in low times of volatility is almost a guaranteed loss.

For me this works, your mileage may vary. Never exit a position immediately after an event that created a spike in volatility. I've lost more money adjusting or closing OTM trades on NatGas on Thursdays. If I would have waited until after lunch I could have adjusted or exited for a much better cost. <-- Buyer's remorse.

As for trades on my radar, sitting on a crude strange put on earlier this month and I'm looking at what the weather is going to do, I'd love to catch another opportunity to sell some 8.00 NatGas calls!

I'm starting to look outside Crude and Natgas for other candidates, trying to find that sweet spot for ROI.

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Old December 30th, 2013, 07:10 AM   #2737 (permalink)
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crito View Post

Initial Margin is as you say only needed to start the position and since we all keep enough excess money that is never a problem. Personally I find the maintenance margin more important since that is what you have to keep (at minimum) in the bank to keep the position in the air. And so I think its more fair to calculate the roi based on MM iso IM.

Interactive brokers "...enforces initial margin requirements at the end of the day" so you have to use IM to calculate ROI on any trade that is held overnight.

(See "Real Time Margining" section on this page: https://www.interactivebrokers.com/en/?f=4745&ib_entity=uk )

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Old December 30th, 2013, 10:02 AM   #2738 (permalink)
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crito View Post
@Ron,

> if you sell options that close to ITM with that little cash excess you will get burned badly. I can guarantee it.
Do you refer to both call & put kc & NG options I suggested or only the put KC?

Maybe those trades. Maybe other trades. But it will happen if you continue to trade close to ITM options and only use 50% excess.

>Farmers don't burn their crops.
Well they do (rarely) but the point is more that there comes a point where demand is so low that a farmer out of pure frustration prefers to burn his crop than to sell it for less than the production cost. Yes very irrational but I guess at that point its more emotion.
Itís also more a saying than that it happens. Bottom line, I was wondering if anybody knows the production costs of coffee so we know a hard bottom.

There is no such thing as a hard bottom. Prices can and will go below cost of production.

>A 100 put in KC is too risky especially using 50% of your money.
I guess you understand but just to clarify, I donít use 50% of my money for this position alone. I have portfolio of shorted options where this was just one candidate I looked at. I have been selling future options for 5 years with success. Iím excited I found some people that do the same, happy to share ideas. And I guess 50% on IB may as well be 33% on your platform. (only read till page 34 now but if not done yet we may want to do a few test setups on the margin differences, seen the differences mentioned by other in different countries on IB)

If you use 50% on all of your options and your account is full then you only have 50% excess.

Now we discuss margin anyway, do you think that Karen (video) may have lower margin requirements because of higher net worth? This referring to how she starts looking at the position at 0.3delta/30%. But again she didnít start with millionsÖ

FCMs are required to charge the minimum SPAN margin. Nobody can be charged less.

.

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Old December 30th, 2013, 10:14 AM   #2739 (permalink)
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nomad4x View Post

Not being disciplined, this is the only game where you HAVE to use a mental stop.

This is probably the only game in town where you get buyers remorse, you have to learn to deal with emotions.


Everything you said is great advice. For me, the 2 points I have quoted above have been the most important.

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 30th, 2013, 11:07 AM   #2740 (permalink)
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Legal entity


Hi all,
I intend to transfer my individual account on OX to legal entity account. May be somebody knows OX requirement for such type of account?
And Happy New Year!

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