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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 30th, 2013, 11:15 AM   #2741 (permalink)
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uuu1965 View Post
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!

You should call OEX.

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, 12:36 PM   #2742 (permalink)
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NG

Ron & other Energy Guys-

The ROIs on NG are really good, even calls north of 7.40. Is there any reason why I/we shouldn't be selling the hell out of them?

Thanks,

mu2pilot

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Old December 30th, 2013, 12:45 PM   #2743 (permalink)
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@MGBRoadster,
thanks didn't know the initial margin was used for end of day.

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Old December 30th, 2013, 02:03 PM   #2744 (permalink)
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mu2pilot View Post
Ron & other Energy Guys-

The ROIs on NG are really good, even calls north of 7.40. Is there any reason why I/we shouldn't be selling the hell out of them?

Thanks,

mu2pilot


NatGas can get volatile this time of the year, the ROI's are very enticing, however you have to balance this out with your risk profile.

What am I saying?

The models look really good, You have probabilities of 100% expiring OTM and delta's around 0.00 However, as we saw earlier this month, a severe cold snap and this market can go bonkers. Price very well might not eclipse 7.00 but the value of your sold option could skyrocket by many multiples. 57 Days is a lot of time for this market. I have wrote some Feb 8.00 calls 2 weeks ago when I could get $40.00 for them. You might look at a ratio spread to absorb some of the price going against your position.

What would your stop be? 100% i.e. You receive $75.00 in premium (less costs) so your stop will be $150? 2 weeks ago this would have been stopped out. using the 100% stop rule. I'm not saying don't do it. Just know your risk threshold and have a good plan on how you plan to handle increased volatility and upside price movement.

That's my thoughts, I'm eager to hear Ron and others thoughts on this.


Last edited by nomad4x; December 30th, 2013 at 02:08 PM.
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Old December 30th, 2013, 02:32 PM   #2745 (permalink)
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mu2pilot View Post
Ron & other Energy Guys-

The ROIs on NG are really good, even calls north of 7.40. Is there any reason why I/we shouldn't be selling the hell out of them?

Thanks,

mu2pilot

You could sell some. Bullish factors are NG inventory is below past years' levels and the 8-14 day forecasts are for below normal temps.

I wouldn't sell "the hell out of them" because as I know from recent experience, you don't want to have too many of them on if it goes against you.

The option premium of NG options moves extremely fast and much more than you expect.

If you can find acceptable ROI on a bear call spread, sell lower call strike, buy higher call strike, then you could sell more than some and be able to ride out extreme moves.

Back on 11/26, the NG Mar 5 call was .020. IM was 332. 91 DTE. Futures were 3.865. The ROI, ignoring costs and using 2X for excess, was 6.6% per month.

On 12/23 the premium was .218 and margin 1040. You would have needed 8.1 times IM on 11/26 to have enough cash excess to ride out the margin and premium increases to this point. An impractical level.

Back on 11/26, the NG Mar 5-5.25 call spread was .008. IM was 106. The ROI, ignoring costs and using 2X for excess, was 8.3% per month. More than the naked 5.

On 12/23 the premium was .037 and margin 150. You would have needed 3.2 times IM on 11/26 to have enough cash excess to ride it to this point. A much more manageable amount.

My personal lesson from this month is that I would have been far better off if I had done a bear call spreads instead of naked shorts in NG.


Last edited by ron99; December 30th, 2013 at 07:56 PM. Reason: typo
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Old December 30th, 2013, 07:46 PM   #2746 (permalink)
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Sorry wrong quote first time


mu2pilot View Post
Ron & other Energy Guys-
The ROIs on NG are really good, even calls north of 7.40. Is there any reason why I/we shouldn't be selling the hell out of them?
Thanks,
mu2pilot

Go to page 252 of this thread and read forward.

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Old December 30th, 2013, 07:48 PM   #2747 (permalink)
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ron99 View Post
You could sell some. Bearish factors are NG inventory is below past years' levels and the 8-14 day forecasts are for below normal temps.

Assume thats a typo. Bullish factors are...


Last edited by SMCJB; December 30th, 2013 at 07:50 PM. Reason: spelling
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Old December 30th, 2013, 07:54 PM   #2748 (permalink)
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SMCJB View Post
Assume thats a typo. Bullish factors are...

My gosh I have been making too many typos.

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Old December 30th, 2013, 08:09 PM   #2749 (permalink)
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Other findings from my naked NG options vs spreads study.

If you put on the Mar 6 call on 11/26 you would have needed 21.4 times IM!!! on 11/26 to still have it on 12/23. So a higher strike in this event would have been worse not better if you still had it on 12/23.

But it would have been better if you noticed what was happening and got out before things went crazy for the 6. You had a little more time before the 6 got run over compared to the 5.

The 5.00-5.50 spread ROI on 11/26 was 7.8% vs the 5.00-5.25 at 8.3% and it would have needed 3.5 times IM on 11/26 to keep it on 12/23 vs the 3.2 needed for the 5.00-5.25.

The 5.00-5.75 was 7.5% ROI and you would have needed 3.7 times IM.

The 5.00-6.00 was 7.3% ROI and you would have needed 4.2 times IM.

So the 5.00-5.25 spread was the best of the ones I studied. Best ROI and less excess needed to ride it out.

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Old December 30th, 2013, 08:40 PM   #2750 (permalink)
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ron99 View Post
Other findings from my naked NG options vs spreads study.

If you put on the Mar 6 call on 11/26 you would have needed 21.4 times IM!!! on 11/26 to still have it on 12/23. So a higher strike in this event would have been worse not better if you still had it on 12/23.

But it would have been better if you noticed what was happening and got out before things went crazy for the 6. You had a little more time before the 6 got run over compared to the 5.

The 5.00-5.50 spread ROI on 11/26 was 7.8% vs the 5.00-5.25 at 8.3% and it would have needed 3.5 times IM on 11/26 to keep it on 12/23 vs the 3.2 needed for the 5.00-5.25.

The 5.00-5.75 was 7.5% ROI and you would have needed 3.7 times IM.

The 5.00-6.00 was 7.3% ROI and you would have needed 4.2 times IM.

So the 5.00-5.25 spread was the best of the ones I studied. Best ROI and less excess needed to ride it out.

WOW!!! 21.4X IM!!! That could easily get even the largest of accounts in trouble...
That's what I like about this thread, people are so detailed oriented it is incredible! Thanks ron99!


I got to thinking about this and here is a couple off the cuff thoughts...
The factor here is if you play the I'll wait and see game you can easily get a shocker when it goes past your Mental stop. I've had this happen to me once in NatGas, it was 0.01 from me getting out and I played lets see what tomorrow brings, that cost me 0.10.

As a personal rule I usually play ratio spreads (these aren't fool proof and sometimes can make things worse!) when I choose to give myself heartburn. In this case markets that are seasonally bullish or have a tendency to be bullish.

Also when you do choose to sell Naked on extremely high IV, best to fence in profits or BTC when you hit a reasonable target. Experience has taught me leaving an option at 0.01 to ride out has cost me a few $1000 in the past.

-nomad


Last edited by nomad4x; December 30th, 2013 at 09:03 PM. Reason: Changed it from a rant to why I posted my off the cuff guesses.
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