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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,025 / 5,728
Last Reply:22 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old January 8th, 2014, 09:15 PM   #2841 (permalink)
Trading Apprentice
Germany
 
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FOP questions Part 1

Hi Gents

Epic topic.definitely one of the all time references when it comes to a specific product, namely options on futures.

I got an extensive list of basic questions to all FOP experts out there.

1) I hardly remember the Eurex trader examination 20 years ago but I think entering Bid/Ask spreads into Options orderbooks on Eurex is (or was at that time) only allowed for marketmakers. Would this apply to FOPs on CME or can any participant enter bid/ask simultaneously and act somewhat as a liquidity provider?



2)Would any decent self-clearing FCM be able to offer FOPs margining at the cost of an outright future contract(below 1$)? I mean OX appears to be a fav here because of the tools which also suit to FOP traders but 13$ or even 3$ per option is a major turnback in time. Anyone knows&willing to share a roundabout fee for Knight Futures or ADM?



3) Whats your favourite standalone platform for FOPs in the retail sector? QST looks decent, the new Optionstool from CTS seems a stellar product with the integrated realtime optionsvaluator. However, what Im missing on most futures trading platforms is a complex custom options chain like most stock option brokers offer , you enter the legs/ratio etc and spread prices are chained. IB can do it I think but its not what Im looking for. I think this is where OX shines but I have never used them.



4)Would you say that FOPs are more "bang for the buck" compared to Stock Options? Since the latter are far more liquid and bid/ask is tighter in the stock options which reduces costs per trade, would you still go with the FOPs and why? "Overpriced" is a dangerous thought, especially when you compete against Susquehanna, Citadel,Getco or CTC types of marketmakers



5)Have you ever been assigned while selling American Options? What was the procedure? I mean it could get dirty if youre short a straddle and receive notification at the end of the day or the next day that your the chosen one. Best what could happen is an immediately viewable futures position to get things managed right away. I think a lot would appreciate an assignment to collect premium but unlikely for far otm options unless on big moves. Would I be able to claim a proof of assignment (which is random exchange procedure)from the broker?


Many thanks for your input.

Cheers

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Old January 9th, 2014, 12:36 AM   #2842 (permalink)
Elite Member
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kevinkdog View Post
??? From hot water burning the thrower? I actually had some big water drops hit me, but they were already frozen by the time they hit me.

Yeah people were throwing it INTO the wind.

"If I agreed with you, we'd both be wrong."
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Old January 9th, 2014, 12:56 AM   #2843 (permalink)
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Cleveland Ohio/United States
 
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addchild View Post
Yeah people were throwing it INTO the wind.

Well, I guess you can't fix stupid.

They must never have listened to Jim Croce about spitting into the wind:

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 January 9th, 2014, 09:36 AM   #2844 (permalink)
Market Wizard
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EIA Natural Gas Storage Report Expectations 9-Jan-14 for week ending 3-Jan-14

The largest survey I see (36 respondents) shows
Average -151
Median -150
Range -135 to -160
Std Dev 6

This week last year -191
5yr Average -131

Actual report will be available at Weekly Natural Gas Storage Report - EIA at 1030 EPT

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Old January 9th, 2014, 03:36 PM   #2845 (permalink)
Market Wizard
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Futures Edge on FIO

Are you a NinjaTrader user?

 
SMCJB, I'd like to hear your opinion of why NG is now 50 under what it was in Dec after record breaking cold.

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Old January 9th, 2014, 03:40 PM   #2846 (permalink)
Market Wizard
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I wish I knew. Crazy market. The annual Commodity Index re balancing is happening this week, and they need to sell approximately 35,000 lots of NG, so that could be a factor in this weeks moves.

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Old January 9th, 2014, 03:45 PM   #2847 (permalink)
Market Wizard
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Welcome

Quad View Post
Hi Gents

Epic topic.definitely one of the all time references when it comes to a specific product, namely options on futures.

I got an extensive list of basic questions to all FOP experts out there.

1) I hardly remember the Eurex trader examination 20 years ago but I think entering Bid/Ask spreads into Options orderbooks on Eurex is (or was at that time) only allowed for marketmakers. Would this apply to FOPs on CME or can any participant enter bid/ask simultaneously and act somewhat as a liquidity provider?

I don't know

2)Would any decent self-clearing FCM be able to offer FOPs margining at the cost of an outright future contract(below 1$)? I mean OX appears to be a fav here because of the tools which also suit to FOP traders but 13$ or even 3$ per option is a major turnback in time. Anyone knows&willing to share a roundabout fee for Knight Futures or ADM?

I don't understand your first question. $3.50 is not a major cost.

3) Whats your favourite standalone platform for FOPs in the retail sector? QST looks decent, the new Optionstool from CTS seems a stellar product with the integrated realtime optionsvaluator. However, what Im missing on most futures trading platforms is a complex custom options chain like most stock option brokers offer , you enter the legs/ratio etc and spread prices are chained. IB can do it I think but its not what Im looking for. I think this is where OX shines but I have never used them.

I haven't done the complex things you are asking about.

4)Would you say that FOPs are more "bang for the buck" compared to Stock Options? Since the latter are far more liquid and bid/ask is tighter in the stock options which reduces costs per trade, would you still go with the FOPs and why? "Overpriced" is a dangerous thought, especially when you compete against Susquehanna, Citadel,Getco or CTC types of marketmakers

Yes. Bid ask spread isn't a concern because we don't place market orders.

5)Have you ever been assigned while selling American Options? What was the procedure? I mean it could get dirty if youre short a straddle and receive notification at the end of the day or the next day that your the chosen one. Best what could happen is an immediately viewable futures position to get things managed right away. I think a lot would appreciate an assignment to collect premium but unlikely for far otm options unless on big moves. Would I be able to claim a proof of assignment (which is random exchange procedure)from the broker?

We sell far far OTM options that rarely get close enough to be exercised.

Many thanks for your input.

Cheers

I suggest you read the whole thread to get an idea about what we have been discussing. This isn't a thread that covers all types of option selling.

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Old January 9th, 2014, 05:19 PM   #2848 (permalink)
One who has little to say
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Quad View Post
Hi Gents

Epic topic.definitely one of the all time references when it comes to a specific product, namely options on futures.

I got an extensive list of basic questions to all FOP experts out there.

1) I hardly remember the Eurex trader examination 20 years ago but I think entering Bid/Ask spreads into Options orderbooks on Eurex is (or was at that time) only allowed for marketmakers. Would this apply to FOPs on CME or can any participant enter bid/ask simultaneously and act somewhat as a liquidity provider?

That would depend upon the broker, you're wanting to run your trading as a market maker? The majority of us are selling Deep OTM Puts and or calls.



2)Would any decent self-clearing FCM be able to offer FOPs margining at the cost of an outright future contract(below 1$)? I mean OX appears to be a fav here because of the tools which also suit to FOP traders but 13$ or even 3$ per option is a major turnback in time. Anyone knows&willing to share a roundabout fee for Knight Futures or ADM?

If I understand what you are asking futures options are going to incur exchange fees that are outside the brokers control. There is some competition as for pricing. Some of the brokers who offer very low fee's really don't like sellers, as we don't fit the risk profile they like.



3) Whats your favourite standalone platform for FOPs in the retail sector? QST looks decent, the new Optionstool from CTS seems a stellar product with the integrated realtime optionsvaluator. However, what Im missing on most futures trading platforms is a complex custom options chain like most stock option brokers offer , you enter the legs/ratio etc and spread prices are chained. IB can do it I think but its not what Im looking for. I think this is where OX shines but I have never used them.

I use a basic charting and live quotes from my broker(s) Honestly I'm so far out of the money that it would require rather large price swings to move the cost of a put/call by $10.00. I usually just put in my order and walk away, if it gets filled it gets filled.



4)Would you say that FOPs are more "bang for the buck" compared to Stock Options? Since the latter are far more liquid and bid/ask is tighter in the stock options which reduces costs per trade, would you still go with the FOPs and why? "Overpriced" is a dangerous thought, especially when you compete against Susquehanna, Citadel,Getco or CTC types of marketmakers

My personal opinion on Fut. options over Stock Options is much more bang for the buck in terms of ROI on margin. Also I don't have to follow 1000's of different stocks to find decent ROI. I can be a specialist and focus on the markets I know.



5)Have you ever been assigned while selling American Options? What was the procedure? I mean it could get dirty if youre short a straddle and receive notification at the end of the day or the next day that your the chosen one. Best what could happen is an immediately viewable futures position to get things managed right away. I think a lot would appreciate an assignment to collect premium but unlikely for far otm options unless on big moves. Would I be able to claim a proof of assignment (which is random exchange procedure)from the broker?


I use a stop loss, being disciplined in my opinion is the only way you can stay in the game long term. Being exercised means you either didn't follow a plan or you shouldn't be selling options(Really I mean that).

As for assignment, you'll be notified that you now have a corresponding long/short position which will be opposite of the futures option(s) you've sold.



Many thanks for your input.

Cheers

Hope I could answer a question or two.

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Old January 10th, 2014, 10:10 AM   #2849 (permalink)
World'sWorstTrader
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Span Margin


ron99 View Post
I never have used MM.

Please excuse my mistake. I think you use the calculated Span Margin.

I use Think or Swim (TOS) and they give a real time span margin (their version of span margin) that is updated live.

I monitor the TOS version of span margin, along with Loss=(premiums sold) and Loss = 2 * (premiums sold) to
consider making adjustments or exiting.

Thanks again for sharing your knowledge.

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Old January 10th, 2014, 10:13 AM   #2850 (permalink)
Elite Member
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datahogg View Post
Please excuse my mistake. I think you use the calculated Span Margin.

I use Think or Swim (TOS) and they give a real time span margin (their version of span margin) that is updated live.

I monitor the TOS version of span margin, along with Loss=(premiums sold) and Loss = 2 * (premiums sold) to
consider making adjustments or exiting.

Thanks again for sharing your knowledge.

How does SPAN margin compare to TOS margin requirements?

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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