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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,356 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old January 16th, 2014, 07:07 PM   #2891 (permalink)
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Ok, I was figuring my exit points wrong. With KevinkDog's help, I think I've got it right this time. Here is how you figure the 2X exit.

On my 6.9C

STO (Sold to Open Trade) date - 12/30/2013
Price - $0.016
IM - $313.80 (as of prev trade day)

Today's Price - $0.023
Yesterday's Margin - $406.70

Current Loss in Position (0.023 - 0.016) = $70.00 per contract
Additional Margin Req (406.70 - 313.80) = $92.90 per contract

So, based on current prices, I have used up $162.90 of my 2x margin cushion of $627.60. So, knock on wood, rub a red-headed boy's head, etc., etc., I still have quite a bit of cushion left.

Here on the numbers on my 7.4c

STO date - 1/2/14
Price - $.0009
IM - $171.20

Today's price = $0.017
Yesterday's Margin - $285.10

Current loss in position (0.017 - 0.009) = $80.00 per contract
Additional Margin Req (285.10 - 171.2) = $103.90 per contract

Based on current prices, I've used up $183.90 of my 2x margin cushion of $342.40, so, I'm a lot closer to hitting my exit point with this position than the 6.9, which is funny because the 7.4 is [obviously] further away from being ITM.

So, for now, I'm going to sit tight. Please check my math and let me know if I made any mistakes.

mu2pilot


Last edited by mu2pilot; January 16th, 2014 at 07:10 PM. Reason: used wrong 7.4 margin in calculations
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Old January 16th, 2014, 07:11 PM   #2892 (permalink)
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Crazy, crazy, crazy, did i say crazy day in Natural Gas today.
Didn't want to clog up this thread, so posted the potential 14.2% range capturable today in this thread here.

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Old January 17th, 2014, 04:09 AM   #2893 (permalink)
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mu2pilot View Post
Yikes. I am short some March 6.9 and 7.4 calls. I sold the 6.9s @ .016 and the 7.4s @ .009. I'm underwater quite a bit.

I know that Ron recommended against selling March calls, although that was a few days after I sold them. At the time I asked why I shouldn't sell the "hell out of them". I did sell a fair amount, but not as many as I was going to.

In addition to Ron's sage advice about dealing with positions going against us, Harvard16 has shared his experiences when he held positions last April.

I'm saying all this to get input from everyone as to how far I let this go before doing something and to let everyone ride along and learn with me.

The BidAsk on the 6.9 is currently .026/.035 and on the 7.4 it is .011/.030. What would you do?

mu2pilot

mu2pilot, I'm still sitting tight with all my short options on both side, and a lot more comfortable than a few weeks back when the market was shooting above 4.5 and vol was going mental. The NG market has been really strange lately with the market dipping during the worst of the cold only to rally later, I was very comfortable going into yesterdays inventory numbers as it was common knowledge there was going to be a huge number so little room for a surprise.

Norm4X had this good advise which rings true on pg 274, ' 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.'

With options usually better to let the dust settle and the wide spread retrace to normality before considering exiting or adjusting.

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Old January 17th, 2014, 08:30 AM   #2894 (permalink)
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Harvard16 View Post
mu2pilot, I'm still sitting tight with all my short options on both side, and a lot more comfortable than a few weeks back when the market was shooting above 4.5 and vol was going mental. The NG market has been really strange lately with the market dipping during the worst of the cold only to rally later, I was very comfortable going into yesterdays inventory numbers as it was common knowledge there was going to be a huge number so little room for a surprise.

Norm4X had this good advise which rings true on pg 274, ' 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.'

With options usually better to let the dust settle and the wide spread retrace to normality before considering exiting or adjusting.

I felt exactly the opposite: Yes, a large number was expected, but what if the number was even 5-10% worse than that? The market probably would have gone crazy. So, I exited a bunch of my position before the report, and sold some puts before the report. That made me feel a LOT better. Then, 10 seconds after the report, I hit some bids on calls before they dropped. Going back to full size now seemed prudent.

The lesson for me: if I feel really anxious going into a report, simply reduce my size down to the no-longer-anxious point.

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 17th, 2014, 02:43 PM   #2895 (permalink)
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CafeGrande View Post
Hi - You're getting hurt by a very sharp rise in implied volatility. The $6.90 and $7.40 calls are about 80% and 90% IV, respectively. That's the bad news. The good news is you're not taking much heat due to a rise in the underlying.

Assuming you're not 'over-positioned' (whatever that means for your circumstances), I'd hang on a bit. IV and the underlying can certainly rise if people keep milking the cold wxr story, but time decay will soon accelerate and mean reversion (in IV) is also on your side.

Why is the IV for the high strikes, >6.50, over 80%, but < 80% @ <6.50?

That is the #1 reason I got beat up so bad in Dec on the Mar NG calls far OTM. There was one day the 7 call moved up more in premium than the 5 call. Crazy.

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Old January 17th, 2014, 03:00 PM   #2896 (permalink)
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Today's NG drop may just be longs taking profit before a long weekend.

The fundamentals are very bullish. 15% less inventory than 5 year average. And extreme below normal temps predicted for next 2 weeks.

Below zero several nights next week.

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Old January 17th, 2014, 03:14 PM   #2897 (permalink)
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ron99 View Post
Today's NG drop may just be longs taking profit before a long weekend.

The fundamentals are very bullish. 15% less inventory than 5 year average. And extreme below normal temps predicted for next 2 weeks.

Below zero several nights next week.


As someone who is short calls, any drop, for whatever reason, is welcome relief


How important is the inventory number, as long as we don't run out by the end of March (which is typically the end of withdrawal season)? I see estimate of something like 1.2-1.5 trillion left at end of March, lowest in years, but not enough to run out. Maybe it is the fear of running out, or even coming close?

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

Last edited by kevinkdog; January 17th, 2014 at 03:18 PM. Reason: Added last sentence
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Old January 17th, 2014, 03:21 PM   #2898 (permalink)
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Today's NG drop may just be longs taking profit before a long weekend.

The fundamentals are very bullish. 15% less inventory than 5 year average. And extreme below normal temps predicted for next 2 weeks.

Below zero several nights next week.

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Old January 17th, 2014, 03:29 PM   #2899 (permalink)
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kevinkdog View Post
As someone who is short calls, any drop, for whatever reason, is welcome relief

How important is the inventory number, as long as we don't run out by the end of March (which is typically the end of withdrawal season)? I see estimate of something like 1.2-1.5 trillion left at end of March, lowest in years, but not enough to run out. Maybe it is the fear of running out, or even coming close?

Last Feb-Apr the May NG contract went from 3.30 to 4.40 when NG inventory was only 6% below the inflated (because of 2012's high level) 5 year average.

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Old January 17th, 2014, 03:39 PM   #2900 (permalink)
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LC News


Quoting 
The U.S. herd is the smallest since 1952. The on feed numbers are the second lowest on record, and the commercial beef output in the U.S. is the lowest since 1994. The USDA says the herd is at a 61-year low as of January 2013. Beef production dropped to a 20-year low. Talk about extremely bullish!

So how did all of this happen?

It appears it started with the 2011 drought in Texas. Cattle were liquidated because pastures burned up. Then, to add insult to injury, the Midwest had the driest spell since the 1930s in 2012. To further put upside pressure on cattle prices, global consumption is increasing (even though U.S. demand is down) and is the highest since 2008 because of standard of living improvements in various third-world countries making beef more affordable. Consequently, year to year exports are up 4.4%. Now Western Australia is experiencing very hot weather 110 to 115 degrees. Western Australia is the beef producing sector of Australia. That stresses those herds. Does it ever end?

Where?s the beef?

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