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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,080 / 5,727
Last Reply:Yesterday (12:40 PM) Attachments:642

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Selling Options on Futures?

Old January 23rd, 2014, 10:07 AM   #2931 (permalink)
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To show what can happen on far OTM ES puts here is what happened Aug 2011.

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You'll notice that the initial drop of ES futures in late July barely affected the options. It was the 2nd leg down that extremely inflated option prices.

On 8/3/11 the ES futures were 1254. The 900 put was 0.55. 44 DTE.

On 8/8/11 futures were 1111 and the 900 put was at 12.00!

The 1000 went from 1.60 to 26.25.

The 800, 450 OTM, went from 0.15 to 5.00!

So a 143 drop in 5 days can severely affect puts that are even 450 OTM and only 44 DTE. But this is a very rare occurrence.

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Old January 23rd, 2014, 10:09 AM   #2932 (permalink)
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SMCJB View Post
EIA Natural Gas Storage Report Expectations 23-Jan-14 for week ending 17-Jan-14

The largest survey I see (37 respondents) shows
Average -103
Median -103
Range -84 to -123
Std Dev 7.5

This week last year -168
5yr Average -181

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

At time of writing 8:11 EPT, NG market is already up almost 25c (5.1%) for the second day in a row, so it could be yet another 'interesting' day.

Feb NG just dropped 11 cents in one hour. I wonder if day traders are making money on these moves. Or are they getting eaten up.

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Old January 23rd, 2014, 10:40 AM   #2933 (permalink)
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ron99 View Post
Feb NG just dropped 11 cents in one hour. I wonder if day traders are making money on these moves. Or are they getting eaten up.

I know couple of energy day traders happy with the current moves (especially as such moves are quite technical in the very short time frame).
Unfortunately I am not one of them -

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Old January 23rd, 2014, 11:22 AM   #2934 (permalink)
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ron99 View Post
To show what can happen on far OTM ES puts here is what happened Aug 2011.

You'll notice that the initial drop of ES futures in late July barely affected the options. It was the 2nd leg down that extremely inflated option prices.

On 8/3/11 the ES futures were 1254. The 900 put was 0.55. 44 DTE.

On 8/8/11 futures were 1111 and the 900 put was at 12.00!

The 1000 went from 1.60 to 26.25.

The 800, 450 OTM, went from 0.15 to 5.00!

So a 143 drop in 5 days can severely affect puts that are even 450 OTM and only 44 DTE. But this is a very rare occurrence.

Very interesting. Thank you for displaying that graph. Its best just to ride out these OTM ES Puts.

Right now:

ESH4 P1330 for 27.50 premium with 198 IM and 57DTE
ESJ4 P1225 for 27.50 premium with 192 IM and 85DTE

Plan is to probably buy back at either $5 or $7.50 premium value left. So I'd assume the ESJ4 probably has a higher ROI?

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Old January 23rd, 2014, 11:31 AM   #2935 (permalink)
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SMCJB View Post
EIA Natural Gas Storage Report Expectations 23-Jan-14 for week ending 17-Jan-14

The largest survey I see (37 respondents) shows
Average -103
Median -103
Range -84 to -123
Std Dev 7.5

This week last year -168
5yr Average -181

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

At time of writing 8:11 EPT, NG market is already up almost 25c (5.1%) for the second day in a row, so it could be yet another 'interesting' day.


Actual -107

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Old January 23rd, 2014, 12:43 PM   #2936 (permalink)
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Mo111 View Post
Very interesting. Thank you for displaying that graph. Its best just to ride out these OTM ES Puts.

Right now:

ESH4 P1330 for 27.50 premium with 198 IM and 57DTE
ESJ4 P1225 for 27.50 premium with 192 IM and 85DTE

Plan is to probably buy back at either $5 or $7.50 premium value left. So I'd assume the ESJ4 probably has a higher ROI?

Basically the same. The 6 difference in IM can change daily. The deltas are about the same. I'd do the Mar just because of more volume but that doesn't mean a lot for ES. Still large bid/ask quantity. Like Mar better because of less DTE.

You will get a better ROI if you sell a higher premium. Subtracting costs for in and out off of only $20 gross profit knocks the ROI down heavily. Costs are too high percentage of gross profit.

But if you want the low risk and are OK with the ROI then go for it.

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Old January 23rd, 2014, 02:59 PM   #2937 (permalink)
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Snapshot of NGH4 option IV: settled yesterday about 51.5%, high today about 61.5%, and near the (floor) close it's now at 55%. Good day to be in the brokerage business.

Edit: Forgot to note:

"Vol" figure in the table is ATM IV using the application's default option pricing model
"ATM" figure in the table is the price of the ATM straddle
"BS" is a very slightly different ATM IV figure using a different model

Attached Thumbnails
Selling Options on Futures?-vol.png  

Last edited by CafeGrande; January 23rd, 2014 at 03:49 PM.
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Old January 23rd, 2014, 03:34 PM   #2938 (permalink)
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Jeezus. Watching (and being short some calls in) the NGH4 market is making me age 1 week for every day!

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Old January 23rd, 2014, 06:23 PM   #2939 (permalink)
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Thanks to today's price action in NG, I was able to trade myself out of the Feb/Mar calendar spreads leaving me with an acceptable loss. I am grateful as the spread has been on steroids lately.

I now hold 6.50/6.75 and 7.00/7.25 short call spreads (legged in into both for credit) and I am also long just ONE Mar 14 futures contract.

Much much smaller exposure in NG than one month ago...

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Old January 23rd, 2014, 06:33 PM   #2940 (permalink)
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rani View Post
I am also long just ONE Mar 14 futures contract.

If you want a 'smaller' hedge, the QG contract is very liquid and a quarter of the size of a full size NG contract.
Only problem is the min price tick is 0.5c rather than 0.1c on the full size (ie $12.50 vs $10) so there is slightly more slippage.

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