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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,479 / 5,734
Last Reply:4 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old January 23rd, 2014, 06:52 PM   #2941 (permalink)
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SMCJB View Post
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.

Thank you SMCJB for the idea, will consider that. I've almost forgot about QG (and thought it is not liquid enough) -
I've bought the Mar 14 futures contract way back at much lower levels, so that there is plenty of room and slippage should not be a concern. I also thought to hedge using puts, however due to higher vol they are quite expensive - will see.


Last edited by rani; January 23rd, 2014 at 06:58 PM.
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Old January 23rd, 2014, 07:09 PM   #2942 (permalink)
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rani View Post
I've almost forgot about QG (and thought it is not liquid enough) -

It doesn't trade much but the price moves tick for tick with NG, at least for the prompt 3 months.
Outside the prompt 3 the bid/offer widens.

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Old January 24th, 2014, 08:03 AM   #2943 (permalink)
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I buy and sell options in futures.but never naked options


I like totrade options,i have buy and sell options,but i do vertical spread.
what is the system that you use to enter a short option trade?
even you buy out of the money options, the price can be reached .

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Old January 24th, 2014, 10:19 AM   #2944 (permalink)
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rdrd69 View Post
I like totrade options,i have buy and sell options,but i do vertical spread.
what is the system that you use to enter a short option trade?
even you buy out of the money options, the price can be reached .


Take some time to read this thread (from # 1) and all your questions will be answered.

Good luck.

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Old January 24th, 2014, 01:57 PM   #2945 (permalink)
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Math doesn't add up?

Futures Edge on FIO
Well, I closed out my NG calls today and banked a pretty hefty loss. I went into it with my eyes wide open and have no one to blame but myself. Up until yesterday, I was still within my 2X margin cushion, but today, it pushed through that level substantially.

I briefly considered hedging and/or selling puts, but I just couldn't get comfortable with the big number of puts I would have had to sell to cover my loss. I will chalk this up as a learning experience. I was short quite a few options, but I'm glad I didn't have more.

When one is getting their a$$ handed to them they reflect. They analyze. They try to learn.

In my analysis, I came upon something that troubles me and wanted to get everyone's thought on it.

First off, some ground rules:

1) You sell options with a minimum monthly ROI of 2%
2) You close out a position if it goes against you = 2x initial margin
3) You only sell options with a delta of .02 or less

Here's my dilemma:

In looking at a single trade, in order to get a 2% ROI, the credit received has to equal 2% of what you're "risking" on a trade. If you collect $100 and the ROI is 2%, then the margin plus cushion has to equal $100/.02 or $5000. That is, if its 30 DTE. If the DTE is more or less, you normalize it to a 30 day ROI. But the gist of it is, you are risking $5000 to make $100, if your ROI is 2%. If your ROI is 3%, you're risking $3,333.

What troubles me is, based on that scenario, your percentage of winners vs losers has to consistently be 99% or greater. If you make full premium received 98 times out of 100, you lose $200. If you make full premium 99 times out of 100, you make $4900. If you are right 100 out of 100, you make $10000.

I absolutely believe what Ron and a few others have posted here about their successes with this methodology. I believe it so much that I am risking real $$ trading it. But I'm starting to question the numbers.

I also realize that you don't blindly sell options. You look at seasonal charts, you look at support and resistance areas on the charts, you look at fundamental data to help locate a higher probability trade. But the bottom line is, you have to be right at least 98+% of the time to be marginally profitable. Is that reasonably achievable for mortal men (and women)?

Would love to hear what everyone thinks about this...

mu2pilot

PS- By the way, you can currently sell a March 8.0 NG call for a 45% ROI!


Last edited by mu2pilot; January 24th, 2014 at 02:12 PM. Reason: spelling correction
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Old January 24th, 2014, 02:20 PM   #2946 (permalink)
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What I did is I've converted my naked calls to bear call spreads. Obviously it needs to be done for credit, so that I used technical analysis to sell the lower strike calls when the price AND volatility inched higher and buy the higher strike calls during price and/or volatility pullbacks.

For example I've sold Mar14 7.0 calls for 0.038 some weeks ago. Then the price and volatility spiked and the calls went up. So that I've made my analysis and waited for a pullback (which came later). I then bought Mar14 7.25 calls (the same quantity) for 0.011, therefore receiving net credit of 27 cents. Still nice ROI and much safer than naked calls.

Obviously this cannot be done when the price go only up like this week, however we had quite nice price / volatility pullback yesterday after the report selloff. It is important to react quickly, passive approach (which normally is associated with the strategy this thread is about) is not the right choice here.
I would not do anything today though, frankly. The volatility spike is "hysterical", so that I would still wait for a pullback. This obviously depends on the strikes of calls being sold.

I am a technical trader. I always use analysis (incl. seasonals) and I admit I lack fundamental information unlike other guys here. ROI should not be the only or the most important factor for entering the trade, otherwise your above mentioned assumption is valid. I try to consider probabilities and risks and enter (and exit) the trade based on technicals. I posted a technical analysis couple of pages ago showing the NG is going to surpass 5.0 mark, which it did (unfortunately for most of us following this thread) just today.

We are up almost 9% on the Feb contract while writing this! WOW!


Last edited by rani; January 24th, 2014 at 03:00 PM.
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Old January 24th, 2014, 02:57 PM   #2947 (permalink)
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Has NG Vol spiked as much as the price has?

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Old January 24th, 2014, 03:01 PM   #2948 (permalink)
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SMCJB View Post
Has NG Vol spiked as much as the price has?

No, I do not think so, however it spiked quite a lot. Same situation as the days before Christmas.


Last edited by rani; January 24th, 2014 at 03:13 PM.
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Old January 24th, 2014, 03:17 PM   #2949 (permalink)
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mu2pilot, I guess the biggest thing is that the majority of trades I make are higher than 2% ROI. So then you lose less money if you exit when IM + excess are gone.

But more importantly, I do not always wait until the IM + excess are gone before exiting. If fundamentals are wrong then I am exiting before that. If trading is just crazy in a commodity, like NG this winter, or grains in 2012, or most things in 2008, I get out. This isn't a strategy for volatile markets.

In 2011 I had 1,978 losers, 12%, on 16,892 options. But I was up a net 143k for the year.

Trading cannot be done strictly by hard rules. Every situation needs to be evaluated for fundamentals, outside influences (like Congress) and emotions of traders.

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Old January 24th, 2014, 03:26 PM   #2950 (permalink)
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rani View Post
I posted a technical analysis couple of pages ago showing the NG is going to surpass 5.0 mark, which it did (unfortunately for most of us following this thread) just today.

NG is above 5 not because of technical reasons but a fundamental reason. Because of record cold. Without the record cold the price does not get near 5.

The price was 4.35 six days ago and did not advance until the cold wave came back strong.

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