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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,925 / 5,728
Last Reply:15 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old January 24th, 2014, 03:41 PM   #2951 (permalink)
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ron99 View Post
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.

Yes the reasons are, obviously, fundamental. No doubt about it. Technical traders do not care so much why, but you know that and I do not want to start anything close to fundamental vs. technical.

I just posted in middle of december, that NG prices, after breaking resistance, are very vulnerable and that is exactly what is happening. Without me knowing that there is another cold wave coming at the end of January.

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Old January 24th, 2014, 03:48 PM   #2952 (permalink)
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rani View Post
No, I do not think so, however it spiked quite a lot. Same situation as the days before Christmas.


It's actually quite a bit higher than it was in December. Today it reached the highest in two years which included the high IV period during the futures price melt down of early-mid 2012.

I'll post some charts this afternoon or over the weekend, but here's a key figure. ATM IV for March right now is 73%; yesterday's settlement was 55%; Weds was 52%, Tue was 45%, Fri (Jan 17) was 44%.

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Old January 24th, 2014, 04:04 PM   #2953 (permalink)
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CafeGrande View Post
It's actually quite a bit higher than it was in December. Today it reached the highest in two years which included the high IV period during the futures price melt down of early-mid 2012.

I'll post some charts this afternoon or over the weekend, but here's a key figure. ATM IV for March right now is 73%; yesterday's settlement was 55%; Weds was 52%, Tue was 45%, Fri (Jan 17) was 44%.

You are right and it is still moving up as is the price.

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Old January 24th, 2014, 04:08 PM   #2954 (permalink)
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Would it makes sense with this high volatility to switch my 7.00 / 7.25 call spread to a 7.25 / 8.00 1:2 ratio spread (buying back my 7.00 calls and selling twice as much 8.00 calls while keeping 7.25 calls)? Would be able to do it for a small debit and looks like a viable trade in this high volatility situation...

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Old January 24th, 2014, 04:21 PM   #2955 (permalink)
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rani View Post
Would it makes sense with this high volatility to switch my 7.00 / 7.25 call spread to a 7.25 / 8.00 1:2 ratio spread (buying back my 7.00 calls and selling twice as much 8.00 calls while keeping 7.25 calls)? Would be able to do it for a small debit and looks like a viable trade in this high volatility situation...

I rolled higher in Dec and got crushed.

There was one day the 7s moved higher in premium than the 5s. If this craziness continues the 8s will increase at a faster percentage than the 7s. And if you have more of them on it will be worse.

NG margin is increasing 10% on Monday. I wouldn't be surprised if FCMs jack up margin even more than that.

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Old January 24th, 2014, 04:43 PM   #2956 (permalink)
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ES Puts

Some interesting ES puts available...

Feb 1350P Delta - .01 for $0.7 SPAN Margin 126.1 28 DTE yields a 9% ROI
Feb 1400P Delta - .01 for $1.00 SPAN Margin 198.5 28 DTE yields a 7.99% ROI

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Old January 24th, 2014, 04:50 PM   #2957 (permalink)
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mu2pilot View Post
Some interesting ES puts available...

Feb 1350P Delta - .01 for $0.7 SPAN Margin 126.1 28 DTE yields a 9% ROI
Feb 1400P Delta - .01 for $1.00 SPAN Margin 198.5 28 DTE yields a 7.99% ROI

Are you sure about those numbers?

I get 111 IM for the 1350 and 176 for 1400. Are you using a mid day IM number?

Also you should not use today's premium with yesterday's margin. Your ROI will be off.

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Old January 24th, 2014, 05:26 PM   #2958 (permalink)
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ron99 View Post
Are you sure about those numbers?

I get 111 IM for the 1350 and 176 for 1400. Are you using a mid day IM number?

Also you should not use today's premium with yesterday's margin. Your ROI will be off.

Yes, I realize that yesterday's closing SPAN margin will not be equal to what it is today. Do you download the mid-day SPAN numbers?

In reality any ROI calculation is only good for that one point in time. Prices change, margins change, etc. I would like to know if you download SPAN during the day and use that in your analyses.

Regarding the 111 vs 126, 126 is the Total IM including the value (yesterday's) of the option. I believe that is what Dudetooth's spreadsheet is producing now. That is, unless my memory array modifications have screwed that up. I will check to be sure. Yes, that is what Dudetooth's spreadsheet reports. Do you recommend we focus on SPAN IMM vs Total Option IMM?

By the way, thanks for your advice on the NG this morning. I'm glad I got completely out.


Last edited by mu2pilot; January 24th, 2014 at 05:35 PM.
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Old January 24th, 2014, 05:49 PM   #2959 (permalink)
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mu2pilot View Post
Yes, I realize that yesterday's closing SPAN margin will not be equal to what it is today. Do you download the mid-day SPAN numbers?

In reality any ROI calculation is only good for that one point in time. Prices change, margins change, etc. I would like to know if you download SPAN during the day and use that in your analyses.

Regarding the 111 vs 126, 126 is the Total IM including the value (yesterday's) of the option. I believe that is what Dudetooth's spreadsheet is producing now. That is, unless my memory array modifications have screwed that up. I will check to be sure.

By the way, thanks for your advice on the NG this morning. I'm glad I got completely out.

No I don't get midday IM.

The IM for the 1400 was 147 on Wed. Futures were up 14.25 and the IM increased 29 to 176. With futures down 40 now the IM will be far higher than 176. I'm guessing 450+.

For ES, premiums and IM usually move in tandem. The ROI for a 1530 put using yesterday's settlement (1.00) and IM (536) was 3.0%.

I never use Total IM. I changed the spreadsheet to give me SPAN IM. Every place I trade uses SPAN IM not Total IM.

For example OX Buying Power is not the total of the premium added to the IM and subtracted from the Account Balance. It is just Account Balance minus IM.

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Old January 24th, 2014, 06:20 PM   #2960 (permalink)
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mu2pilot View Post

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...

This mega thread contains a lot of very good information (prior to registering, I checked it about once a month over a year or more), but there's not a lot of discussion about volatility. That's always struck me as odd, because you're selling, well... volatility.

The discussion and suggestions regarding research, diversification, trade selection, margin calculations, delta and ROI are all fine, but if you're selling very low delta options at low to moderate volatility ("teenies" to borrow from stock option jargon), you're taking on a lot of risk, more risk than you know if you're not watching your IVs and deltas on a regular basis.

This week in Nat Gas, and especially today, was one of those times when the steamroller wins, but if you hang in there, I'd make a few suggestions:

1. Stay diversified so a day like today doesn't hurt so much. It makes a big difference mentally if you have some winners or at least a portion of your portfolio that's even on a steamroller day.

2. Keep some capital so that when your head is clear, you can benefit from the market carnage. This is different from revenge trading, which usually doesn't work very well. Reduce your position or get flat, let a few days pass, and look at the market with a fresh set of eyes. Often you can find some very high probability opportunities. But stay small; losing big back-to-back can destroy your confidence.

3. Learn about volatility and how it can screw you if you're short options (esp. OTM options) in a week like the one just passed.

4. Learn your way around an option calculator. One with graphics (a pay off diagram) is nice but not necessary. You just want to become comfortable with how changes in price, time and implied volatility can affect your position profitability and deltas; save gamma, theta and vega and the more advanced greeks for another day.

5. Here are some low cost tools:

A. ivolatility.com. Home page is hideous, but if you subscribe to 'advanced futures options' for $15/mo (you can buy it mo-to-mo), it's ad-free and you'll get decent end of day data on ATM IV, IV for a particular strike, various 'constant maturity' ATM IV figures, etc. Their IV/HV graphs are tiny, but at a glance you can get an indication of where things have been over the last year. Their skew graphs are frequently awful because they include too many outliers.

B. ivolatility.com IV Graph service. 10 underlyings at $30/mo, end of day. Decent, but dated java application. I use it for their IV INDEX (constant maturity at 30, 60, 90 days ... out to two years) and some skew charts. Again, you can buy it mo-to-mo and their data goes back to late 2005.

C. Quikstrike.net. Free "Essentials" option analysis service offered in conjunction with the CME. They recently launched an "Essentials Plus" service for $25/mo for physical commodities or $40/mo for physical and financial (you can buy mo-to-mo). Other subscriptions are at the $100/mo, $300/mo and maybe even up to $750/mo for their high-end institutional customers. I'm a subscriber at $100/mo but I think the Essentials Plus might be all a beginner or moderate-sized trader needs. Some of the charts I've posted come from Quikstrike, but what I really like about it is the ability to create, save and edit/adjust positions. The P&L, Greeks and risk graphs update throughout the day. Great feature - I looked a long time before I found something that fit the bill.

D. Moore Research Center. Mentioned elsewhere in this thread. About $35/mo. Options are not their focus but they do generate an end of day table with IV and HV for liquid options and they have some long term historical charts that include the underlying's price, IV and HV.

All three firms offer a two-week trial in which you get full access to the product you're interested in. In the case of QuikStrike you can also demo their higher end subscriptions to see if they are right for you.

Disclosure: I have no connection to any of the firms above but at one time or another, I've been a customer of all of them.

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