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Selling Options on Futures?
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Selling Options on Futures?

  #3061 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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CafeGrande View Post
^ On a related note, can you find sufficient liquidity to sell a bunch of 1-Delta (.01) options with a premium of $40? I imagine there is plenty of liquidity in ES and maybe CL if you pick common, round number strikes, but what about some of the other physical commodity markets?

I realize everyone has their own number, but let's say to cover trade research and monitoring time, commissions and provide a decent profit, a trade won't be considered unless it's $1000 in gross premium (or $2000 or $10,000 or whatever). Even with a $1000 hurdle, can you get filled on 25 options without selling at or close to the bid?


I look for deltas < .05, and > $10 premium after commissions. Right now, I have 6 positions, in different instruments, of at least 20 contracts or more.

It isn't easy to get fills sometimes, especially with quantity, but it is possible.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #3062 (permalink)
Market Wizard
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CafeGrande View Post
^ On a related note, can you find sufficient liquidity to sell a bunch of 1-Delta (.01) options with a premium of $40? I imagine there is plenty of liquidity in ES and maybe CL if you pick common, round number strikes, but what about some of the other physical commodity markets?

I realize everyone has their own number, but let's say to cover trade research and monitoring time, commissions and provide a decent profit, a trade won't be considered unless it's $1000 in gross premium (or $2000 or $10,000 or whatever). Even with a $1000 hurdle, can you get filled on 25 options without selling at or close to the bid?

Heck yes. I have done 7,000-17,000 options per year, year after year and rarely did anything over 2 delta. 48,000 the last 5 years. And I don't blindly hit the bids.

My biggest volume last year was KC.

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  #3063 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
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Ask


On the /ES sometimes you can even get filled on the ask.

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  #3064 (permalink)
Trading for Fun
St Paul, MN, USA
 
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Good information - thanks for the responses. I'm especially surprised to hear about the coffee options, because that's one of the most annoying markets for me in terms of very wide bid/asks and not much volume.

I might have to try some different order entry methods. Although I sometimes sell options < 5 delta, my typical option sale is at a higher delta and perhaps term than some of the trade ideas mentioned here. I tend to leg into things and sometimes I switch the platform over to display volatility, rather than price, and enter/adjust my orders that way. I suspect than in some of the less liquid markets and months, I'm pretty much trying to sell to the market maker, and I want that last 10 or 20 basis points of volatility, too, so the orders sit and sit...

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  #3065 (permalink)
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CafeGrande View Post
I'm pretty much trying to sell to the market maker, and I want that last 10 or 20 basis points of volatility, too, so the orders sit and sit...

whats your strike rate / r:r (rhetorical question btw)?...........thus.......

can you afford slippage? can you lift offers/hit bids in illiquid markets or need to work both legs to have +ve expectancy?

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  #3066 (permalink)
Market Wizard
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KC the last few months was not worth trading because nobody wanted to buy calls. That has recently changed with the price rise.

Most of the 2,686 KC options I sold were the Sep 2013 contracts. Dec 2013 I only did 48 contracts. Mar 2014 I only did 2 contracts.

I so miss the days where you could sell KC 300 calls and make 8% ROI.

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  #3067 (permalink)
Trading Apprentice
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Trading options on commodity futures

Hello, Ron!
One friend of mine gave me the link to that huge thread at BigMike's forum.

I am from Russia and we have a community of people that sells commodity options. There are basically 3 camps of option sellers:

1) sell options in opposite of expected market move (calculated on fundamental basis - like suppply and demand ratio)
2) sell option strangles (delta-neutral) on relatively neutral markets with good depth and put/call equality - I belong to this camp, strangle use less margin and you don't need to HOPE for that wishable market move.
3) volatility arbitragers - they evaluate current and potential IV on further strikes and go in calendar ratio spreads (selling High volatility and purchasing low volatiliy with delta and gamma neutral to the market.

We run a skype conference, unfortunately in Russian, so it may be quite difficalt to catch whole thing and there are lots of flood

I have account with Vision Financial Markets (some people have it in OptionExpess), stick with QST.

Please let me know if you'd like to get closer to my trading experience, thoughts about going into this industry professionally.

My skype is de_bosh2008.

With great respect,
Alex Gorbunov

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  #3068 (permalink)
Market Wizard
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Hi Alex Gorbunov,

I'll pass on the offer.

Ron

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  #3069 (permalink)
Market Wizard
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March NG Calls

For anyone still in the March Nat Gas calls, last week I pieced together this chart, comparing 2003 and 2014 (I updated it with through today).

Based on this chart, I bought back all my March calls, and actually went long calls. Scared out of my position, for sure.

Of course, there are a lot of reasons why 2003 is not exactly like 2014, but my account could not withstand even half of the trauma that occurred in 2003. So, I played it safe. I'm living to fight another day.

I have no idea what is in store for the next 4 trading days, but I'll bet they are interesting.

The big lesson I learned: if the ROI is too good to be true, there is a lot of risk in the position. Seller Beware!



This will almost certainly be the last time I trade March NG calls. If you see me doing it next year, please remind me that I said "never again!"


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  #3070 (permalink)
Market Wizard
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REPORT ON THE NATURAL GAS PRICE SPIKE OF FEBRUARY 2003
STAFF INVESTIGATING TEAM FEDERAL ENERGY REGULATORY COMMISSION JULY 23, 2003
http://www.ferc.gov/legal/maj-ord-reg/land-docs/The-Price-Spike-Report-07-23-03.pdf

Of course we know one of the big losers back in 2003 was Reliant as they had to adjust their earnings forecast based upon an $80 million trading loss.
Reliant Resources to join trading market exodus - Houston Business Journal

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