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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,268 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old March 14th, 2014, 10:52 AM   #3121 (permalink)
Market Wizard
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For those of you that had all the fun/anguish of trading March Natural Gas options you might be interested to know that yesterday balance of the month (ie Mar 14-31) traded below April for the first time!

The first 14 days of March Henry Gas Daily averaged $5.21. Hence as of last night March Henry GDD looks to be on target to price out at about $4.75 or April +37c which is also March Settlement -10c.

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Old March 20th, 2014, 01:43 PM   #3122 (permalink)
Market Wizard
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Nice article from an option seller covering basics and his risk strategy.

Premium Sellers: Beware of widow makers

He says get out when premium triples. Cordier says doubles. These work for higher, >$100, premiums.

I exit when my initial excess to cover trade is gone.

Risk strategies where you exit based on premium movement against you, work for higher premium amounts. They don't work if you are selling <$100 premium. So base your risk strategy on the type of selling you are doing.

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Old March 21st, 2014, 06:00 PM   #3123 (permalink)
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I've had some good success selling options on futures, mainly following Ron's method. I am following these markets: CC, CL, ES, NQ, GC, HO, KC, LC, LH, NG, RB, SB, SI, ZC, ZL, ZM, ZS & ZW. Some have mentioned selling premium on currencies. Anybody having success with that? Would you be willing to share your experience? What about other (futures) markets like the Bond markets? Are there other markets that I should be looking at?

mu2pilot

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Old March 21st, 2014, 07:54 PM   #3124 (permalink)
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I've had luck selling EC and JY on a fairly regular basis. JY has been pretty bad on ROI lately, but EC usually has some that are acceptable. Currencies usually have a good bid/ask spread and seem to trend a little better than some other commodities.

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Old March 25th, 2014, 02:32 PM   #3125 (permalink)
Trading for Fun
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Futures Edge on FIO

ron99 View Post
Nice article from an option seller covering basics and his risk strategy.

Premium Sellers: Beware of widow makers

He says get out when premium triples. Cordier says doubles. These work for higher, >$100, premiums.

I exit when my initial excess to cover trade is gone.

Risk strategies where you exit based on premium movement against you, work for higher premium amounts. They don't work if you are selling <$100 premium. So base your risk strategy on the type of selling you are doing.

All of these are great suggestions provided that YOU, the trader, has the discipline to follow it. I will be the first to admit that I am guilty of not following my predetermined exit parameters in the past. I would say to myself let's wait a little bit and hope for a reversal instead of methodically exiting when the premium doubled or tripled or when my excess margin is depleted.

Exit strategies are useless if they are not followed. This to me is one of the biggest challenges to option selling because a stop loss order can not be placed in the market like with stocks or futures, for us option sellers it's all mental.

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Old March 25th, 2014, 06:13 PM   #3126 (permalink)
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MJ888 View Post
All of these are great suggestions provided that YOU, the trader, has the discipline to follow it. I will be the first to admit that I am guilty of not following my predetermined exit parameters in the past. I would say to myself let's wait a little bit and hope for a reversal instead of methodically exiting when the premium doubled or tripled or when my excess margin is depleted.

Exit strategies are useless if they are not followed. This to me is one of the biggest challenges to option selling because a stop loss order can not be placed in the market like with stocks or futures, for us option sellers it's all mental.

Good insight. I sometimes wonder if a beginning option seller might be better off with a mid-full service broker, even if all the broker does is force the exit at 2x, 3x or whatever the original plan states.

We've probably all been there - letting a bad position run that ends up costing us thousands of dollars. That can be a lot more expensive than paying a few bucks more per round trip to a broker.

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Old March 25th, 2014, 09:40 PM   #3127 (permalink)
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Stop Orders

[QUOTE/]Exit strategies are useless if they are not followed. This to me is one of the biggest challenges to option selling because a stop loss order can not be placed in the market like with stocks or futures, for us option sellers it's all mental.[/QUOTE]


I place stop loss orders based on a contingency order over the option price for short options. I generally do not do this at the time of filling my short strategy. I try to get 5 to 7 days time decay. Then look at where 1 SD and 2SD price levels are and then make a decision about stop orders.

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Old March 26th, 2014, 01:40 AM   #3128 (permalink)
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Question on ES options

Hello All,
Just got done reading the whole thread, it was quite long but very worth it. A big thanks to everyone and especially Ron99 for starting the thread, I look forward to learning more and contributing. My background is mainly in equities and options and I am about to embark on selling options on futures. I too was inspired by Karen the Supertrader and have been working on my methodology every since. To begin with, I will be looking at the ES contract because that is a market I am very familiar with. I did want to throw out a question, do ES options behave a lot differently than commodity options? I'm trying to find out if you guys use a different method with ES equity options vs other commodity contracts. I hope that was not answered in previous threads, but if it was you can just tell me that and I'll look through them again. Thanks again everyone, very excited to have found this discussion and look forward to checking in from time to time.

TraderLuke63

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Old March 26th, 2014, 09:40 AM   #3129 (permalink)
World'sWorstTrader
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TraderLuke63 View Post
Hello All,
Just got done reading the whole thread, it was quite long but very worth it. A big thanks to everyone and especially Ron99 for starting the thread, I look forward to learning more and contributing. My background is mainly in equities and options and I am about to embark on selling options on futures. I too was inspired by Karen the Supertrader and have been working on my methodology every since. To begin with, I will be looking at the ES contract because that is a market I am very familiar with. I did want to throw out a question, do ES options behave a lot differently than commodity options? I'm trying to find out if you guys use a different method with ES equity options vs other commodity contracts. I hope that was not answered in previous threads, but if it was you can just tell me that and I'll look through them again. Thanks again everyone, very excited to have found this discussion and look forward to checking in from time to time.

TraderLuke63

For the ES options (/ES on TOS) you have a very good reference for implied volatility (IV), and it is the VIX.
I use a 15 minute plot of the VIX compared with a 200 unit moving average. Remember the old adage of
buy low and sell high. Or maybe better sell high (with regard fo IV) and let it expire. (If possible.)

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Old March 26th, 2014, 10:54 AM   #3130 (permalink)
Market Wizard
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TraderLuke63 View Post
Hello All,
Just got done reading the whole thread, it was quite long but very worth it. A big thanks to everyone and especially Ron99 for starting the thread, I look forward to learning more and contributing. My background is mainly in equities and options and I am about to embark on selling options on futures. I too was inspired by Karen the Supertrader and have been working on my methodology every since. To begin with, I will be looking at the ES contract because that is a market I am very familiar with. I did want to throw out a question, do ES options behave a lot differently than commodity options? I'm trying to find out if you guys use a different method with ES equity options vs other commodity contracts. I hope that was not answered in previous threads, but if it was you can just tell me that and I'll look through them again. Thanks again everyone, very excited to have found this discussion and look forward to checking in from time to time.

TraderLuke63

Welcome!

ES options are similar to other commodities. The one thing I do differently is I never sell ES calls. You have to be too close to ITM and the ROI is poor.

But the huge volume in ES puts makes them ideal for getting in and out.

Lately I have been selling ES puts 70-90 DTE for about 2.00 and trading out of them at 0.40-0.80. Hopefully about 30 days held. That usually increases the ROI to higher than if you ride them out to expiration.

I added columns to my spreadsheet that show me the Entry ROI and the ROI if I exit today. I can usually get a exit ROI that is 1.5 times the Entry ROI. It all depends on how quickly futures rise and the premium drops on the option.

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