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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 April 1st, 2014, 04:35 PM   #3151 (permalink)
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datahogg View Post
But thanks in a large degree to the information from this thread (Especially RON99) , I noticed that my account
for the first quarter of 2014 is up approximately 12 % .

Thanks.

A nice steady 4% per month. Good job.

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Old April 1st, 2014, 04:43 PM   #3152 (permalink)
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datahogg View Post
But thanks in a large degree to the information from this thread (Especially RON99) , I noticed that my account
for the first quarter of 2014 is up approximately 12 % .

Thanks.

Not bad for the World's Worst Trader!

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Old April 4th, 2014, 12:58 AM   #3153 (permalink)
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Strangle Math Revealed


I thought I would share some figures on a CL strangle I have on right now. I was analyzing whether it would be smart to sell the strangle now and re-deploy the $$ or leave it on.

I legged into a CLM4 70/130 strangle over the period of 3/6 - 3/27. I sold the 70 puts on 3/6 and 3/12 and the 130 calls on 3/24 & 3/27. My cost for each option was 3 cents less commission and fees. My net received was $23.53 per option. Since it was (eventually) a strangle, the initial margin is roughly the amount of the highest side. If I had put the strangle on all at once and the Call side IM was $116 and the Put side IM was $90, the spread IM would have been around $116, normally a little bit more.

Over the course of legging into the strangle, the highest IM I saw was $116, so for the purposes of this analysis, I'm going to use that as the spread IM. I also had to average the DTEs since I sold options with DTEs ranging from 49 to 70. Current DTE (as of 4/3/14) is 42. So far, I've held the options an average of 16.75 days and have seen the price fall from 3 cents to 1 penny.

If I were to buy the options back today, my ROI would be 16.05% / month. Not too bad. I still have an average of 42 days to expiration, so that begs the question, do I hold on? Or do I sell? Before I ran the numbers, I expected that the answer would have been to sell. But that is not the case. If I keep the strangle for the remaining 42 days and make that penny, my ROI will be 3.2%. Definitely worth hanging on to. Heck, I should probably add more, but the additional transaction cost will probably make that a bad idea.

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Old April 4th, 2014, 08:16 AM   #3154 (permalink)
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mu2pilot View Post
I thought I would share some figures on a CL strangle I have on right now. I was analyzing whether it would be smart to sell the strangle now and re-deploy the $$ or leave it on.

I legged into a CLM4 70/130 strangle over the period of 3/6 - 3/27. I sold the 70 puts on 3/6 and 3/12 and the 130 calls on 3/24 & 3/27. My cost for each option was 3 cents less commission and fees. My net received was $23.53 per option. Since it was (eventually) a strangle, the initial margin is roughly the amount of the highest side. If I had put the strangle on all at once and the Call side IM was $116 and the Put side IM was $90, the spread IM would have been around $116, normally a little bit more.

Over the course of legging into the strangle, the highest IM I saw was $116, so for the purposes of this analysis, I'm going to use that as the spread IM. I also had to average the DTEs since I sold options with DTEs ranging from 49 to 70. Current DTE (as of 4/3/14) is 42. So far, I've held the options an average of 16.75 days and have seen the price fall from 3 cents to 1 penny.

If I were to buy the options back today, my ROI would be 16.05% / month. Not too bad. I still have an average of 42 days to expiration, so that begs the question, do I hold on? Or do I sell? Before I ran the numbers, I expected that the answer would have been to sell. But that is not the case. If I keep the strangle for the remaining 42 days and make that penny, my ROI will be 3.2%. Definitely worth hanging on to. Heck, I should probably add more, but the additional transaction cost will probably make that a bad idea.

Well from an ROI perspective it makes sense to leave them alone for max money accumulation, but I had a similar experience one time with coffee that might change your mind. Back in May 2010, coffee was range bound between 130 to 145 for months. We had a big harvest coming, and I thought that prices would remain flat to slightly decline. I made the cardinal mistake of over positioning (selling calls at 220, 230, 240 and 250). I was doing so good, make money and over fist. About 20K in two months. All of a sudden, with about 48 days left until expiration coffee starting moving extremely higher suddenly. It took me by surprise, and my options prices exploded. I lost a lot of money that time because of that move. In hindsight, I should have bought to close my options and pocketed the money, but I didn't want to pay the transaction fees. Geez was I dumb. Instead of booking sure money, I let that one slip through my fingers. I was holding all risk and little reward. Lesson learned.

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Old April 4th, 2014, 09:08 AM   #3155 (permalink)
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mu2pilot View Post
I thought I would share some figures on a CL strangle I have on right now. I was analyzing whether it would be smart to sell the strangle now and re-deploy the $$ or leave it on.

I legged into a CLM4 70/130 strangle over the period of 3/6 - 3/27. I sold the 70 puts on 3/6 and 3/12 and the 130 calls on 3/24 & 3/27. My cost for each option was 3 cents less commission and fees. My net received was $23.53 per option. Since it was (eventually) a strangle, the initial margin is roughly the amount of the highest side. If I had put the strangle on all at once and the Call side IM was $116 and the Put side IM was $90, the spread IM would have been around $116, normally a little bit more.

Over the course of legging into the strangle, the highest IM I saw was $116, so for the purposes of this analysis, I'm going to use that as the spread IM. I also had to average the DTEs since I sold options with DTEs ranging from 49 to 70. Current DTE (as of 4/3/14) is 42. So far, I've held the options an average of 16.75 days and have seen the price fall from 3 cents to 1 penny.

If I were to buy the options back today, my ROI would be 16.05% / month. Not too bad. I still have an average of 42 days to expiration, so that begs the question, do I hold on? Or do I sell? Before I ran the numbers, I expected that the answer would have been to sell. But that is not the case. If I keep the strangle for the remaining 42 days and make that penny, my ROI will be 3.2%. Definitely worth hanging on to. Heck, I should probably add more, but the additional transaction cost will probably make that a bad idea.

If you can find another trade that over the next month gives you an ROI over 3.2%, then it makes sense to exit and redeploy the capital. If you would exit the trade and just keep it in cash, it makes sense to hold on to it.

Ron has mentioned it a few times, and so have I in this thread. Many times, it is better ROI wise to exit a trade, and redeploy the margin to another trade. I do that quite a lot, and overall it has increased my ROI quite a bit. I try to grab some meat off the bone, but leave the scraps for someone else.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old April 4th, 2014, 09:17 AM   #3156 (permalink)
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Yes Kevindog, I remember questioning your view on this exact subject a while back and after doing more calculations and observation, I agree with you now, if there is more meat on the bone somewhere else that looks attractive better to take the money and move on.

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Old April 4th, 2014, 09:21 AM   #3157 (permalink)
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Harvard16 View Post
Yes Kevindog, I remember questioning your view on this exact subject a while back and after doing more calculations and observation, I agree with you now, if there is more meat on the bone somewhere else that looks attractive better to take the money and move on.


I re-calculate the ROI every day - what ROI would I get if I exited today, and what ROI I would get if I held to expiration. On some trades, it is better to hold to expiration. On others it is not.

Crude is a good example. A lot of times, expiration will be a month out, and the price will be .01. It is worthwhile to hold on for that last penny? Most times it is not.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old April 4th, 2014, 09:42 AM   #3158 (permalink)
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mu2pilot View Post
I thought I would share some figures on a CL strangle I have on right now. I was analyzing whether it would be smart to sell the strangle now and re-deploy the $$ or leave it on.

I legged into a CLM4 70/130 strangle over the period of 3/6 - 3/27. I sold the 70 puts on 3/6 and 3/12 and the 130 calls on 3/24 & 3/27. My cost for each option was 3 cents less commission and fees. My net received was $23.53 per option. Since it was (eventually) a strangle, the initial margin is roughly the amount of the highest side. If I had put the strangle on all at once and the Call side IM was $116 and the Put side IM was $90, the spread IM would have been around $116, normally a little bit more.

Over the course of legging into the strangle, the highest IM I saw was $116, so for the purposes of this analysis, I'm going to use that as the spread IM. I also had to average the DTEs since I sold options with DTEs ranging from 49 to 70. Current DTE (as of 4/3/14) is 42. So far, I've held the options an average of 16.75 days and have seen the price fall from 3 cents to 1 penny.

If I were to buy the options back today, my ROI would be 16.05% / month. Not too bad. I still have an average of 42 days to expiration, so that begs the question, do I hold on? Or do I sell? Before I ran the numbers, I expected that the answer would have been to sell. But that is not the case. If I keep the strangle for the remaining 42 days and make that penny, my ROI will be 3.2%. Definitely worth hanging on to. Heck, I should probably add more, but the additional transaction cost will probably make that a bad idea.

I agree with the others. Take the profit and put on the next month's strangle. That should make you more than 3.2%.

Only if you don't think there is anything else out there, should you keep it on.

And yes to what Zero85 said. Waiting 42 DTE for the last penny can, rarely, but it can eat you up.

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Old April 4th, 2014, 02:23 PM   #3159 (permalink)
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When to buy back?


mu2pilot View Post
I thought I would share some figures on a CL strangle I have on right now. I was analyzing whether it would be smart to sell the strangle now and re-deploy the $$ or leave it on.

I legged into a CLM4 70/130 strangle over the period of 3/6 - 3/27. I sold the 70 puts on 3/6 and 3/12 and the 130 calls on 3/24 & 3/27. My cost for each option was 3 cents less commission and fees. My net received was $23.53 per option. Since it was (eventually) a strangle, the initial margin is roughly the amount of the highest side. If I had put the strangle on all at once and the Call side IM was $116 and the Put side IM was $90, the spread IM would have been around $116, normally a little bit more.

Over the course of legging into the strangle, the highest IM I saw was $116, so for the purposes of this analysis, I'm going to use that as the spread IM. I also had to average the DTEs since I sold options with DTEs ranging from 49 to 70. Current DTE (as of 4/3/14) is 42. So far, I've held the options an average of 16.75 days and have seen the price fall from 3 cents to 1 penny.

If I were to buy the options back today, my ROI would be 16.05% / month. Not too bad. I still have an average of 42 days to expiration, so that begs the question, do I hold on? Or do I sell? Before I ran the numbers, I expected that the answer would have been to sell. But that is not the case. If I keep the strangle for the remaining 42 days and make that penny, my ROI will be 3.2%. Definitely worth hanging on to. Heck, I should probably add more, but the additional transaction cost will probably make that a bad idea.

On 04/02/14 I sold some CLM4/LOM4 81.5 PUTS @ $70.00 with 44 DTE
Today ( 04/04/14) I bought them back @ $30.00. It seemed like the thing to do.

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Old April 5th, 2014, 06:35 PM   #3160 (permalink)
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Well I haven't made a real money trade yet but after reading this whole thread I feel like I've been in the trenches with you guys for a while. Thanks to all who have contributed! I found options through tasty trade and then found this thread and I've been consuming everything I can find on options and paper trading ever since. I'll be opening an account with DeCarley soon and plan on keeping things very small and manageable until I have some experience under my belt. As I progress I hope to have some substance to add to the conversation here. I noticed that DeCarley has several levels of service/commissions , from full service at $35 to self directed Pro at $7, as a new trader would a higher service level be worth it?

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