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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 May 18th, 2014, 01:01 PM   #3291 (permalink)
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Zero85 View Post
I do the same thing as Ron. We go further out b/c there is less risk of the option going in the money, and more likely the trade will be profitable. Here's our baseball analogy, we hit singles often, we don't go trying to smack that home run ball and risk striking out. Risk management is key to option selling, we take small winners and avoid that one big loser as much as we possibly can, hence why we go for very low deltas.

No arguments there, I have the same attitude when it comes to option selling. In your experience how much a of a swing one would like to accommodate in CL. Is it 10 points, 20 points or perhaps something else? This may be another way to place the shorts as deltas change across different expiration times.

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Old May 18th, 2014, 01:23 PM   #3292 (permalink)
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One hidden problem with naked option selling is a big amount of negative vega. If the implied volatility goes up, the effect, I imagine, would be quite painful. Looking at CL I see that the implied volatility is at the very low historical levels, which increases the likelihood of its going up.

I am curious if people on this tread have ever experienced this problem?

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Old May 18th, 2014, 02:56 PM   #3293 (permalink)
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effective View Post
One hidden problem with naked option selling is a big amount of negative vega. If the implied volatility goes up, the effect, I imagine, would be quite painful. Looking at CL I see that the implied volatility is at the very low historical levels, which increases the likelihood of its going up.

That's an accurate and extremely important observation. The ATM IV in WTI Crude in Dec 2013 reached an all-time low and we're more or less at that level again. Option sellers should be extra cautious and might consider buying some OTM tail protection at these ultra cheap premiums.

It looks like you've got 18 months of ATM IV history on your chart. What is the maximum period you can look at in OptionVue?

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Old May 18th, 2014, 06:25 PM   #3294 (permalink)
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That's an accurate and extremely important observation. The ATM IV in WTI Crude in Dec 2013 reached an all-time low and we're more or less at that level again. Option sellers should be extra cautious and might consider buying some OTM tail protection at these ultra cheap premiums.

It looks like you've got 18 months of ATM IV history on your chart. What is the maximum period you can look at in OptionVue?

It goes 6 years back. I am attaching weekly chart that covers the whole period. One useful measure of volatility exposure that I find useful is theta/vega ratio. If I stay in the current month (~30 DTE) I typically end up with 1:4 ratio, so I will need 4 days to recover from volatility increase of 1%. If go out back month (~90 dte) it seems to increase to 1:7~1:8 and more for further out in time.

So I am personally trying to stay mostly in front month. As CafeGrande suggests, buying some cheap options may not be a bad idea. I did it last time around but got greedy this time. But then again I have not experienced serious volatility spike firsthand , so who knows how it all works in real life.

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Old May 18th, 2014, 06:54 PM   #3295 (permalink)
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effective View Post
It goes 6 years back. I am attaching weekly chart that covers the whole period. One useful measure of volatility exposure that I find useful is theta/vega ratio. If I stay in the current month (~30 DTE) I typically end up with 1:4 ratio, so I will need 4 days to recover from volatility increase of 1%. If go out back month (~90 dte) it seems to increase to 1:7~1:8 and more for further out in time.

So I am personally trying to stay mostly in front month. As CafeGrande suggests, buying some cheap options may not be a bad idea. I did it last time around but got greedy this time. But then again I have not experienced serious volatility spike firsthand , so who knows how it all works in real life.

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The further the put is out of the money, the smaller is VEGA. Put options closer to the money are more affected by
changes in IV.

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Old May 18th, 2014, 07:02 PM   #3296 (permalink)
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^ Chart image ^

Effective,

Thanks for attaching that chart. I was curious to see where IV topped out in late Dec 2008/first week of 2009. They must be using a nearby option series because their IV peaked at 118% versus:

- $OVX peaked at 100%
- a 90-day 'constant maturity' option (theoretical, interpolated) peaked about 83%. Source Merrill Lynch research.
- an "unknown" option series peaked at 98-100%. I say "unknown" because it comes from a document that OptionVue used to distribute to introducing brokers called the "weekly options report." That report might still be published; Paul Forchione of PFG (later an educator for OptionVue) was one of the distributors.

None of the figures are wrong, but as you can see, they vary widely depending on the option series selected. You'd probably see a similar wide spread if you pulled up Natural Gas, where most of the "juice" this past winter was in the Feb and Mar options. If you tracked Apr or May or used a 60 or 90 day constant maturity, it would have looked like a fairly normal winter.


Last edited by CafeGrande; May 18th, 2014 at 07:08 PM.
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Old May 19th, 2014, 04:21 AM   #3297 (permalink)
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Further Out

Greatest range of change 100 to 80 DTE.

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Old May 19th, 2014, 07:24 AM   #3298 (permalink)
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BlueRoo View Post
Greatest range of change 100 to 80 DTE.

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For that particular options contract yes, however the value of an option is really dependent upon the the path of the underlying. If anyone has a particular large dataset of FOP data it would be nice to test which range of DTE statistically sees the largest factor of overall value decay.

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Old May 19th, 2014, 12:25 PM   #3299 (permalink)
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mixpol View Post
just thinking about Gyazo - b64fe44705060a6eed18b53a00eb9aa5.png aug cl spread ) who wanna discus ?
my thoughts about jul exp within 92/105

Looks like your spread is doing OK so far. Do you have these real or in simulation. Would you think of buying back
one of the CLQ4/LOQ4 94 PUTS and selling one a little closer to the money to offset delta risk??

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Old May 19th, 2014, 03:47 PM   #3300 (permalink)
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In order to have a more focused thread on just selling far OTM options on futures, I am starting this thread.

https://futures.io/options-cfd-trading/31722-selling-far-otm-options-futures.html

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