Selling Options on Futures? - Options on Futures | futures.io

Selling Options on Futures?
 Started: July 19th, 2011 (05:16 PM) by ron99 Views / Replies: 612,020 / 5,869 Last Reply: March 24th, 2017 (12:30 PM) Attachments: 659

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# Selling Options on Futures?

Market Wizard
Cleveland, OH

Platform: QST
Favorite Futures: Options on Futures

Posts: 2,453 since Jul 2011
Forum Reputation: Legendary

rrvb
 I'm confused. How are you calculating ROI? My understanding: You start with a ROI of 2% -- for example, you put up \$1000 margin to well a short option for \$20 Then, a few weeks later, the margin requirement drops to \$300 and you can buy your short option back for \$5. So, now your ROI is \$15/\$300 = 5% Is that the way you are calculating ROI? Thanks, Randy

Post with ROI calculation on page 202.

Or another more accurate way of calculating ROI
365/DTE/12*Net Profit/(Beginning Initial Margin + Excess)

Last edited by ron99; June 9th, 2014 at 05:07 PM.
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Elite Member
Dallas, TX

Platform: T4, Zaner360, TOS
Favorite Futures: Options

Posts: 104 since Sep 2013

ron99
 Post with ROI calculation on page 202. https://futures.io/options-cfd-trading/12309-selling-options-futures-202.html#post353103 Or another more accurate way of calculating ROI 365/DTE/12*Net Profit/(Beginning Initial Margin + Excess)

Probably stating the obvious, but if you close the trade early, the ROI calculation would be:

365/Days Held/12*Net Profit/(Beginning Initial Margin + Excess)

Elite Member
Cleveland Ohio/United States

Broker/Data: various
Favorite Futures: futures

Posts: 2,236 since Jul 2012

rrvb
 I'm confused. How are you calculating ROI? My understanding: You start with a ROI of 2% -- for example, you put up \$1000 margin to well a short option for \$20 Then, a few weeks later, the margin requirement drops to \$300 and you can buy your short option back for \$5. So, now your ROI is \$15/\$300 = 5% Is that the way you are calculating ROI? Thanks, Randy

I might do it a little differently than most people. If my initial margin when I open the trade is \$1000, I keep that amount "locked up" until I exit the position or until expiration. So, my ROI is based on the \$1000.

Now, most people might say "Hey, Kevin, that's pretty dumb. If the margin requirement decreases to \$100, that is \$900 you aren't utilizing. You could then sell a bunch more options with the freed up margin Your method is pretty inefficient."

I agree, but I want to avoid getting caught with too many contracts. Let's say I initially sell 10 contracts. You sell 10 too. Then, when the margin drops, you sell 10 more. I sell zero more. Now, if the price goes back up, you are short 20, and you could get into trouble. I only have 10 though.

Hope this explains it a little bit.

 If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread

St Paul, MN, USA

Platform: Abacus
Broker/Data: RJO, Interactive Brokers
Favorite Futures: Commodity Futures & Options

Posts: 193 since Jan 2014

kevinkdog
 I might do it a little differently than most people. If my initial margin when I open the trade is \$1000, I keep that amount "locked up" until I exit the position or until expiration. So, my ROI is based on the \$1000. Now, most people might say "Hey, Kevin, that's pretty dumb."

Hey, Kevin, that's pretty dumb.

Actually, that method sounds fine. It's more conservative and you may avoid too much concentration in certain products.

There are lots of ways to skin a cat and if someone is not a fulltime trader, they may not have the time or the desire to micro-manage the allocated margin, margin cushion and ROI. And while I think DudeTooth's application is a great tool, it's not the final word on margin use, unless, I suppose:

- you're certain your FCM uses SPAN minimums all the time
- you're spot on with all your spreads and offsets so they match the FCM
- your FCM doesn't raise margins intra-day, which they certainly can do

If someone is setting aside up to 3x initial margin, the events listed above should not put them in a margin deficit with their FCM, but they can certainly cause the theoretical ROI calculations to be incorrect.

Last edited by CafeGrande; June 9th, 2014 at 07:50 PM.

Elite Member
Cleveland Ohio/United States

Broker/Data: various
Favorite Futures: futures

Posts: 2,236 since Jul 2012

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CafeGrande
 Hey, Kevin, that's pretty dumb. Actually, that method sounds fine. It's more conservative and you may avoid too much concentration in certain products. There are lots of ways to skin a cat and if someone is not a fulltime trader, they may not have the time or the desire to micro-manage the allocated margin, margin cushion and ROI. And while I think DudeTooth's application is a great tool, it's not the final word on margin use, unless, I suppose: - you're certain your FCM uses SPAN minimums all the time - you're spot on with all your spreads and offsets so they match the FCM - your FCM doesn't raise margins intra-day, which they certainly can do If someone is setting aside up to 3x initial margin, the events listed above should not put them in a margin deficit with their FCM, but they can certainly cause the theoretical ROI calculations to be incorrect.

I started doing it this way after I ran into trouble adding on to positions because I had "freed up" margin. The positions got big, and when the market went against me, I got in trouble.

 If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread

Market Wizard
Cleveland, OH

Platform: QST
Favorite Futures: Options on Futures

Posts: 2,453 since Jul 2011
Forum Reputation: Legendary

CafeGrande
 Hey, Kevin, that's pretty dumb. Actually, that method sounds fine. It's more conservative and you may avoid too much concentration in certain products. There are lots of ways to skin a cat and if someone is not a fulltime trader, they may not have the time or the desire to micro-manage the allocated margin, margin cushion and ROI. And while I think DudeTooth's application is a great tool, it's not the final word on margin use, unless, I suppose: - you're certain your FCM uses SPAN minimums all the time - you're spot on with all your spreads and offsets so they match the FCM - your FCM doesn't raise margins intra-day, which they certainly can do If someone is setting aside up to 3x initial margin, the events listed above should not put them in a margin deficit with their FCM, but they can certainly cause the theoretical ROI calculations to be incorrect.

Your post highlights the main reasons I left OX and never traded at IB. They charge more than SPAN minimum margin and randomly raise the margin. For an option seller that is a deal killer.

Futures Experience: Intermediate
Platform: thinkorswim
Favorite Futures: futures

Posts: 12 since Apr 2014

ron99
 Yes. Found that ROI was greater if you exited early. Depends on if futures are going your way. My spreadsheet calculates the beginning ROI and the ROI if I exited today. If futures aren't moving against you, you can sometimes make double the ROI by exiting early vs riding to expiration.

Please explain. How do you make double the ROI by exiting early?

Lancashire UK

Futures Experience: Intermediate
Favorite Futures: ES Z CL EURJPY

Posts: 52 since Jan 2013

rrvb
 Please explain. How do you make double the ROI by exiting early?

Here's an example. I sold some LHN4 102 Puts on March 13 at \$0.125 with an IM of \$124.74. If I'd held them to expiry (on 17 July) using 3x IM that would have given me an ROI of approx 4.8% per month.

By closing that trade out today at \$0.025 that's freed up my margin, and returns approx 8.3%.

Not quite double the ROI, but worth doing IMO.

HTH

Chris

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