Selling Options on Futures? (Page 340) - Options on Futures | futures.io
futures.io futures trading
 

Go Back   futures.io

> Futures Trading, News, Charts and Platforms > Traders Hideout > Options on Futures


Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,025 / 5,728
Last Reply:22 Hours Ago (05:26 PM) Attachments:642

Welcome to futures.io.

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.


You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike
     

Reply
 642  
 
Thread Tools Search this Thread

Selling Options on Futures?

Old June 11th, 2014, 08:36 AM   #3391 (permalink)
Trading Apprentice
Springfield Missouri
 
Futures Experience: Intermediate
Platform: Trader Work Station
Favorite Futures: ES
 
Posts: 8 since Jun 2014
Thanks: 1 given, 1 received


mu2pilot View Post
Blaine-

Welcome to the thread. Always good to have another option seller aboard.

When you calculate how much a trade has gone against you, you include the increase in margin AND loss of premium. This was a point I missed until a few months back. I thought you held the trade until you've lost 3x initial margin and that's not correct. You get out when the combination of margin increase and loss on the trade = 3X initial margin.

I'll give you an example that I unfortunately traded, March NG.

I sold some NGH4 6.9 Calls on 1/2/14 for $100 and an initial margin of $198. On 1/23/14, this option closed at $310 and the margin had increased to $552. As of 1/23, I was down $210 on my option and margin had increased by $354 or a combination of $564. My initial margin x 3 = $594, so I was getting close to needing to close the position.

Sadly, this option closed at $1430 the next day and margin increased to $1424. I bought my position back in at $530, losing $430 per contract on the trade.

The nuance I didn't realize until then was that if you close your position when the combination of margin increase and trade loss = 3x IM, you'll never lose 3x IM. That is, except when the market goes crazy and blows through your "stop". Which is pretty likely when there is a lot of volatility. That is just one of the negatives to this approach. But the positives more than outweigh the negatives, IMHO.

Ron99 told me that in a normal year, he has 11 decent months and one month where he takes a hit. If we're making 3-5%/month and we lose 5-10% in one month, we're still up 25-50% (or more) on the year. I can live with that.

mu2pilot

PS- You asked about Delta and I didn't provide that. Delta on 1/2 was 3.55. On 1/23, it was 6.1. On 1/24, it was 17.03. The U/L was 4.296, 4.579 & 4.998, respectively.

Mu2pilot,

Thanks for the excellent information. Just what I was looking for. So why have we settled on this exit strategy versus watching deltas for example? I studied several years of the RUT index options. I found when your delta doubles all of the sudden you better get ready to get out. If it triples you really need to close the trade. I think your trade example above shows the same thing I have seen. I did the study based on a .05 starting delta. If the delta jumps up fast it usually is signaling a strong trend against you. Most of the trades in the study I did, either hit the strike price or got to close for comfort.

I had one ES call I sold a few weeks ago with IB. The market kept going against the trade. The Delta more than tripled on me and I got out. Experience is telling me to get out at double delta. I did not see any margin change with IB. I'm glad I got out with delta on that one. It seems that IB doesn't change margin requirements much since they charge so much more than Span.

Reply With Quote
     

Old June 11th, 2014, 09:47 AM   #3392 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: ES, NQ, CL, /6E futures options.
 
Posts: 257 since Oct 2012
Thanks: 126 given, 75 received


effective View Post
Attachment 148806

This issue worries me as well. I ran scenario in OptionVue increasing volatility by 4% and 8%, projecting 7 days in the future for three different DTE on CL with the fixed price. For each DTE I chose strike that gave me ~0.1 premium. Here are the results:

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



The bottom line is no matter how far in time you go, the increase in volatility will get you. The furthest DTE is the worst because of higher vega value. However the furthest DTE carries the least risk with respect to price movement. Since in reality the vol spike will be accompanied by the price spike, both have to be considered. It does seem that 67 DTE has the best balance of both.

This agrees with what I have actually seen in a moderate sell off in the index products. You can expect your
maintenance margin to approximately double in a moderate sell off. So if you load up now with selling puts and
increase your MM in a very low IV environment you could have problems.

Reply With Quote
     

Old June 11th, 2014, 01:30 PM   #3393 (permalink)
Elite Member
Dallas, TX
 
Futures Experience: Advanced
Platform: T4, Zaner360, TOS
Broker/Data: DeCarley Trading
Favorite Futures: Options
 
Posts: 104 since Sep 2013
Thanks: 133 given, 50 received



Blaine View Post
Mu2pilot,

Thanks for the excellent information. Just what I was looking for. So why have we settled on this exit strategy versus watching deltas for example? I studied several years of the RUT index options. I found when your delta doubles all of the sudden you better get ready to get out. If it triples you really need to close the trade. I think your trade example above shows the same thing I have seen. I did the study based on a .05 starting delta. If the delta jumps up fast it usually is signaling a strong trend against you. Most of the trades in the study I did, either hit the strike price or got to close for comfort.

I had one ES call I sold a few weeks ago with IB. The market kept going against the trade. The Delta more than tripled on me and I got out. Experience is telling me to get out at double delta. I did not see any margin change with IB. I'm glad I got out with delta on that one. It seems that IB doesn't change margin requirements much since they charge so much more than Span.

Exiting on Delta rise might be a valid exit strategy. Honestly, just about any exit strategy will work provided you follow your rules and give the trade enough room to work.

Having said that, I like the 3X IM method primarily because Ron's method is one where we are selling very, very low Delta options ( < 2 ) and if you exit when Delta rises to 4, you're exiting a trade that still has a very high probability of expiring worthless.

In your approach, you're starting at 5 Delta and looking to exit at 10 or 15 Delta where you have a significantly greater risk of getting into trouble compared to me at 4 or 6 Delta.

That's just how I rationalize following this exit method. Others here probably have better reasons for using 3X IM.

The good news is, you won't have to exit very often!

mu2pilot

Reply With Quote
     
The following user says Thank You to mu2pilot for this post:
     

Old June 12th, 2014, 07:40 PM   #3394 (permalink)
Trading for Fun
St Paul, MN, USA
 
Futures Experience: Advanced
Platform: Abacus
Broker/Data: RJO, Interactive Brokers
Favorite Futures: Commodity Futures & Options
 
Posts: 189 since Jan 2014
Thanks: 108 given, 171 received

Finally, some action in Crude Oil volatility. Image contains today's preliminary settlements (actuals will be very close). Red underline = nearest standard month with 30 days or more to expiration.

Attached Thumbnails
Selling Options on Futures?-wti-crude.png  
Reply With Quote
     

Old June 12th, 2014, 07:54 PM   #3395 (permalink)
Market Wizard
Houston TX
 
Futures Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 1,586 since Dec 2013
Thanks: 1,395 given, 2,362 received
Forum Reputation: Legendary

Futures Edge on FIO

CafeGrande View Post
Finally, some action in Crude Oil

and wow did it hurt!

Nothing at all to do with options, but interesting that on a move this big the front of the curve wasn't stronger. Front month spread lost 3c, second spread only widened 3c (Hence the front butterfly actually dropped 6c and settled at -21c.). Largest spread move was Month 5 - Month 6 at 12c.

On yet another non-options related point, NG had a nice 5.6% move today, widening 25.4c to $4.526. March/April15 widened 9.2c to close over 50c.

Reply With Quote
     

Old June 12th, 2014, 09:11 PM   #3396 (permalink)
Trading for Fun
St Paul, MN, USA
 
Futures Experience: Advanced
Platform: Abacus
Broker/Data: RJO, Interactive Brokers
Favorite Futures: Commodity Futures & Options
 
Posts: 189 since Jan 2014
Thanks: 108 given, 171 received

I recently sold some OTM soybean meal calls and OTM soybean oil puts. It's been ages since I participated in either market and I forgot all about the inter-commodity spread credit that reduces margin.

Besides the soy complex, are these credits also available if someone sells options in two or more of the three classes of U.S. wheat? What about two or more of CL-HO-RB?

Thanks!

Reply With Quote
     

Old June 13th, 2014, 10:48 AM   #3397 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: ES, NQ, CL, /6E futures options.
 
Posts: 257 since Oct 2012
Thanks: 126 given, 75 received

Iraq

This Iraq situation shows why it can be dangerous to sell calls on CL.

Reply With Quote
     
The following 2 users say Thank You to datahogg for this post:
     

Old June 13th, 2014, 11:51 AM   #3398 (permalink)
Elite Member
Richland WA/USA
 
Futures Experience: Intermediate
Platform: tws, tos
Favorite Futures: RUT, GC, CL
 
Posts: 38 since Mar 2013
Thanks: 10 given, 18 received


datahogg View Post
This Iraq situation shows why it can be dangerous to sell calls on CL.

Vol spike did not help either

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

Reply With Quote
     

Old June 13th, 2014, 12:30 PM   #3399 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: ES, NQ, CL, /6E futures options.
 
Posts: 257 since Oct 2012
Thanks: 126 given, 75 received

89P


effective View Post
Vol spike did not help either

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

IV did spike, and for better or worse I sold some CLU4/LOU4 89 puts this morning with the OVX at 19.34 .
Delta = 0.0189
That is a nice chart, but isn't Option Vue an expensive package??


Last edited by datahogg; June 13th, 2014 at 12:54 PM.
Reply With Quote
     

Old June 13th, 2014, 12:51 PM   #3400 (permalink)
Trading Apprentice
New York/USA
 
Futures Experience: Beginner
Platform: MetaTrader
Broker/Data: OptionsXpress, TOS (soon)
Favorite Futures: Forex & Options
 
Posts: 7 since Jun 2012
Thanks: 49 given, 1 received

Is it better to roll to next month?


Hi All,

Is it advisable to roll /CL from 118C Sep 14 to 118C Oct 14?

Any criteria to roll for position that is in trouble high delta?

Thanks.

Reply With Quote
     

Reply



futures.io > Futures Trading, News, Charts and Platforms > Traders Hideout > Options on Futures > Selling Options on Futures?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

NinjaTrader 8: Features and Enhancements, Tips and Tricks

Dec 6
 

Al Brooks: Stop Losing when a Good Trade goes Bad, Correcting Mistakes

Elite only
 

Trading Technologies: Algo Design Lab hands-on

Dec 13
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Crude Oil (CL) futures inverse pairing options Big Mike Commodities Futures Trading 8 December 12th, 2013 12:00 PM
Recommend futures, options Broker? sam1197 Brokers and Data Feeds 17 March 27th, 2013 01:42 AM
Trading Futures with options as protection Gooffy2010 Commodities Futures Trading 6 October 2nd, 2012 05:55 PM
Selling Njniatrader sam1197 NinjaTrader 22 June 28th, 2012 01:40 PM
Zen-Fire Futures options tici88 Brokers and Data Feeds 1 July 30th, 2011 10:16 AM


All times are GMT -4. The time now is 04:14 PM.

Copyright © 2016 by futures.io. All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
 
no new posts
Page generated 2016-12-07 in 0.16 seconds with 20 queries on phoenix via your IP 50.16.52.237