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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,189 / 5,734
Last Reply:December 9th, 2016 (01:01 AM) Attachments:642

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Selling Options on Futures?

Old June 25th, 2014, 02:32 AM   #3431 (permalink)
Trading Apprentice
Los Angeles, CA
 
Futures Experience: Intermediate
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datahogg View Post
This Iraq situation shows why it can be dangerous to sell calls on CL.

Yep. It wiped out a couple of months of profit on my account.


I am a CL options trader, and I am looking to diversify. I tried a few other commodities with limited success but I am still looking around. It seems that NG is a popular choice here, but aren't the movements quite extreme (as with some other commodities) from time to time?

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Old June 25th, 2014, 03:00 AM   #3432 (permalink)
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Just a view that might spark a "I ain't going to loose any money any more attitude!"


luck View Post
Yep. It wiped out a couple of months of profit on my account.


I am a CL options trader, and I am looking to diversify. I tried a few other commodities with limited success but I am still looking around. It seems that NG is a popular choice here, but aren't the movements quite extreme (as with some other commodities) from time to time?

As sellers we want volatility to be balanced. (slow moving price with average vol.) If you have been wiped out because of CL in the last few months I suggest re-looking at what you have been doing. Honestly CL vol has been tame for a good few years now. Selling options can be very boring to some and it appears that this is the false sense some option sellers adopt and how they approach it. But honestly, you have to be very active as a option selling because your are managing unlimited risk. You have to act. You can not just hope. (Goes for all trading.) Look at your decision making structure and the decision options you could have made and play out each scenario. You will teach yourself more than you will every learn from a book, course, thread, or even the most experienced trader...we trade ourselves not against the market...!

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Old June 25th, 2014, 07:25 AM   #3433 (permalink)
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Riga Latvia
 
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ron99 View Post
Trade Alert

FWIW There is an opportunity to sell milk (Class III) options right now. Sell the Aug 18.75 put for 0.04 or $80. Symbol DA on some systems. There are 150 bid there now. I suspect the person bidding is taking profit on the 362 options that traded (OI increase) on June 3rd between 0.23-0.29.

If kept to expiration the ROI would be about 3% (IM=298 today but should be lower tomorrow). I would recommend buying back at .01 which shouldn't take too long to get there. That should easily get your monthly ROI over 5%. The Joly 18.75s are priced at 0.005 or cabinet.

Milk closes trading at 5pm ET. Reopens at 6pm ET.

What data do you use for tracking milk market (U.S. dairy situation etc.)?
Thanks in advance!

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Old June 25th, 2014, 09:24 AM   #3434 (permalink)
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BlueRoo View Post
As sellers we want volatility to be balanced. (slow moving price with average vol.) If you have been wiped out because of CL in the last few months I suggest re-looking at what you have been doing. Honestly CL vol has been tame for a good few years now. Selling options can be very boring to some and it appears that this is the false sense some option sellers adopt and how they approach it. But honestly, you have to be very active as a option selling because your are managing unlimited risk. You have to act. You can not just hope. (Goes for all trading.) Look at your decision making structure and the decision options you could have made and play out each scenario. You will teach yourself more than you will every learn from a book, course, thread, or even the most experienced trader...we trade ourselves not against the market...!

Thanks for the input. My thoughts exactly. I was wondering what your opinions are regarding new-related risk. When the news of the current Iraq struggle hit, the oil price shot up quickly as we all saw. I happen to have a spread (both OTM puts and calls sold) at that time, and the call leg quickly lost money.

I have been asking myself how I could have done better. I myself do not have a way to predict news events like the current Iraq situation. Aggressive cut-loss could be an answer to limit loss, but it itself has costs and downsides.

Anyhow, I am still looking for more products to trade. Any suggestions?

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Old June 25th, 2014, 10:16 AM   #3435 (permalink)
World'sWorstTrader
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CALLS

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luck View Post
Thanks for the input. My thoughts exactly. I was wondering what your opinions are regarding new-related risk. When the news of the current Iraq struggle hit, the oil price shot up quickly as we all saw. I happen to have a spread (both OTM puts and calls sold) at that time, and the call leg quickly lost money.

I have been asking myself how I could have done better. I myself do not have a way to predict news events like the current Iraq situation. Aggressive cut-loss could be an answer to limit loss, but it itself has costs and downsides.

Anyhow, I am still looking for more products to trade. Any suggestions?


Don't sell calls on CL.

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Old June 25th, 2014, 12:37 PM   #3436 (permalink)
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datahogg View Post
Don't sell calls on CL.

Do you say that because of the volatility skew, i.e. calls have not enough premium, due to low IV, to worth the risk?

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Old June 25th, 2014, 01:57 PM   #3437 (permalink)
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luck View Post
Thanks for the input. My thoughts exactly. I was wondering what your opinions are regarding new-related risk. When the news of the current Iraq struggle hit, the oil price shot up quickly as we all saw. I happen to have a spread (both OTM puts and calls sold) at that time, and the call leg quickly lost money.

I have been asking myself how I could have done better. I myself do not have a way to predict news events like the current Iraq situation. Aggressive cut-loss could be an answer to limit loss, but it itself has costs and downsides.

Anyhow, I am still looking for more products to trade. Any suggestions?

If there is new related risk, and you have some proven directional skills, and you are watching a developing v smile, as well as good DTE management then these combined give you better odds. increase your arsnell. a good trader has good technique...a better trader has two...it is exponential and about ma never ending experience curve...we all know this...like me we let it slip some times...the recent news was well know before a call threat to premium became an issue...then there a decisions to be made ... is 35 or 60 better... then you might look back at old post i have made here about how i hedge and trade the underlying as a more complete approach to dealing with such recent events...but really it is about what options you have on the table as potential tools to use...

but you are doing great just asking the questions...now make up some answers and you will find your are teaching yourself stuff you did realise you already new because it is applied cognitively...

i personally credit this thread with opening my eyes to diversification...with a special thanks to Kevindog who pointed this out to me over 2 yeas ago...there are more than enough liquid commodities and selling strategies to equip you

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Old June 25th, 2014, 04:48 PM   #3438 (permalink)
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Hi All,

I just spent the past week or so reading everything in this thread, really awesome ideas here. Thanks Ron for sharing your method and thanks others for contributing as well.

I've been an equity options trader for a while now (with TOS) and futures have looked more and more attractive to me because of how far you can go OTM and still collect a reasonable premium. ROI is a powerful way to look at these positions.

As has been noted by others, TOS has a limited number of futures options available to trade. Comparing to the XLS-SPAN spreadsheet, it sort of seems like the margins are marked up as well which hurts ROI a lot. I'm wondering if anyone here has any experience with trademonster as your brokerage and if so what do you think? I reached out to them today and here's what they told me:

Commissions are $1.50 a side. There is no overnight fee for holding a Futures Option position.
Our trading platform has real time SPAN margining on all Futures contacts and Futures options in each account. The initial margin requirement we use is that set by both the CME and ICE exchanges.

We are not a Full Service brokerage firm, therefore, we do not mark up the premium of Futures Option contracts like other firms on the street might. There is not a list of Futures Options that we offer. However, what we offer is as follows. A majority of all Globex traded Futures and those that offer Futures Option Contracts. In addition to recently adding many of the ICE futures option contracts mainly, the "soft's."

They ranked well with Barron's recently which may not mean much but at least gave me the idea to check them out. Thoughts on trademonster anyone? If not maybe I'll be the guinea pig..

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Old June 25th, 2014, 05:10 PM   #3439 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
Platform: TOS
Favorite Futures: ES, NQ, CL, /6E futures options.
 
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Thanks: 126 given, 75 received

CL


luck View Post
Do you say that because of the volatility skew, i.e. calls have not enough premium, due to low IV, to worth the risk?


Why take the risk when world events can cause a dramatic increase in call premium.
Why not sell puts??

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Old June 25th, 2014, 05:21 PM   #3440 (permalink)
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trelum View Post
Hi All,

I'm wondering if anyone here has any experience with trademonster as your brokerage and if so what do you think? I reached out to them today and here's what they told me:

Don't do it!

In my never-ending quest to make sure I'm getting a fair deal and to consolidate brokerages, I opened a trial futures account last week with TradeMonster. I already have money there for stocks and stock options and thought I'd give it a shot. I closed that trial account earlier this week without ever making a trade. One really big reason and one little one:

1. The amount of time it takes to load an options chain is horribly long and when you load SEP for example, you see all the other months, which is OK (and a nice touch had it been structured better) except you don't have access to the price of the underlying for the other months on the same page. So you're flipping back and forth from CHART or QUOTE to OPTIONS all the time. It was so slow that I gave up after only two days.

1.a. Many of the options chains are not complete. You see many zero values or there are garbage calculations for IV, Std Dev, Prob of ITM, etc. They announced their "integration" of FCM-provided quotes to the TradeMonster platform a while back, but the execution has been awful.

1.b. If TradeMonster could have been used for portfolio review and margin review and trading conducted on the Gain Capital/OEC "OEC Trader" platform, I might have stayed. But I asked about that alternative and they said NYET!

2. They charge $15/mo for CME quotes. That's not disclosed on the website and I couldn't find it in the fine print. It was deducted from my account on day one.

It might be an OK set up for futures only, but there is no way I would recommend it to a futures options trader. With the pending merger between TradeMonster and OptionsHouse, I would also be surprised if it gets much attention from the application development people in the coming months.


Last edited by CafeGrande; June 25th, 2014 at 05:31 PM.
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