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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,280 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old June 25th, 2014, 05:22 PM   #3441 (permalink)
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datahogg View Post
Why take the risk when world events can cause a dramatic increase in call premium.
Why not sell puts??


I almost never sell Crude calls, because of war/terrorism danger. I do sell Crude puts, though.


But, playing devil's advocate here...


Let's say tomorrow they discover that there is unlimited oil underground in New Mexico. Or, that there is a cheap way to convert seawater to gasoline. Selling CL puts beforehand would be very painful.

Far fetched? Of course, and certainly a spike up in crude is more likely than a spike down (vice versa for ES).

My point is that regardless of what you are selling, you should make sure a spike is not likely to wipe you out.

This method only works when you manage the losing trades properly. Part of this is position sizing correctly up front.

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Old June 26th, 2014, 07:31 AM   #3442 (permalink)
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kevinkdog View Post
I almost never sell Crude calls, because of war/terrorism danger. I do sell Crude puts, though.


But, playing devil's advocate here...


Let's say tomorrow they discover that there is unlimited oil underground in New Mexico. Or, that there is a cheap way to convert seawater to gasoline. Selling CL puts beforehand would be very painful.

Far fetched? Of course, and certainly a spike up in crude is more likely than a spike down (vice versa for ES).

My point is that regardless of what you are selling, you should make sure a spike is not likely to wipe you out.

This method only works when you manage the losing trades properly. Part of this is position sizing correctly up front.

Absolutely. I normally trade spreads (OTM puts and calls sold) so I have been hurt by both edges of the sword. Downward movements can be scary too, and selling calls can be profitable at right moments.

That said, I do need to reevaluate my risk management skills.


Last edited by luck; June 26th, 2014 at 07:41 AM. Reason: clarification and added content
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Old June 26th, 2014, 08:28 AM   #3443 (permalink)
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luck View Post
Absolutely. I normally trade spreads (OTM puts and calls sold) so I have been hurt by both edges of the sword. Downward movements can be scary too, and selling calls can be profitable at right moments.

That said, I do need to reevaluate my risk management skills.

Yes new here but the thread very interesting. My experience is selling index calls/puts (mainly dow & dax over 30 days) The majority of these expire worthless but the odd one can be very painful and wipe out 12 months and more premium easily.

I really need to harden up on a exit strategy or method of a stop loss.

I have used futures to hedge when say position gets close to ITM but problem then is the whipsaw takes the position in and out a number of times and premium and more has gone.

Any thoughts out there??

The frustrating thing is the income can be as good as it gets most of the time?

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Old June 26th, 2014, 09:17 AM   #3444 (permalink)
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ijcarruthers View Post
Yes new here but the thread very interesting. My experience is selling index calls/puts (mainly dow & dax over 30 days) The majority of these expire worthless but the odd one can be very painful and wipe out 12 months and more premium easily.

I really need to harden up on a exit strategy or method of a stop loss.

I have used futures to hedge when say position gets close to ITM but problem then is the whipsaw takes the position in and out a number of times and premium and more has gone.

Any thoughts out there??

The frustrating thing is the income can be as good as it gets most of the time?

If 1 trade wipes out 12 months of premiums, I would say you are either trading too big a size or exiting way too late.

Use the 3x margin rule that @ron99 describes in the beginning of the thread. It is the best exit I have seen, if you follow it. (Yes, I've tested a bunch of exits to see what was best).

A recent example: In May I sold July Wheat 610 puts. As wheat slowly but surely traversed downward, I got the 3x signal to exit. Of course, I was smarter than the exit, so I held on, rolling positions lower, adding contracts, etc. Basically denying the loss until it was too big to ignore.

Net effect: If I had exited when the 3x signal was given, I would have lost roughly 1/4 of a month's premium. When I finally did exit, it cost me between 1-2 months of premium.

I can tell you, I learned my lesson. At least I think I did. I guess we'll see, come next losing trade...

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Old June 26th, 2014, 09:53 AM   #3445 (permalink)
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kevinkdog View Post
If 1 trade wipes out 12 months of premiums, I would say you are either trading too big a size or exiting way too late.

Use the 3x margin rule that @ron99 describes in the beginning of the thread. It is the best exit I have seen, if you follow it. (Yes, I've tested a bunch of exits to see what was best).

A recent example: In May I sold July Wheat 610 puts. As wheat slowly but surely traversed downward, I got the 3x signal to exit. Of course, I was smarter than the exit, so I held on, rolling positions lower, adding contracts, etc. Basically denying the loss until it was too big to ignore.

Net effect: If I had exited when the 3x signal was given, I would have lost roughly 1/4 of a month's premium. When I finally did exit, it cost me between 1-2 months of premium.

I can tell you, I learned my lesson. At least I think I did. I guess we'll see, come next losing trade...

Hey buddy thanks for the heads up . I will look at that.
I know exactly what you are saying about holding waiting for things to correct /thinking correction got to come and it gets worse. Only to reverse once margined out..

The broker I use at the moment is pretty poor and I can't even monitor trades live. (Berkeley Futures) no good in this day in age. Who do you use?

Yes be great to personal message if thats ok

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Old June 26th, 2014, 09:55 AM   #3446 (permalink)
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ijcarruthers View Post
Hey buddy thanks for the heads up . I will look at that.
I know exactly what you are saying about holding waiting for things to correct /thinking correction got to come and it gets worse. Only to reverse once margined out..

The broker I use at the moment is pretty poor and I can't even monitor trades live. (Berkeley Futures) no good in this day in age. Who do you use?

Yes be great to personal message if thats ok

How do you easily monitor margin? That was reason for asking your broker /platform you all use? thanks

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Old June 26th, 2014, 10:00 AM   #3447 (permalink)
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ijcarruthers View Post
Hey buddy thanks for the heads up . I will look at that.
I know exactly what you are saying about holding waiting for things to correct /thinking correction got to come and it gets worse. Only to reverse once margined out..

The broker I use at the moment is pretty poor and I can't even monitor trades live. (Berkeley Futures) no good in this day in age. Who do you use?

Yes be great to personal message if thats ok

Yes, feel free to send me a PM.

If you are "margined out" you are definitely taking big risks. Maybe too much, but that is a personal decision.

I use Decarley and OptionsExpress. I am pretty happy with both. There is a thread on DeCarley at futures.io (formerly BMT), so I'll just say she offers the BEST customer service I have seen in 20 years. It does come at a small extra price, though.

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Old June 26th, 2014, 10:02 AM   #3448 (permalink)
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ijcarruthers View Post
How do you easily monitor margin? That was reason for asking your broker /platform you all use? thanks

Daily statements or web interface from the broker for existing trades. I use the SPAN spreadsheet created by @Dudetooth (see separate thread) to calculate new positions, and do my nightly review.

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 June 27th, 2014, 12:12 AM   #3449 (permalink)
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NG spike

Wow, just got through reading through this thread. The NG spike this winter was insane, much respect to those premium sellers who survived it.


A couple questions for those more familiar with NG and i guess commodities in general;

1) Are spikes like the one we saw in NG this winter more likely to occur to the upside, than the downside?

(thinking cause a perfect storm of shortage can strike fast, where as a glut would take more time to develop)


2) ..and in retrospect, was there any seasonal or fundamental insight have could have given you a heads up that some craziness was about to go down?

(I know it was record cold temps but i imagine that info came too late)


Last edited by Griffith; June 27th, 2014 at 12:50 AM.
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Old June 29th, 2014, 07:42 PM   #3450 (permalink)
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Griffith View Post
Wow, just got through reading through this thread. The NG spike this winter was insane, much respect to those premium sellers who survived it.


A couple questions for those more familiar with NG and i guess commodities in general;

1) Are spikes like the one we saw in NG this winter more likely to occur to the upside, than the downside?

(thinking cause a perfect storm of shortage can strike fast, where as a glut would take more time to develop)


2) ..and in retrospect, was there any seasonal or fundamental insight have could have given you a heads up that some craziness was about to go down?

(I know it was record cold temps but i imagine that info came too late)

1) Yes usually except for stock market indexes like ES, etc.

2) It was mainly cold temps. The problem was that you didn't know if it was just going to be a 1 week cold snap or an entire winter of below normal temps. If you knew it was going to be cold all winter then you just get out at the first sign of cold. But my crystal ball was fogged up by the cold.

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