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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,479 / 5,734
Last Reply:4 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old June 29th, 2014, 08:01 PM   #3451 (permalink)
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uuu1965 View Post
What data do you use for tracking milk market (U.S. dairy situation etc.)?
Thanks in advance!

I would have to write 20 pages of posts to explain trading in dairy futures and options. It is a totally different beast than almost all other commodities.

Biggest difference is that it is cash settled to the USDA price. So you are not trying to predict where futures are going. You are trying to predict the USDA price.

I have a Dairy Science degree. I worked for a dairy related company for 9 years. I owned my own dairy farm for 14 years after that. I have been trading dairy contracts for 16 years of the 18 years that dairy contracts have been trading.

Found out I could make more money and do it much easier than milking cows by trading. Sold the cows 13 years ago.

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Old June 29th, 2014, 08:12 PM   #3452 (permalink)
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datahogg View Post
Don't sell calls on CL.

I disagree with this. You just have to be far enough OTM.

If you sold Sep CL 130 calls on 5/16 or 91 DTE for .05 and 144 IM you would still be OK with that position through the price increase. Never hit my exit trigger.

The IM never went above 246. The premium never went above .13. You would have never come within $100 of the trigger point.

If you had $288 excess, the premium increase, $80, plus the IM increase, $100 on that day, which equals $180 didn't come close to using up the excess.

I do find myself trading put options in CL that are $20-25 away from futures and $25-30 away on calls and ignoring delta for CL. Trading closer than that is just too risky for me.

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Old June 30th, 2014, 10:48 AM   #3453 (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)


ron99 View Post
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.

I agree with @ron99.

I would add the explanation that what drives the winter NG madness is our storage situation, and even more importantly our perceived storage level at the end of winter. This is a obviously function of two things, how much gas is in storage going into the winter, and how much gas we use during the winter. The first we know, the second is completely dependent upon weather as @ron99 says.

NatGas (like electricity) is different than many commodities in that people's lives depend upon it. If we run out of cows we eat more chickens or pigs or veg. If we run out of Natural Gas.. power plants switch off... houses go dark & cold... people die. Sounds over dramatic I know but that's the reason you see the scarcity pricing in NG (and power) that you don't see in other commodities. (I don't have time to find it now but somewhere in this thread I posted a transcript of a PBS interview with Bo Collins before he became NYMEX President, where Bo's illustration of shortage pricing is a man in a desert without water.)

Another thing to remember is that the NG futures contract represents NG delivered in Louisiana. Prices where it was cold this winter (ie NE & Midwest) were significantly higher than the futures prices. Some next day cash prices got over $100/MMBtu and prices for some locations averaged over $20/MMBtu for the entire month.

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Old June 30th, 2014, 11:36 AM   #3454 (permalink)
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IV


ron99 View Post
I disagree with this. You just have to be far enough OTM.

If you sold Sep CL 130 calls on 5/16 or 91 DTE for .05 and 144 IM you would still be OK with that position through the price increase. Never hit my exit trigger.

The IM never went above 246. The premium never went above .13. You would have never come within $100 of the trigger point.

If you had $288 excess, the premium increase, $80, plus the IM increase, $100 on that day, which equals $180 didn't come close to using up the excess.

I do find myself trading put options in CL that are $20-25 away from futures and $25-30 away on calls and ignoring delta for CL. Trading closer than that is just too risky for me.

This is a true and valid point. But the farther options are out of the money and farther out in time the larger is VEGA. They are more susceptible to changes in IV. The last event saw a peak in OVX at 20.23 . (June 13).
Last August OVX peaked at 31.4. ( I believe this was the Syrian crisis.) When (and if) IV doubles the option
premium more than doubles. The actual premium increases somewhat geometrically. In addition the volatility skew
can hurt the short calls. These events are infrequent, but the risk is there.

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Old July 1st, 2014, 01:51 PM   #3455 (permalink)
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ron99 View Post
I would have to write 20 pages of posts to explain trading in dairy futures and options. It is a totally different beast than almost all other commodities.

Biggest difference is that it is cash settled to the USDA price. So you are not trying to predict where futures are going. You are trying to predict the USDA price.

I have a Dairy Science degree. I worked for a dairy related company for 9 years. I owned my own dairy farm for 14 years after that. I have been trading dairy contracts for 16 years of the 18 years that dairy contracts have been trading.

Found out I could make more money and do it much easier than milking cows by trading. Sold the cows 13 years ago.

What is going on the the price of Milk the last few days? Very steep drop today especially.

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Old July 1st, 2014, 02:03 PM   #3456 (permalink)
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Raven View Post
What is going on the the price of Milk the last few days? Very steep drop today especially.

Cash cheese prices are dropping but the upcoming above normal heat should turn that around next week.

Futures are down today because of longs bailing out.

Cheese inventories are 8% below a year ago, which is a lot for cheese. Butter is 40% below a year ago. Huge.

The chances of Aug milk getting below $20 are extremely small.

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Old July 1st, 2014, 02:04 PM   #3457 (permalink)
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Raven View Post
What is going on the the price of Milk the last few days? Very steep drop today especially.

My daughter left for camp on Saturday so I didnt buy any this week

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Old July 1st, 2014, 05:17 PM   #3458 (permalink)
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Old July 2nd, 2014, 12:51 PM   #3459 (permalink)
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Live Cattle behavior

I note some strange behavior on LE V 138 Put. On 20/06 I sold LE V 138 Put @ 0,375 (delta was 0.08 and future = 148.72). Today when Live Cattle october future is about 155, 138 strike Put option price is 0.45 (delta = 0.07).
Why?

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Old July 2nd, 2014, 01:00 PM   #3460 (permalink)
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uuu1965 View Post
I note some strange behavior on LE V 138 Put. On 20/06 I sold LE V 138 Put @ 0,375 (delta was 0.08 and future = 148.72). Today when Live Cattle october future is about 155, 138 strike Put option price is 0.45 (delta = 0.07).
Why?

vola is mega up

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