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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,515 / 5,734
Last Reply:6 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old August 27th, 2014, 11:53 AM   #3571 (permalink)
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Thanks. I have been thinking about BlackSwan all these days recently since I decide to restart the option selling.
I realize that all the BlackSwan or massive crashes from what I know happened in a ESTABLISHED DOWNTREND. I guess by following the trend, we might do better. Like right now, SPY and all major market indexes are in an uptrend, so, we stick with selling puts, when the market turns down (lower low, lower high established in weekly or monthly chart), then we stick with selling calls.


ron99 View Post
yes


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Old August 27th, 2014, 01:15 PM   #3572 (permalink)
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jtrade View Post
So using Quiktrade to build a short Dec CL strangle 25 strikes or so OTM yields this :

Deltas are >0.03, but this threshold is "not applicable" to CL.

Would any of the experienced FOP writers consider this trade & if not, why not, pls !?

I wouldn't, not crude, not at those volatility levels. If someone held a gun to my head, I'd consider short puts between $70 and $75 and maybe even up to $78, but I would not sell $105 calls at very close to all time lows in IV, especially after the market has already declined > $10/barrel.

You might consider natural gas. You don't have all the geo-political risk and the volatility is about 50% higher - gives you more room to be wrong.

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Old August 27th, 2014, 03:35 PM   #3573 (permalink)
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daydayup8 View Post
Do you still use some tools from OX? I just opened one small acct $8k with them yesterday (I only used Scottrade for short time and IB for a few years before) to restart the option selling, since I once got margin call from IB before, I will use the small acct to test the strategy I learn from here so far, hope I can gain back some confidence.
I heard DeCarley is good, I plan to move my IRA with them later if I do good in my OX acct. I think OX may have more tools that is good for options, not sure though.

(I will close my acct at IB, they charge $10 monthly if you generate commission less than $10 a month, if your balance<2000, they will charge additional $10 a month for maintenance fee. I called OX, they won't charge all of this, so, I prefer to have an acct with them if they have some good tools.The margin is much better compared with IB even still not the best:-).

Yes, I do use some of the tools on OX to do some calculations and to compare margin requirements when it comes to commodities options.

In all honestly, I miss IB's trading platform. IMO, I find it to be better than OX or Zaner360 (DeCarley). And dollar for dollar, IB has the lowest commissions but again, with what we are doing here, lower margin requirements is the main issue.

I have started the paperwork process to open an account with IB again but it will be used for equity options selling and scalping of CL and ES. IB simply is not friendly to commodities options sellers.

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Old August 28th, 2014, 10:31 AM   #3574 (permalink)
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QST

Ron,
Which version of QST are you using?

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Old August 28th, 2014, 11:18 AM   #3575 (permalink)
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meyer99 View Post
Ron,
Which version of QST are you using?

6.0.45

It is provided to me by one of the brokers I am using to trade dairy contracts. They do not allow me to sell options there. Plus their commissions are huge.

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Old September 2nd, 2014, 01:16 PM   #3576 (permalink)
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Margin Call

I have finished my reading up to page 345 so far, all great information here.
But I do have one question, I can't found answer yet.
Since I once got one margin call from IB early this year for selling put on ES (I lost 25% of the acct), I am very concerned about margin call.
I just opened one acct with OX but have not started trading yet, I can trade with my fund tomorrow though.
But before I start, I want to know
under what circumstances that one bad trade can wipe out 12 months of premiums? was there a margin call?
I know diversification will be one option, you can maybe put 20% of your acct to one commodity or one trade, when the trade goes against you, you can exit with Ron's strategy, but what if you are not in front of the screen, let's say for whatever reason, there is one event causing the trade goes against very badly, or you just freeze there that you just can not even exit the trade, and you got a margin call. Then what? my understanding is that the margin call is supposed to protect the fund in the acct, after margin call, you still have something left, is that right?
is that possible you lose all your 20% of the money you allocate to this trade when you get the margin call? or is that possible you lose all the money in your acct even you only allocate 20% to this trade?
The margin call I got from IB was that IB liquidated my ES short put with a market order, that happened in just one blink of eyes, I don't know how other brokers would handle the margin call under a very extreme fast moving market.

Any inputs will be greatly appreciated!


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...


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Old September 2nd, 2014, 02:10 PM   #3577 (permalink)
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Hi @daydayup8


Your story is terrific at leastĦĦĦ.


I don't know if your short put was traded very near to price or big delta...


But if you are reading this thread you must close your sell options at about 200% premium

maybe a very fast market condition don't let you close it before..


Sometimes open a futures position (short in your case) could be saved a big % of DD.


Always it's better OTM strikes , low deltas.

Good Luck

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Old September 2nd, 2014, 02:22 PM   #3578 (permalink)
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My position was short weekly ES put with delta around 0.25, very risky then, I just started to sell option without knowing risk control at that time. The good thing is I learned my lesson and also found this thread by searching how to control risk when selling options:-). I will start to use Ron's strategy moving forward. Thanks.




kaltrax View Post
Hi @daydayup8


Your story is terrific at leastĦĦĦ.


I don't know if your short put was traded very near to price or big delta...


But if you are reading this thread you must close your sell options at about 200% premium

maybe a very fast market condition don't let you close it before..


Sometimes open a futures position (short in your case) could be saved a big % of DD.


Always it's better OTM strikes , low deltas.

Good Luck



Last edited by daydayup8; September 2nd, 2014 at 03:06 PM.
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Old September 2nd, 2014, 03:32 PM   #3579 (permalink)
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daydayup8 View Post
My position was short weekly ES put with delta around 0.25, very risky then, I just started to sell option without knowing risk control at that time. The good thing is I learned my lesson and also found this thread by searching how to control risk when selling options:-). I will start to use Ron's strategy moving forward. Thanks.

A naked put with a delta of 0.25 is playing with fire. Also a weekly put with a delta of 0.25 is playing with a nuclear bomb. I monitor Ron99's exit point and also one used probably by lots of others. If I sell $400.00 of premium, and my losses reach $800.00 for this posiiton (independent of others), then I close the position. This is very easy to monitor. Wish you the best of luck.

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Old September 2nd, 2014, 03:42 PM   #3580 (permalink)
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daydayup8 View Post
you can maybe put 20% of your acct to one commodity or one trade

Different people have different rules but must people risk 2%-5% of their account on one trade.

daydayup8 View Post
when the trade goes against you, you can exit with Ron's strategy, but what if you are not in front of the screen, let's say for whatever reason, there is one event causing the trade goes against very badly, or you just freeze there that you just can not even exit the trade, and you got a margin call. Then what? my understanding is that the margin call is supposed to protect the fund in the acct, after margin call, you still have something left, is that right?

It depends on how much you lost on the open trade. It's possible that you could not only wipe out your entire account but also that your broker could require you to send them more money to cover your losses.

daydayup8 View Post
Is that possible you lose all your 20% of the money you allocate to this trade when you get the margin call? or is that possible you lose all the money in your acct even you only allocate 20% to this trade?

If your allocating 20% of your account to a single trade I think its likely that you'll blow the account.

Remember that while the intent of margin is to cover potential losses on the position, it's not guaranteed to cover them. When excessive moves happen the daily PnL change can easily surpass the margin requirement.

daydayup8 View Post
The margin call I got from IB was that IB liquidated my ES short put with a market order, that happened in just one blink of eyes, I don't know how other brokers would handle the margin call under a very extreme fast moving market.

I have an IB account as well. I find that their margin requirements are very high compared to some other brokers, especially for options. Their liquidation process is rather harsh as well - market orders - hopefully there is a liquidate market when they liquidate. Given that they internalize a lot of their order flow to an affliate it's probably not surprising. There are lots of complaints that they will actually force liquidate BEFORE you actually run out of margin money. Did you know that you can go in an designate the order in which you would like them to liquidate.


Last edited by SMCJB; September 2nd, 2014 at 03:44 PM. Reason: spelling
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