NexusFi: Find Your Edge


Home Menu

 





Selling Options on Futures?


Discussion in Options

Updated
      Top Posters
    1. looks_one ron99 with 2,221 posts (4,489 thanks)
    2. looks_two SMCJB with 346 posts (733 thanks)
    3. looks_3 kevinkdog with 341 posts (400 thanks)
    4. looks_4 myrrdin with 288 posts (408 thanks)
      Best Posters
    1. looks_one SMCJB with 2.1 thanks per post
    2. looks_two ron99 with 2 thanks per post
    3. looks_3 myrrdin with 1.4 thanks per post
    4. looks_4 kevinkdog with 1.2 thanks per post
    1. trending_up 1,949,926 views
    2. thumb_up 9,259 thanks given
    3. group 458 followers
    1. forum 7,370 posts
    2. attach_file 794 attachments




 
Search this Thread

Selling Options on Futures?

  #3611 (permalink)
CafeGrande
St Paul, MN, USA
 
Posts: 200 since Jan 2014
Thanks Given: 131
Thanks Received: 207


daydayup8 View Post
Believe it or not, that was exactly what I did before.

In summary, I consider myself being a bold trader before and now transferred to a more intelligent trader.

Cheers:-)

If you're switching/have switched to a broker that offers better short options margin on the products you trade, don't add too many positions just because you now have more "selling power."

We've had an extended period of low volatility in VIX, crude oil, precious metals, and so on. One of these days that will change and you need to be prepared for short option premiums that could soar, plus margins that could double or triple. Natural gas Jan-Feb 2014 is a good example of what can happen.

I'm not a Chicken Little - just some friendly advice because option selling has been relatively easy (calm mkts) for a long time.

Reply With Quote
Thanked by:

Can you help answer these questions
from other members on NexusFi?
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
Better Renko Gaps
The Elite Circle
NexusFi Journal Challenge - April 2024
Feedback and Announcements
Futures True Range Report
The Elite Circle
Deepmoney LLM
Elite Quantitative GenAI/LLM
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
61 thanks
Funded Trader platforms
39 thanks
NexusFi site changelog and issues/problem reporting
26 thanks
The Program
18 thanks
GFIs1 1 DAX trade per day journal
18 thanks
  #3612 (permalink)
 daydayup8 
tennessee/USA
 
Experience: Intermediate
Platform: Quotetracker, TOS
Broker: OX TOS
Trading: ES
Posts: 83 since Aug 2014
Thanks Given: 267
Thanks Received: 8

Thank you, I was about to add a little CL option selling later today, what you said make me reconsider my decision. VIX has been at this low level for so long, that does feel uncomfortable for our option sellers.

CafeGrande View Post
If you're switching/have switched to a broker that offers better short options margin on the products you trade, don't add too many positions just because you now have more "selling power."

We've had an extended period of low volatility in VIX, crude oil, precious metals, and so on. One of these days that will change and you need to be prepared for short option premiums that could soar, plus margins that could double or triple. Natural gas Jan-Feb 2014 is a good example of what can happen.

I'm not a Chicken Little -- just some friendly advice because option selling has been relatively easy for a long time and that will eventually change.


Reply With Quote
  #3613 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785



daydayup8 View Post
Thank you, I was about to add a little CL option selling later today, what you said make me reconsider my decision. VIX has been at this low level for so long, that does feel uncomfortable for our option sellers.

Since nobody knows when VIX will go up you shouldn't miss out on trades now because it may not happen till next year.

Just always have an exit plan because other things besides VIX can move futures against you.

Started this thread Reply With Quote
Thanked by:
  #3614 (permalink)
 daydayup8 
tennessee/USA
 
Experience: Intermediate
Platform: Quotetracker, TOS
Broker: OX TOS
Trading: ES
Posts: 83 since Aug 2014
Thanks Given: 267
Thanks Received: 8

Yes, I start to have a template to manage my position now even I have only 2 ES short put, and I am very clear about the exit thanks to your strategy. I try my best to balance everything, I need to figure out SPAN now called CORE next step.
I will continue to add position but in a slow pace. I traded CL and NG future before, so I might add CL put first.


ron99 View Post
Since nobody knows when VIX will go up you shouldn't miss out on trades now because it may not happen till next year.

Just always have an exit plan because other things besides VIX can move futures against you.


Reply With Quote
  #3615 (permalink)
 Dudetooth 
Steubenville Ohio
 
Experience: Intermediate
Platform: OX, OEC, RJO
Trading: Options on Futures
Posts: 266 since Sep 2012
Thanks Given: 30
Thanks Received: 274


enderqa View Post
In this case, where the option is OTM but close and you are assigned, would you not make money?

Actually, that is very close to what happened. Back when I was pretty new to selling options I had a call that I kept holding trying to run out the clock. Prices moved high enough that it was ITM during the last day of trading, but by the close it had dropped back below my strike. I thought for sure that it had expired worthless and had nothing to worry about. I'm not sure when the buyer decided to exercise their option, but the next day I was assigned a short futures contract. I was lucky that my broker notified and by the time I exited the futures contract prices were even lower, so I was very fortunate and did make a profit.

Reply With Quote
  #3616 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,396 since Jun 2009
Thanks Given: 33,172
Thanks Received: 101,536


SMCJB View Post
When you reply make sure you type your reply outside of the QUOTE box's. Many of your posts your reply is inside the QUOTES.

Yes, very important to not quote in-line because it breaks many things.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #3617 (permalink)
dbh21
San Diego, CA
 
Posts: 23 since Nov 2012
Thanks Given: 14
Thanks Received: 1

Thanks for this thread. I need a sanity check. I'm an equity option trader and I never realized the margins seemed so good in future options.

I'm looking at Nov /CL options with a +/- 4 delta in TOS. Selling a short strangle on the 81/106 shows ~95% ITM prob and a 0.20 credit (the natural is 0.13 and the mid is 0.23). With 38 days left, the margin on 1 contract shows $860. So if held to expiration this is a 200/860=23% return on margin (ignoring commissions).

23% return for a 95% ITM prob trade seems a little amazing to me (ignoring how much actual cash you should have). Does this look correct or am I missing something? Are the fills horrible? Why does TOS not report the mid price, but something in between?

Thanks in advance

Reply With Quote
  #3618 (permalink)
 enderqa 
Chicago, IL
 
Experience: Beginner
Platform: RTrader
Trading: CL
Posts: 15 since Apr 2013
Thanks Given: 9
Thanks Received: 1


dbh21 View Post
Thanks for this thread. I need a sanity check. I'm an equity option trader and I never realized the margins seemed so good in future options.

I'm looking at Nov /CL options with a +/- 4 delta in TOS. Selling a short strangle on the 81/106 shows ~95% ITM prob and a 0.20 credit (the natural is 0.13 and the mid is 0.23). With 38 days left, the margin on 1 contract shows $860. So if held to expiration this is a 200/860=23% return on margin (ignoring commissions).

23% return for a 95% ITM prob trade seems a little amazing to me (ignoring how much actual cash you should have). Does this look correct or am I missing something? Are the fills horrible? Why does TOS not report the mid price, but something in between?

Thanks in advance

I would calculate the return differently. ron99 has a better formula that takes into account the time to expiration. Basically the formula is (dailyreturn=credit/adj.margin/DTE) and then (monthlyreturn=(1+dailyreturn)^30-1). adj.margin is an adjusted margin. For simplicity say it's margin*2. A more detailed discussion of this formula can be found in the thread.

Using your TOS numbers, a 200 credit with a 860 margin with 37 DTE, gives a daily return of about 0.3% and a monthly return of about 10%.

A 95% probability that these options end OTM sounds rather reassuring, but futures, and especially CL, have the propensity to move in either direction suddenly. The point being that a 10% return entails quite a bit of risk. And selling options is managing unlimited risk.

It can be hard to get fills for CL options that are far OTM with only 37 DTE. This is because most of the theta value has decayed.

Lastly, I don't use TOS so I don't know what price they are quoting.

Reply With Quote
Thanked by:
  #3619 (permalink)
dbh21
San Diego, CA
 
Posts: 23 since Nov 2012
Thanks Given: 14
Thanks Received: 1

Thanks for the response. I do understand how you are managing the actual margin, but I was just checking what I was seeing was accurate.

On another note, I wanted to backtest selling short strangles, specifically to see how bad it will get when the market makes a big move. I was thinking of having unbalanced puts and calls (more puts than calls), or hedging with OVX (but the OI is low), or even hedging the call side... just to see the performance during crisis situations. But, the backtest tools in TOS don't work with futures. I have built my own backtest tool, but the data for CL is extremely expensive compared to the equity data I already have.

Has anyone gone about backtesting strangles in CL? If so, how?

Reply With Quote
  #3620 (permalink)
 datahogg 
Knoxville Tennessee USA
 
Experience: Intermediate
Platform: TOS
Trading: ES, NQ, CL, /6E futures options.
Posts: 346 since Oct 2012
Thanks Given: 135
Thanks Received: 154



dbh21 View Post
Thanks for the response. I do understand how you are managing the actual margin, but I was just checking what I was seeing was accurate.

On another note, I wanted to backtest selling short strangles, specifically to see how bad it will get when the market makes a big move. I was thinking of having unbalanced puts and calls (more puts than calls), or hedging with OVX (but the OI is low), or even hedging the call side... just to see the performance during crisis situations. But, the backtest tools in TOS don't work with futures. I have built my own backtest tool, but the data for CL is extremely expensive compared to the equity data I already have.

Has anyone gone about backtesting strangles in CL? If so, how?

I don't think back testing works. Experience works better.

Reply With Quote




Last Updated on July 28, 2023


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
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.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts