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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,153 / 5,734
Last Reply:December 9th, 2016 (01:01 AM) Attachments:642

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Selling Options on Futures?

Old December 26th, 2012, 02:21 PM   #361 (permalink)
Market Wizard
OH
 
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alfredoe View Post
I also would like to share my results for this year. I started trading, with a very modest account, in April this year. In my first 2 months I had lost 40% of my investment. Then, things started to change and in the last 6 months, I came up with a total of 60% gain for the whole year.

I believe I got lucky the second half of the year. I mainly sold corn (I lost a lot with the drought, then gain back some), soybeans, natural gas and coffee.

Merry Christmas everybody and thanks for your valuable input in this forum.

Alfredo E.

Good job!

Was this only option selling or did you do other strategies?

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Old December 26th, 2012, 02:48 PM   #362 (permalink)
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MJ888 View Post
I am glad that I found this thread. I too have been selling options on commodities but I have yet to have the success that ron99 has achieved. My lack of success is due directly to not having enough discipline and patience to follow a simple trading plan. During the past several months I have done some intense self-evaluation and I have identified why I keep sabotaging myself and I am ready to fix my discipline issues so I can have a profitable 2013.


I too have read Cordier's options selling book and followed their recommendation to look for strikes with a lower than 0.20 delta but it seems that that is still too close.

When I had an account at Liberty, closed Dec 2011, I found that he loved to sell options that we worth $500 and were 90-180 days from expiration. I go much farther OTM and have had a better ROI than him every year.

I have no problem going even farther out and looking for strikes with deltas below 0.04 but here is another question, what is your stop loss ron99 because let's say you sold the April CL 120 call for 0.13 premium ($130) with a delta of 0.0268, where is your stop loss? Cause if you follow Cordier and exit when the premium doubles to 0.26, wouldn't you be exiting a lot? How much heat are you willing to take? Do you use a percentage? Or do you base your stop loss on market conditions and how many days are left until expiration?

I don't use the doubling of premium to exit because of the smaller premiums I trade. You are correct that I would be exiting frequently. Your last sentence is mainly what I do. But one guideline I use is that when I put a position on I have 1/3 to cover the position Initial Margin (IM) and 2/3 cash. If the position goes against me and I use up that 2/3 cash excess with higher margins and loss on the premium, then it is probably time to exit.

For example, sellling an option takes $500 IM. I put $1000 for cash excess per contract. If the IM goes up to say $800 and the premium is more than a $200 loss, then it is probably time to exit. You are entering the dreaded margin call time.

I used to be 50-50 margin to cash. But I found that I had to exit too many positions at a loss because I ran out of money to cover temp losses. Nothing burns me more than being right about the trade but being forced out because of a spike only to have the market go back to making that position profitable.


I currently using IB and I find that the margin requirements at very very high compared to other places, this is bad for my ROI.

I took a quick look at OX and saw their commission rates for options on futures is $12.99 for 1-40 contracts/month. Is that a flat fee or does that mean for every option I sell it is $12.99 each? Cause if it is $12.99 each that is very very very high. To sell one April CL 120 call at IB the commission would be $2.32 one way if I allow it to expire worthless. It would cost me another $2.32 to cover should I need to. That is $4.64 round-turn at IB. So the same trade at OX would cost me $25.98? Or am I wrong?

You are correct on the pricing. But I think the bigger picture is that by being charged far less margin at OX you are able to put on more positions which should more than make up for the $20 more in fees at OX.

One thing I did at OX was keep track of the number of trades per month. If I was close to making it to the next lower pricing tier I would put on far OTM trades to inflate my trade count. Then the next month I would have lower fees.

These extra trades would be something that would make just enough to cover the fees but by being far OTM they didn't take much IM.


Speaking of James Cordier, I got a newsletter from him last week talking about selling OTM puts on silver.

Thoughts please!

Thanks!

Silver normally does go up Jan and Feb. But I suspect that if we get past the fiscal cliff that gold and silver might not have legs to run higher. But if you are far enough OTM selling silver puts might still be OK.

I'm thinking that ES, CL, RB and grains are the best places to sell puts early 2013 once we get past the fiscal cliff and raising of the US debt limit.

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Old December 26th, 2012, 02:50 PM   #363 (permalink)
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britkid99 View Post
As the year draws to an end and my first year of option trading too, (I sold my first ever in feb 2012), I thought it might be of interest to review my progress so far.

I sold mainly CL, but also NG , KC, ZS, ZC, GC, ES, TF & EUR futures options within my Interactive Brokers UK Pension Account. I also bought some CL calls which helped to boost my returns.

As these are all $ demominated trades, I first had to convert my Pounds Sterling into Dollars using IB's IdealPro and then to prevent any currency risk I hedged by buying enough GBP (6B) futures to cover the amount I converted.

The end result of 10 months tentative trading with very little done over the last two months has been a total account gain of 23.2%. I am very pleased with this (Buffet level) performance and realize I can do even better next year.

I would like to thank Ron for all his help in answering everyones questions and I wish everyone All The Best for Christmas and the New Year.

Brit

Very good returns! Many hedge funds would think they were geniuses if they did that.


Last edited by ron99; December 27th, 2012 at 11:08 AM.
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Old December 26th, 2012, 02:55 PM   #364 (permalink)
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The Dec ICE Softs monthly newsletter is out.

http://links.intercontinentalexchange.eb2b.vtrnz.com/ctt?kn=5&ms=NTI5NzQzMAS2&r=...=NjEwNTM0NzES1&mt=1&rt=0

Here is where you go to subscibe to these newsletters from ICE.

https://www.theice.com/Subscription.shtml

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Old December 27th, 2012, 10:57 AM   #365 (permalink)
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ron99 View Post

MJ888
I am glad that I found this thread. I too have been selling options on commodities but I have yet to have the success that ron99 has achieved. My lack of success is due directly to not having enough discipline and patience to follow a simple trading plan. During the past several months I have done some intense self-evaluation and I have identified why I keep sabotaging myself and I am ready to fix my discipline issues so I can have a profitable 2013.


I too have read Cordier's options selling book and followed their recommendation to look for strikes with a lower than 0.20 delta but it seems that that is still too close.

When I had an account at Liberty, closed Dec 2011, I found that he loved to sell options that we worth $500 and were 90-180 days from expiration. I go much farther OTM and have had a better ROI than him every year.

I have no problem going even farther out and looking for strikes with deltas below 0.04 but here is another question, what is your stop loss ron99 because let's say you sold the April CL 120 call for 0.13 premium ($130) with a delta of 0.0268, where is your stop loss? Cause if you follow Cordier and exit when the premium doubles to 0.26, wouldn't you be exiting a lot? How much heat are you willing to take? Do you use a percentage? Or do you base your stop loss on market conditions and how many days are left until expiration?

I don't use the doubling of premium to exit because of the smaller premiums I trade. You are correct that I would be exiting frequently. Your last sentence is mainly what I do. But one guideline I use is that when I put a position on I have 1/3 to cover the position Initial Margin (IM) and 2/3 cash. If the position goes against me and I use up that 2/3 cash excess with higher margins and loss on the premium, then it is probably time to exit.

For example, sellling an option takes $500 IM. I put $1000 for cash excess per contract. If the IM goes up to say $800 and the premium is more than a $200 loss, then it is probably time to exit. You are entering the dreaded margin call time.

I used to be 50-50 margin to cash. But I found that I had to exit too many positions at a loss because I ran out of money to cover temp losses. Nothing burns me more than being right about the trade but being forced out because of a spike only to have the market go back to making that position profitable.


I currently using IB and I find that the margin requirements at very very high compared to other places, this is bad for my ROI.

I took a quick look at OX and saw their commission rates for options on futures is $12.99 for 1-40 contracts/month. Is that a flat fee or does that mean for every option I sell it is $12.99 each? Cause if it is $12.99 each that is very very very high. To sell one April CL 120 call at IB the commission would be $2.32 one way if I allow it to expire worthless. It would cost me another $2.32 to cover should I need to. That is $4.64 round-turn at IB. So the same trade at OX would cost me $25.98? Or am I wrong?

You are correct on the pricing. But I think the bigger picture is that by being charged far less margin at OX you are able to put on more positions which should more than make up for the $20 more in fees at OX.

One thing I did at OX was keep track of the number of trades per month. If I was close to making it to the next lower pricing tier I would put on far OTM trades to inflate my trade count. Then the next month I would have lower fees.

These extra trades would be something that would make just enough to cover the fees but by being far OTM they didn't take much IM.

Speaking of James Cordier, I got a newsletter from him last week talking about selling OTM puts on silver.

Thoughts please!

Thanks!

Here is what I have found with IB.
I have gone 50/50 (margin/cash) at times and even having two big drops in CL go against my positions, I never got into a situation where the margins went up higher than about 65/35. So I was never anywhere near a margin call (or rather IB closing out positions as it is a pension account). Also most of my CL positions were strangles, so there was a "winning side" to help counteract the "losing side" in margins and premum and premium was increased by selling both sides.

It does seem that because IB uses such high margins to start with, there is less effect when margins increase. Or in other words the reduced margin from OX is a form of incresed leverage. Also one is able to nominate certain positions to be closed out last so giving a little control if forced to liquidate a position.

I am opening an OX account so I can do some other things not available in my IB a/c, such as equity credit spreads (i am not allowed to sell stock or stock options at all in the pension account, except for covered calls and cash covered puts)

I have received the latest Cordier email on silver puts but I have noticed lately he no longer gives any specific levels to sell at just vague "below the current range". Still think we need to wait for the market to make up its mind which way to go first.

Brit

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Old December 27th, 2012, 11:09 AM   #366 (permalink)
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ron99 View Post
Good job!

Was this only option selling or did you do other strategies?

Just selling options, basically calls.

Alfredo E.

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Old December 27th, 2012, 11:11 AM   #367 (permalink)
Market Wizard
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alfredoe View Post
Just selling options, basically calls.

Alfredo E.

Wow, then that is a very great return.

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Old December 27th, 2012, 11:28 AM   #368 (permalink)
Market Wizard
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One reason that gold and silver haven't been increasing in price is that the hedge funds have quit buying it. They used to usually have ~200,000 long gold futures (pre Sep 2011). Now they are down to 130,000.

One reason for that is COMEX raised the margins sky high Sep 2011 and have very slowly reduced them but not to pre Sep 2011 levels.

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Old December 27th, 2012, 12:40 PM   #369 (permalink)
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Great discussion!

I agree with Brit Re; IB. I do the same thing and try to run apx 50% margin. So far this has been fine for any move against me. It gives me enough cash to adjust if needed. Also With the low commissions I just get out if Ive made 75% or better and still have 30 days or more to go. In Canada IB is the only choice, so have to find ways to be creative!

Currently Short SI, CL, KC & HG
Thanks to all for posting!

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Old December 27th, 2012, 01:30 PM   #370 (permalink)
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Thanks for the great info everyone!
Ron, you replied that you tracked Cordier's recommendations over 5 years and that he was about 76% correct. I presume that you are talking about general market direction?
76% sounds pretty good to me for general market direction-do you consider that pretty good? Or are you doing even better on your own? I'm thinking of maybe following a newsletter like Cordier's and selling DOTM options like you based on where the newsletter thinks the market isn't going. Over time, I will learn the markets and eventually make my own calls. In the meantime, 76% and proper money management sounds like a winning system to me.
What do you think?

Also, you said in a previous post that you don't follow IV. Do you sell options just when they are historically expensive based on actual dollar value, or does that not
matter to you? Or do you sell when expensive and buy when cheap?

Thanks!

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