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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,362 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old October 20th, 2014, 01:38 AM   #3751 (permalink)
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ticks View Post
Datahogg:

Just noticed I did not answer this question: "Can you share how your performance has been over the last 8 years? How did things work during last weeks sell off. What was your worst loss using this method?"

When I first started trading using this method I did have some losing trades. My biggest loss back then was $2700 and change. I made stupid mistakes that looking back now where due to a lack of understanding the greeks and my use of the trading tools that were part of my platform.

Since that loss I am reluctant to say that my losses are almost a non-event. That is if I follow my mechanical trading plan I will rarely have a losing trade and the loss would be tiny. I don't want to come off as bragging but my results are not due to some genius but lots of hard work and analysis. I do have the probabilities on my side as well as the math and science -- if that exists.

As to last weeks sell off in oil: It did not affect my trades or P&L. (Today is Sunday and I did go to Thank The Lord at church for His Grace in allowing me to be engaged in such a wonderful business of Self Directed Trading.)


Just a dollar amount is pretty irrelevant. What was the percentage on account ?

If your biggest loss in 8 years is only $2700 and I am going to assume "wonderful business of self directed trading" means you trade for a living, then you must be earning at least $50k pa to make a living ?

High win rate, low losses/risk, high reward - to be honest I am not convinced of those numbers. If you trade and make enough for a living and your largest loss in 8 years is $2700 (and that was early on in 8 years your account must be even larger now) that definitely puts you in top 0.01% of traders. I am not convinced but don't take it personally I am just some random on the internet to you. Maybe you are - if so, congratulations.

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Old October 20th, 2014, 03:15 AM   #3752 (permalink)
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@ticks a few examples would be great

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Old October 20th, 2014, 12:59 PM   #3753 (permalink)
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k20a View Post
Just a dollar amount is pretty irrelevant. What was the percentage on account ?

If your biggest loss in 8 years is only $2700 and I am going to assume "wonderful business of self directed trading" means you trade for a living, then you must be earning at least $50k pa to make a living ?

High win rate, low losses/risk, high reward - to be honest I am not convinced of those numbers. If you trade and make enough for a living and your largest loss in 8 years is $2700 (and that was early on in 8 years your account must be even larger now) that definitely puts you in top 0.01% of traders. I am not convinced but don't take it personally I am just some random on the internet to you. Maybe you are - if so, congratulations.

K20a: Thanks !

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Old October 21st, 2014, 02:46 PM   #3754 (permalink)
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ticks View Post
Having both sides of the market (Short Calls vs. Long Futures) will allow me to book realized profits on one side of the trade and hold the other side as an "unrealized" loss waiting for the market to reverse direction and then "rinse and repeat".

Hi Ticks. This makes sense to me. Basically you are collecting that max theta. But I would guess you would be constantly adjusting the position to keep ~ delta neutral. no?

Also, can you describe how you maintained profitablility during Oil's recent slide? Your calls would have been profitable, but don't you still have a large unrealized loss on the long future contract?

Thanks

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Old October 21st, 2014, 03:58 PM   #3755 (permalink)
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SPAN & OX margin

Futures Edge on FIO
I have a question for the margin requirement. I only have 9 EWV41500P in my OX acct, I checked the IM at OX, it shows the IM is $455.4, but the 'future requirement' is $1728 for these 9 short puts. My total acct value is $21224.44, so the fund available for me to put more position is (21224.44-1728=)19496.44, but I feel like if the $455.4 is IM for these positions, I should have (21224.44-455.4*3)=$19585.24 to use based on the 3x method used in the thread.

Q1:
The available fund to trade from OX is 19496.44 which is less than $19585.24 which is from our method, that means if I use 3x IM to put on trade and assume I use all the $19585.24, I will put myself to a margin call immediately, is that right?

Q2:
I called OX to ask why the IM is $455.4 but the item 'future requirement' is $1728, they said $1728 is SPAN requirement for these positions. Since I don't have SPAN program, can someone help to check for that? what is the SPAN for 9 EWV41500P? and also please help answer the Q1 if you understand, thanks!

sorry, PS: EWV41500P


Last edited by daydayup8; October 21st, 2014 at 04:08 PM.
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Old October 21st, 2014, 04:42 PM   #3756 (permalink)
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daydayup8 View Post
I have a question for the margin requirement. I only have 9 EWV41500P in my OX acct, I checked the IM at OX, it shows the IM is $455.4, but the 'future requirement' is $1728 for these 9 short puts. My total acct value is $21224.44, so the fund available for me to put more position is (21224.44-1728=)19496.44, but I feel like if the $455.4 is IM for these positions, I should have (21224.44-455.4*3)=$19585.24 to use based on the 3x method used in the thread.

Q1:
The available fund to trade from OX is 19496.44 which is less than $19585.24 which is from our method, that means if I use 3x IM to put on trade and assume I use all the $19585.24, I will put myself to a margin call immediately, is that right?

Q2:
I called OX to ask why the IM is $455.4 but the item 'future requirement' is $1728, they said $1728 is SPAN requirement for these positions. Since I don't have SPAN program, can someone help to check for that? what is the SPAN for 9 EWV41500P? and also please help answer the Q1 if you understand, thanks!

sorry, PS: EWV41500P

I take it that you are getting $455 from OX's Trade Calculator, which would be based off the current market value. On the Trade Calculator it has $455 as the IM, but $500 as the Total Requirement (IM + value of options).

The $1728 is the Total Requirement likely based on this morning's closing price and risk arrays, because last night's closing risk arrays have the Total Requirement at $1751.

You will only be in a margin call if the calculated Total Requirement is greater than $21224.44. For OX I find it easier to track the Futures Requirements/Initial Margin Requirements rather than the available funds.

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Old October 21st, 2014, 05:08 PM   #3757 (permalink)
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Thank you for your answer. The reason I am checking the item 'buying power' in acct summary is because during the market sell-off last week (for ES), there was a point that my 'buying power' is a negative value, but the 3x margin based on Ron's method for all my positions was about $18000 ( I added all the positions with the current IMx3) and 'Total cash' was about $21000, so I called OX and asked why the buying power is negative, the guy from OX told me i was about to get a margin call, so I dumped some of my positions with loss at the almost exact bottom of ES ( of course, these several positions should be dumped since all the excess was gone for these positions but my whole acct still had a few thousands extra excess and I had other positions that had not reached the 'exit' point yet).

so, I was told by OX when the 'buying power' was negative I would get a margin call even I still had a few thousands dollar excess.

By looking at my acct summary now (I copied below), I can see the buying power is $19496.44, but the Total Requirement is only $500.4, so the fund available for me to put more positions should be (21224.44-500.44=)20724.44. What you said made a lot of sense, but why the guy from OX told me to watch 'buying power' to avoid margin call? does that mean they told me the wrong information? Thanks again for your time and help.

Total Cash
$21,224.44

Sweep Funds
$7,220.92

Cash
2
$8,645.50

Futures Cash
3
$5,358.02

Requirements

Margin Equity %
4
100.00%

Uncleared / Pending Funds (detail)
$0.00

Pending Purchases
$0.00

Option Requirements (detail)
$0.00

Futures Requirements
$1,728.00

Initial Margin Requirements
$1,728.00
Maintenance Margin Requirements
$1,575.00

Buying Power

Cash Available to Withdraw
5
$19,496.44

Option
$19,496.44

Stock
$38,992.88

Futures
$19,496.44






Dudetooth View Post
I take it that you are getting $455 from OX's Trade Calculator, which would be based off the current market value. On the Trade Calculator it has $455 as the IM, but $500 as the Total Requirement (IM + value of options).

The $1728 is the Total Requirement likely based on this morning's closing price and risk arrays, because last night's closing risk arrays have the Total Requirement at $1751.

You will only be in a margin call if the calculated Total Requirement is greater than $21224.44. For OX I find it easier to track the Futures Requirements/Initial Margin Requirements rather than the available funds.


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Old October 21st, 2014, 06:52 PM   #3758 (permalink)
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daydayup8 View Post
so, I was told by OX when the 'buying power' was negative I would get a margin call even I still had a few thousands dollar excess.

By looking at my acct summary now (I copied below), I can see the buying power is $19496.44, but the Total Requirement is only $500.4, so the fund available for me to put more positions should be (21224.44-500.44=)20724.44. What you said made a lot of sense, but why the guy from OX told me to watch 'buying power' to avoid margin call? does that mean they told me the wrong information? Thanks again for your time and help.

It actually sounds correct that OX would be looking at the buying power number for determining margin calls ... after all the Futures Buying Power should be showing you your account Total Cash minus your Futures Requirements.

SPAN risk arrays are updated several times during the day and brokers will access these when determining the risk for your account. One issue is that there is often a delay in the SPAN file that the brokerage is using (earlier today the balance page told you $1728 which was lagging the trade calculator which was showing $500).

On the day that the market bottomed out the intraday premium and risk must have been pretty extreme if your account was showing a negative buying power. The closing day total requirements for that position should have only been $6304.

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Old October 21st, 2014, 09:41 PM   #3759 (permalink)
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Dudetooth View Post
It actually sounds correct that OX would be looking at the buying power number for determining margin calls ... after all the Futures Buying Power should be showing you your account Total Cash minus your Futures Requirements.

SPAN risk arrays are updated several times during the day and brokers will access these when determining the risk for your account. One issue is that there is often a delay in the SPAN file that the brokerage is using (earlier today the balance page told you $1728 which was lagging the trade calculator which was showing $500).

On the day that the market bottomed out the intraday premium and risk must have been pretty extreme if your account was showing a negative buying power. The closing day total requirements for that position should have only been $6304.

Thank you Dudetooth, although I am still not clear about the whole issue, I guess like you said, delay might be the reason.

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Old October 22nd, 2014, 08:43 AM   #3760 (permalink)
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daydayup8 View Post
Thank you Dudetooth, although I am still not clear about the whole issue, I guess like you said, delay might be the reason.

Brokerages like OX rely on risk files from the exchanges when they calculate your initial margin. The exchange risk files have a ton of info in them like futures price, option price, volatility, delta, and days to expiration, to name a few. Some of the most important bits of info are the 16 different 'what-if' risk scenarios that look at what happens to the risk of an option with changes in the price of the underlying or in volatility.

So for your EWV4 puts, OX would be looking at the risk files published by CME (these are the pa2 files that we refer to in the PC-SPAN thread). The pa2 files are published at certain times throughout the day and are snapshots of the futures price, option price and volatility at that point in time. CME normally publishes them at 10:30am, 11:30am, 4pm and then the closing pa2 around 7pm.

It looks like OX grabs the pa2 files from CME shortly after they are published and plug them into their system. When you look at your balances page it will calculate the futures requirements based on last pa2 file that was loaded into their system. The trade calculator is similar, but instead of using the option price from the pa2 file it appears to use the current market price. This creates the difference in the calculation that you noticed.

So, let's say you were looking at your balance page on OX around 3pm on 21 Oct, OX would have still been using the pa2 file that CME published at 11:30am for their calculations. ESZ4 had rallied an additional 10 points since that time and your puts would have had a lower value, but that would not be reflected on the balances page. The trade calculator was more accurate because it was using the market price of the option. Two hours later, CME would have published the 4pm pa2 file and the calculations on the OX balances page would have been closer to what you were seeing with the trade calculator.

That was the delay I was trying to describe. Hope this makes sense.

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