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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,857 / 5,727
Last Reply:11 Hours Ago (12:40 PM) Attachments:642

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Selling Options on Futures?

Old January 27th, 2015, 08:53 PM   #3891 (permalink)
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ron99 View Post
My two cents. You are too close to ITM and not enough DTE. You needed to know the margin before you made the trade.

You mention "high degree of certainty". There is no such thing, especially in CL.

While the price may not hit 58, you could easily be forced out long before the price gets to 58 because of higher margin and higher premium. That is why you need to be further OTM.

How much cash excess are you keeping for this trade?

I agree with your points, although there would be virtually no premium further out, so any trade there would be fruitless. It is still picking up nickles in front of a bulldozer.
Cheers John

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Old January 27th, 2015, 08:55 PM   #3892 (permalink)
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Ron,

I have 3x the total cash in my account, thanks for that advice from your earlier posts. You're right about the margins, that's what's giving me heartburn more than anything else and I checked going as far out as the May calls but still had similar margins with OptionsExpress. I thought about buying a protective call and doing a "ratio spread" but didn't go through with it. Again, another mistake realized after the trade was done.

I agree with "high degree of certainty", poor choice of words there.

With regards to further out of the money the premiums pretty much dried up with almost no volume so I went with the $58 strikes. Maybe I'm wrong but I seem to recall a few authors I read stating that the min % out of the money should be 20%. When I checked the delta it came in at .04 so that passed the filter as well.

I'm trying to get a guage of how far OTM I should be as a starting point, thoughts?

/A/

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Old January 27th, 2015, 08:59 PM   #3893 (permalink)
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Johno1 View Post
I agree with your points, although there would be virtually no premium further out, so any trade there would be fruitless. It is still picking up nickles in front of a bulldozer.
Cheers John

Further out in time there is plenty of premium.

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Old January 27th, 2015, 09:02 PM   #3894 (permalink)
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ron99 View Post
Further out in time there is plenty of premium.

Further out in time increases the risk of a blowup dramatically, there is nothing for nothing in this game.

Cheers John

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Old January 27th, 2015, 09:06 PM   #3895 (permalink)
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rsm005 View Post
Ron,

I have 3x the total cash in my account, thanks for that advice from your earlier posts. You're right about the margins, that's what's giving me heartburn more than anything else and I checked going as far out as the May calls but still had similar margins with OptionsExpress. I thought about buying a protective call and doing a "ratio spread" but didn't go through with it. Again, another mistake realized after the trade was done.

I agree with "high degree of certainty", poor choice of words there.

With regards to further out of the money the premiums pretty much dried up with almost no volume so I went with the $58 strikes. Maybe I'm wrong but I seem to recall a few authors I read stating that the min % out of the money should be 20%. When I checked the delta it came in at .04 so that passed the filter as well.

I'm trying to get a guage of how far OTM I should be as a starting point, thoughts?

/A/

You realize that you can adjust your position at any time. I suggest you re read my previous post as there is no gaurenteed safe distance.

Cheers John

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Old January 27th, 2015, 09:13 PM   #3896 (permalink)
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rsm005 View Post
Ron,

I have 3x the total cash in my account, thanks for that advice from your earlier posts. You're right about the margins, that's what's giving me heartburn more than anything else and I checked going as far out as the May calls but still had similar margins with OptionsExpress. I thought about buying a protective call and doing a "ratio spread" but didn't go through with it. Again, another mistake realized after the trade was done.

I agree with "high degree of certainty", poor choice of words there.

With regards to further out of the money the premiums pretty much dried up with almost no volume so I went with the $58 strikes. Maybe I'm wrong but I seem to recall a few authors I read stating that the min % out of the money should be 20%. When I checked the delta it came in at .04 so that passed the filter as well.

I'm trying to get a guage of how far OTM I should be as a starting point, thoughts?

/A/

For CL I usually stay at least 20-30 dollars away from current price. 20% with the current low price for CL is not enough cushion.

You could have sold May 80s for the same .08. But the SPAN margin is 72% less. So the monthly ROI is about the same with less risk. Delta of .0229 vs .0391 for your option.

BTW OX is charging 30% more for margin than SPAN minimum for CL because CL has been so volatile lately.

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Old January 27th, 2015, 09:15 PM   #3897 (permalink)
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Johno1 View Post
Further out in time increases the risk of a blowup dramatically, there is nothing for nothing in this game.

Cheers John

but closer in time means you have to be closer to ITM which increases your chances of a blowup more than further out in time.

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Old January 27th, 2015, 09:15 PM   #3898 (permalink)
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rsm005 View Post
7. Things I would have done differently next trade and mistakes? The position was just too large.

There are people here who can give you much better advice on option selling than me. Obviously @Johno1 thinks the whole trade is bad, while @ron99 would have maybe structured it differently. I will say this though. If you think the trade is/was too big I would advice that you reduce it's size to a level that you think is correct, whether at a profit or a loss, as soon as you can.

Good Luck 2 U.

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Old January 27th, 2015, 09:20 PM   #3899 (permalink)
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ron99 View Post
but closer in time means you have to be closer to ITM which increases your chances of a blowup more than further out in time.

As I pointed out earlier I wouldn't even be in the trade. Protection of my working capital is my number one priority, My trades have a positive expectancy therefore as long as I can put them on I am confident that I will continue to trade successfully.
Cheers John

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Old January 27th, 2015, 09:30 PM   #3900 (permalink)
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I appreciate the responses, given this is my first trade what I'm trying to do is develop a sound process for entering a position and a process and for modifying and exiting it. The last thing I want to do is start drastically modifying my position after I enter a trade without thinking it through. My fundamentals seem right to enter the trade but the structure could be more conservative, as ron has stated.

- My first step is to modify the trade to add a protective call at $57.

- My biggest issue with the "size" of the trade is the margin reserve. I've already got my exit point in place and will pull the trigger to exit no matter what if it's reached.

Any other feedback would be much appreciated.

/A/

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