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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,792 / 5,734
Last Reply:23 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old January 28th, 2015, 09:57 AM   #3911 (permalink)
Market Wizard
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Johno1 View Post
parabolic move

That's the second time you've mentioned parabolic moves - but I think you actually mean something else.

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Old January 28th, 2015, 10:07 AM   #3912 (permalink)
Market Wizard
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Johno1 View Post
Options are less than a 50-50 shot due to pricing, brokerage and slippage, I hope that you would agree with this statement, negative expectancy, as you pointed out no one knows the future although the probability of a catestrophic loss increases the more times you place yourself at catestrophic risk, I would hope that you would also agree with this statement. Writing FOTM naked options is picking up nickles in front of a bulldozer, I also think that most people would acknowlege this statement as well. The margin required for his trade tells it's own story about risk/reward $14,000/$950 as per span margining, almost 15 to 1 against, so yes I consider that a crap trade, it doesn't matter how many times you get away with it if the tail risk is always there. Particularly when a smart options trader can put together trades where the risk is 1 to 2-3 reward with a similar probability of success, and no catestrophic tail risk, yes you need to know options and also the markets you are operating in, nothing comes easy in this game. As far as stops go, there are times when it is a huge gamble to believe that there will be a market for you to easily unwind your position in an extreme adverse move, remember in the event of an extreme move in your favour you still only end up with the $950. I say this with the benefit of personal experience. Try coming in to the last couple of days before expiry, the options behave basically the same as futures contracts once they are ATM , you are a reasonable way out of the money at the previous close and then overnight something extreme happens, the market gaps against you,a parabolic move, you are now DITM, there is no market for the options at the open, please explain to me how you are going to get out of that in one piece, it won't be possible. The reason that I know is that it happened to me many years ago, and I had a better plan in place than simply a stop. It certainly got my attention and made me think, it's not much fun losing everything. Making a mistake once is forgivable, you just didn't know, twice is just plain carelessness and three times is outright stupidity. I prefer to learn the first time if I haven't already learnt from someone elses experience which is always the smartest way to learn. The longer you trade these kinds of positions the greater the chance you will be wiped out, that is one of the few certainties in the markets. Who knows, keep rolling the dice, you might be one of the lucky ones. But for me survival trumps everything.

Cheers John

You expect us to believe you have all of this knowledge yet you don't even know how to make paragraphs in your post so that it is readable?

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Old January 28th, 2015, 10:10 AM   #3913 (permalink)
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SMCJB View Post
That's the second time you've mentioned parabolic moves - but I think you actually mean something else.

No that was what I meant. Google Parabolic move, effectively an extreme move without the usual retracements.

Cheers John

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Old January 28th, 2015, 10:13 AM   #3914 (permalink)
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ron99 View Post
You expect us to believe you have all of this knowledge yet you don't even know how to make paragraphs in your post so that it is readable?

If that is all you have to offer then lets just agree to disagree, good luck in your trading.

Cheers John

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Old January 28th, 2015, 10:20 AM   #3915 (permalink)
Market Wizard
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Johno1 View Post
No that was what I meant. Google Parabolic move, effectively an extreme move without the usual retracements.

Cheers John

Urhh.. when I goggle search Parabola I get... (take your pick)
I guess when you say parabolic you really mean 'one side of a parabola'

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Old January 28th, 2015, 10:22 AM   #3916 (permalink)
World'sWorstTrader
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CL


rsm005 View Post
So I placed my first real trade as an options seller after months of research and wanted to share my thoughts and feedback as someone who's "popped his proverbial cherry".

1. The reason I went with oil is because I'm a news junkie and follow global news daily. Adding a bit more commodities news to the mix wasn't too hard and my habits gave me a bit of back ground on the overall bearish sentiment.

2. I believe the supply glut will be there for some time. At least until the OPEC meeting in June. The OPEC nations need to go to war with Russia to make sure they don't lose China's business. The Chinese represent 2/3 or so of OPEC revenues given the drop in US and European demand. Although the Russians have never really trusted the Chinese they are going to be forced to deal with them due to sanctions from the west and a crashing economy. Add to that the Chinese don't want a destabilized Russia as a neighbor and a more secure land based delivery method for oil vs ships and a continued weakness in Europe and you have the perfect recipe for continued oversupply until someone breaks. The bullish statements from OPEC's Al-Bardi caused a small spike but can't affect the larger trend in surplus which will, in my humble opinion, cause prices to remain down.

3. My first trade was small from a premium point of view but bigger than I've seen others make. I sold 12 March15 calls at $58 for a $900 premium.

4. The strike price was chosen because it's 27% out of the money on the current price and 18% out of the money from the 20 day SMA.

5. I wanted to start with 1 position with a high degree of certainty to help me gain experience so I can expand in a controlled way. The biggest thing here is managing my emotions and following a business process.

6. The margin requirements practically gave me a stroke. OptionsExpress stated that SPAN was $14,000 in margin for a $950 trade. How do you guys manage this? What do you do to have a decent gain without tying up so much capital?

7. Things I would have done differently next trade and mistakes? The position was just too large.

8. It's emotional. It's exciting. It's terrifying.

Thanks and any feedback is much appreciated.
/A/

I have the following position for CL:

Entered on 01/24/15 to expire on 03/18/15.

-3 28P
+1 29P

-1 74C
+1 75C
-2 76C.

Margin = 2200 (Today).

This is a strangle using short ratio spreads. My overall position delta is 0.01 .
I am not concerned at all for this position because:
(1) It is very small.
(2) To a good degree I know and can control my risk.
(3) Whether CL goes up or down I have a plan.

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Old January 28th, 2015, 10:27 AM   #3917 (permalink)
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SMCJB View Post
Urhh.. when I goggle search Parabola I get... (take your pick)
I guess when you say parabolic you really mean 'one side of a parabola'

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Parabolic - Parabolic Uptrend Stock | TheStockBandit.com
thestockbandit.com/parabolic/ Cached
This stock went parabolic and gained in volume and price move at the end of the run. What began as an uptrend quickly became panic buying, driving the stock ...




What is a Parabolic Move? : Prometheus Market Insight
What is a Parabolic Move? : Prometheus Market Insight Cached
14 Oct 2010 ... When it comes to chart analysis, we define a parabolic advance as an uptrend during which the angle of ascent increases as the move matures ...




Stock Markets Bubbles and Parabolic Slope Theory :: The Market ...
www.marketoracle.co.uk/Article45096.html Cached
5 Apr 2014 ... A bubble is a parabolic advance in a market or stock where the price appears to move straight up without normal corrections. The corrections or ...




The Curse of the Parabolic Move - Growth Stock Wire
Watching Parabolic Moves in Stocks Cached
30 May 2013 ... We first warned about the dangers of the parabolic move in utility stocks a few weeks ago. You can see what has happened to the sector since

I hope that this clarifies.

Cheers John

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Old January 28th, 2015, 10:29 AM   #3918 (permalink)
Market Wizard
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Seems like you found a lot of other people who don't understand the meaning of the word!

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Old January 28th, 2015, 10:30 AM   #3919 (permalink)
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SMCJB View Post
Seems like you found a lot of other people who don't understand the meaning of the word!

LOL And a lot of other things as well. lol

Cheers John

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Old January 28th, 2015, 12:49 PM   #3920 (permalink)
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I've gone through a bulk of the Gross/Cordier materials and they have said that a "naked" option isn't an automatic death sentence if it's managed properly. I have a hard and fast exit if the premium reaches 200% of what I paid, no exceptions. However I can see that I'm closer to the money than my gut would like, as john mentioned it would explain the nerves. Combine that with the feedback I received on this thread lead me to modify my trade this morning to include some protection in the event the price moves against me.

I bought 4 March15 calls at $57.5 putting me into a 1/3 ratio spread. Given the price decline this morning it was a very cheap insurance policy at $200.

Interesting observation, even though the price of oil moved in my favor OX increased my MM because of "volatility" accoring to the broker moving the MM from ~15k to ~21k. The addition of the insurance policy brought it down substantially, from ~21k to ~13k but still. Ron's rule of 3x in cash is proving to be a necessity more than a best practice.

I don't have enough cash to place a trade on the downside but would probably do another Ratio Spread on the put side at the $25 mark given it's trading at .05 right now. Maybe if the margins come down a bit more as time keeps marching on.

Thanks,
/A/

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