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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,106 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old February 7th, 2015, 01:04 PM   #3981 (permalink)
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irvino81 View Post
Thank you so much for sharing, I can relate to your story in oil and silver. Too many times I go naked and get burned but I figured what if I could protect my short puts with a short futures contract or the short call with a long futures contract. In theory the trade is bullet proof. The problems come with the slippage and all the other chinanigans. Any thoughts on my risk management?

I do not like to protect my short options with futures, as there is a significant danger to get whipsawed, and loose money on the future and the option.

What you can do to reduce risk is either buy a call option above the call you have sold, or - in case of a short-time risk for your short option - buy a short-dated cheap call closer to the money.

Best regards, Myrrdin

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Old February 8th, 2015, 03:34 AM   #3982 (permalink)
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I agree with buying a call/put for protection but getting whipsawed is a matter of speed and I think that's what algos are for. BTW anybody have experience with CQG professional service, Eccenica, RTS Tango from Bloomberg or any of the other Algorithm vendors with respect to price of their services?

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Old February 9th, 2015, 01:59 PM   #3983 (permalink)
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Hey everyone,
Anyone have any thoughts on selling options on Lean Hogs lately? According to the hogs guy on Commodity Charts.com the volatility is sky high right now (limit move up yesterday, and sharp decline today) so I figure the premiums must be pretty fat right now (although I can't say for sure because I haven't been following them). His forecast is for further weakness. Would you be selling calls, because the price is moving away, or would you be selling puts because the premiums should be going up (I realize this is a "catching a falling knife" scenario...).
Which brings me to my next question: looking at the seasonal hogs charts from 5 to 30 years, hogs should be traditionally going UP into April, then leveling off for a few months. This however flies directly in the face of this guy's downward call, as well as the current chart action for 2015 so far. How are you supposed to trade seasonals if the current charts are completely out of whack with the historic charts? This seems to be happening in cattle as well, where recently the only trend has been straight up!
Very frustrating!
Someone please clue me in!

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Old February 9th, 2015, 02:10 PM   #3984 (permalink)
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psears View Post
Hey everyone,
Anyone have any thoughts on selling options on Lean Hogs lately? According to the hogs guy on Commodity Charts.com the volatility is sky high right now (limit move up yesterday, and sharp decline today) so I figure the premiums must be pretty fat right now (although I can't say for sure because I haven't been following them). His forecast is for further weakness. Would you be selling calls, because the price is moving away, or would you be selling puts because the premiums should be going up (I realize this is a "catching a falling knife" scenario...).
Which brings me to my next question: looking at the seasonal hogs charts from 5 to 30 years, hogs should be traditionally going UP into April, then leveling off for a few months. This however flies directly in the face of this guy's downward call, as well as the current chart action for 2015 so far. How are you supposed to trade seasonals if the current charts are completely out of whack with the historic charts? This seems to be happening in cattle as well, where recently the only trend has been straight up!
Very frustrating!
Someone please clue me in!


1. I like trading seasonals, and have excellent experience with ist. But in case the chart is not in agreement with the seasonal, I do not trade them.

2. Regarding hogs, I made a lot of money selling calls. Now I am looking for selling puts. My problem: As far as I read one important reason for the weak hog prices is the strike at the ports on the west coast. Hogs that cannot be exported to China have to be sold in the US, and pressure prices. As a European, I have no idea how long this strike can go on. Anybody has an idea ?

Best regards, Myrrdin

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Old February 9th, 2015, 04:01 PM   #3985 (permalink)
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Futures Edge on FIO
First of all seasonals do not work every year.

The seasonal for Apr LH is down Feb and Mar.

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Old February 9th, 2015, 05:15 PM   #3986 (permalink)
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Ron99, the charts I'm looking at are courtesy of Signal Trading (got the link on this thread). They have the hogs flat until mid Jan, then a sharp increase, then flat again until mid march , then another steep rise going into April, then flat again until late summer.
Who's charts are you looking at? They both can't be right

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Old February 9th, 2015, 05:30 PM   #3987 (permalink)
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psears View Post
Ron99, the charts I'm looking at are courtesy of Signal Trading (got the link on this thread). They have the hogs flat until mid Jan, then a sharp increase, then flat again until mid march , then another steep rise going into April, then flat again until late summer.
Who's charts are you looking at? They both can't be right

According to MRCI data, it depends on which contract months you look. For the February - March period the April, May, and June contracts move downwards, July is neutral, and August and October contracts move upwards.

Best regards, Myrrdin

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Old February 9th, 2015, 05:35 PM   #3988 (permalink)
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psears View Post
Ron99, the charts I'm looking at are courtesy of Signal Trading (got the link on this thread). They have the hogs flat until mid Jan, then a sharp increase, then flat again until mid march , then another steep rise going into April, then flat again until late summer.
Who's charts are you looking at? They both can't be right

I'm looking at Apr using my own charts for the last 9 years. I throw out the abnormal years from the average. Like 2014.

Only 2 years out of 8 were up in Feb & Mar. 2010 & 2014.

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Here's an old chart from MRCI. Down in Feb and Mar. Notice how 30 year line is not same as 5 & 15 year lines in March. I never use the 30 year line.

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Using data from more than 10 years ago is a waste of time. Things have changed so much that current markets are nothing like 10-30 years ago. One big difference is electronic trading and large specs that weren't there years ago.

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Old February 9th, 2015, 05:45 PM   #3989 (permalink)
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Thanks for the replies, Myrrdin and Ron99!
Ron99, those are some busy looking charts; are you actually able to glean repeatable directional trade opportunities from that kind of jumbled mess alone? Do you two combine the seasonal charts with market commentary and fundamentals?
Is it consistent enough to make recurring profits?

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Old February 9th, 2015, 06:51 PM   #3990 (permalink)
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psears View Post
Thanks for the replies, Myrrdin and Ron99!
Ron99, those are some busy looking charts; are you actually able to glean repeatable directional trade opportunities from that kind of jumbled mess alone?

Yes. That is why I have the yearly average on it.

Do you two combine the seasonal charts with market commentary and fundamentals?

Definitely. I wouldn't trade without doing that.

Is it consistent enough to make recurring profits?

Sometimes. That is why I sell far OTM because no one can project markets accurately. Being far OTM gives me some leeway if I am somewhat wrong.

Seasonals are a tool. They should not be your primary info to decide what to trade. Fundamentals should be the primary.

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