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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,534 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old July 29th, 2011, 03:51 PM   #31 (permalink)
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Only if you don't trade smartly.

You don't have to sell naked. You can sell covered options.

I don't mean to critique your trading, my statement was more general. There might be a lot of beginning (options) traders reading this, and they might be enticed to sell options. After some success they think they have it down and before they know it, the bank forecloses on them....

Your example of a naked short put on CL is quite hazardous. The markets are quite shaky now, and CL might take a massive dive. The limited upside, and unlimited downside, is not appealing to me. I've actually made some money purchasing such options, so it's not something you do without a solid approach. You can easily have a win rate > 90%, only to blow up...

Again, I don't mean to be critical of your trading, you seem to be doing quite well. But selling options, aside from being a part of a sound strategy, is something to be treated with respect...

That being said, I welcome more posts about options on this board. They should be a part of every serious trader's arsenal!

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Old July 29th, 2011, 04:20 PM   #32 (permalink)
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Oh I agree that options are not easy money. You have to be careful. I'm sorry if I wasn't strong enough in my posts about being careful.

Got a few of the dreaded margin calls many years ago. Not fun.

That's the main reason why I have been sitting on my hands the last two weeks waiting for the increase in the debt limit. Definitely no oil puts and no metal calls.

Actually if I was smart I would have bought Gold calls at the start of this month. You had to figure they would go down to the last minute and that gold would be rising the whole time.

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Old August 1st, 2011, 05:54 AM   #33 (permalink)
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I've been trying to trade short puts on various stocks for the last three years. Needless to say, it's very hazardous. Even if the short put makes it to expiration and it's successful in that it's in the money when the option goes to zero(or close enough), it's not really worth the roller coaster emotions of the dips and gains into profitability or into massive drawdown. And if you do a basket of them, the losers most always outweigh the winners. Perhaps trading this way on equities it's better to take partial profits on every major gain then set a stop to p/l breakeven. Then repeat..often. But being positional any gap down can always run the option stop into massive drawdown. Stocks can recover, maybe after years.. Selling options, if by expiration it's a massive loser, can not recover.

That said, selling options on futures with a way far off strike point I'm so far open minded to, if the risk can be managed successfully and if it's easier to manage than short puts on stocks. Here, I did a ThinkOrSwim "ondemand" historical trade on a short put on May 31st on Soybeans, strike point 1240 on a OCT 11 Short put.

As you can see on the 1st .jpg , /ZS had dipped to 1290, resistance level from the previous May low, but it successfully bounced off. So for two weeks or so it had dipped into negative p/l and immediately after the putting the trade on. (What would the stop be in this "heat"?) So some basic TA seemed to apply. Since the beginning of the year soybeans had entered the 1250 to 1400 range and tapped the 1400 level about 5 times. Last year, soybeans was in the 900 to 1200 range in general. So the shift up to this year's range is more due to fundamental or seasonal reasons? The 2nd .jpg shows /ZSX1 currently in a profit (Jul 28th) in the +1 day after expiration analysis graph on TOS. The 3rd .jpg shows where the profit area of the short put option lies. You can see how price has to be in between to the two yellow lines , and the strike price level at 1240. By expiration on Oct. 21th ,2011, if price has not dipped below 1240, the odds of a fully profitable trade are much higher. The "margin" required by TOS for selling 10 contracts of /ZS was about $5k.

Unfortunately I asked ThinkOrSwim support about their offering of selling options on futures and it turns out TOS only offers options on the following futures: /6E, /ZC, /ZS, /ZW, /NQ, /ES, /CL, /NG
So Ron99, optionsexpress has a much wider offering of options on futures? Thanks.

Attached Thumbnails
Selling Options on Futures?-zsx1_0531_1240oct11put_1.jpg   Selling Options on Futures?-zsx1_0728_1240oct11put_2.jpg   Selling Options on Futures?-zsx1_0728_1240oct11put_3.jpg  

Last edited by Cloudy; August 1st, 2011 at 06:14 AM.
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Old August 1st, 2011, 12:56 PM   #34 (permalink)
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Hi Cloudy,
Yes, optionsXpress offers options on just about all commodities.

Beans are higher this year because of fundamentals. Corn taking bean acres. Poor weather delayed planting. Flooding wiped out some acres.

Are you sure you are talking about an Oct 1240 put and not a Nov 1240 put? Nov options expire on Oct 21st.

Assuming you mean Nov puts, you are too close to being ITM. Way too much risk. I have the Delta at .1712. It is asking for trouble to be that close. I like to trade options with a delta less than .0400, which for Nov puts is 1120 or less.

I don't understand this statement "The 3rd .jpg shows where the profit area of the short put option lies. You can see how price has to be in between to the two yellow lines". Why does the price have to be in between two lines? If the futures price is above 1240 you profit fully.

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Old August 1st, 2011, 05:55 PM   #35 (permalink)
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Thanks Ron99.

I'm not sure. I usually go by what TOS lists in option chains for equities. Maybe it's different for futures options, or something I don't know? I posted the options chains TOS lists for /ZS.
First .jpg shows it only lists OCT11 and only OCT11, APR12, and JUN13 are tradeable. So not much selection there even for one of the few futures TOS has options for.

Then 2nd and 3rd .jpg shows options available for /ZS OCT11. As you can see there are gaps where no bid or ask price is listed. So on 3rd .jpg options are shown with delta less than |-.04| ; Even more dearth of bids and asks. I'll try another option with delta less than .04 Maybe TOS is not going to work for options on futures?

4th .jpg; I re-edited to show the 3rd .jpg from last post. What I mean about the two yellow lines is that it shows the profit area progressing day by day as the option expires. So depending on price, there are times where the option could be not profitable or profitable on a certain day. It's always profitable if it stays above the lower yellow line. By expiration, the bottom yellow line intersects with the 1240 level.

Thanks for the interesting info about the fundamentals of beans of the past year!

Attached Thumbnails
Selling Options on Futures?-zs_optionchain1.jpg   Selling Options on Futures?-zs_optionchain2.jpg   Selling Options on Futures?-zs_optionchain3.jpg   Selling Options on Futures?-zsx1_0728_1240oct11put_3.jpg  
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Old August 1st, 2011, 06:24 PM   #36 (permalink)
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1st jpg. Yes those are the Nov options. I have no idea why TOS calls them Oct. Oct options are different.

You reminded me why I didn't trade at TOS. Their option program is very poor.

2nd jpg. Those missing bids and asks are well in the money calls. Nobody wants to trade them.

3rd jpg Yes when you get to a .01 and below delta the bids disappear. There is just a narrow band where I trade. Look at Gold or oil. there is more volume there. Beans quit trading at 2:15pm ET.

4th jpg The price of a Nov 1240 on 5/31 was 32.50. It was only losing money for five days the end of June. Today's price is 13.875. The bottom yellow line is not quite accurate. Option settlement depends on the futures, volatility, and days to expiration. It's not a straight line or even a predictable line because volatility can change the relation of the option premium vs the futures price.

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Old August 1st, 2011, 06:41 PM   #37 (permalink)
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Old August 1st, 2011, 07:14 PM   #38 (permalink)
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Thanks for the comments Ron99 and tigertrader. Yes, I'm aware those chains show far ITM and OTM for both puts and calls. My questioning has been more specific about options on futures especially the way that's being suggested, selling far OTM and whether TOS supports this kind of trading adequately which thanks to answers to my questions, it seems like it doesn't. Most of the time selling options on equities, you can't go that far OTM where the profit vs. risk/margin quickly becomes undesirable. Not to mention buying options or option spreads usually involve strikes close to ATM. But it seems a little different for options on futures. I know the p/l can vary with volatility. My yellow line is a rough guideline I plotted since TOS doesn't generate it on it's own. Still price could dip faster than the rate of decay of the short put option requiring "heat" periods before the option goes to a p/l again. And TOS doesn't seem to be accurate in their graphs on options for futures. (Nov instead of Oct) . I'll have to see if I can practice on OX after signing up.


Last edited by Cloudy; August 1st, 2011 at 07:44 PM.
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Old August 1st, 2011, 07:22 PM   #39 (permalink)
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I don't sell any ITM options. I don't know why you would.

I wish there were more books about options on futures. 99% of the books are about stock options. Which IMO are very different than options on futures. Or if they do mention options on futures it is a very small part of the book.

I look at my trading this way, if it ain't broke don't fix it.

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Old August 1st, 2011, 07:47 PM   #40 (permalink)
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Sorry, I meant selling far OTM on both call and put sides. I usually sell puts and forget about thinking about what it's called in reverse on the call side. I fixed that in my post. I don't mean to say your method is broke or anything. In fact I'm very interested. I'm just asking questions about the risk and broker support on this type of trading and it's new to me. Thanks. I just got the free intro package info mail from libertytradinggroup.com. I saw Cordier's video. Interesting. They do a basket of like 7-10 futures options. If one goes south, he mentions selling half of the contracts. The paper says they only now accept 250k starting accounts instead of 100k now. He also mentioned the firm manages 25 mil.

I think I know why my option graph varies from yours now. Looking back, I see my test option was 15.37 while your was 32.50. At 15.37, the option p/l stayed negative for far longer than at 32.50 priced option like you said. Now going back and trying again, I'm seeing the price at 27.75. So I seem to be getting wrong and varying info on options prices anyways on TOS ondemand historical. I'll have to find some other platform tool to find correct and complete historical prices for futures options..
(example: attachment on May31st.)

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Last edited by Cloudy; August 1st, 2011 at 08:31 PM.
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