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Selling Options on Futures?
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Selling Options on Futures?

  #4111 (permalink)
Market Wizard
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ron99 View Post
I have started to do a new strategy that so far is working well. It is selling ES puts.

Excellent concept - thank you for sharing it with us.

When entering the short option trades, there are three possibilities:

1. Enter the trade on a fixed date each month,
2. Waiting for a drop in stock prices, which usually yields higher volatility, and, thus, higher premium.
3. Averaging over a period of time, eg. selling one option per trading day.

How do you proceed ?

Best regards, Myrrdin

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  #4112 (permalink)
Market Wizard
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traderfour View Post
"For my 1,384 Jan ES puts the monthly ROI if held to expiration was 3.1%. On these I was getting out when premium dropped to around 0.80. By not waiting until expiration my actual monthly ROI on them was 3.9%. Average days held was 30."

Ron, when you state "my 1,384 Jan ES puts" what are you referring to as 1,384? The number of contracts you are writing? Thank you.

Number of contracts held.

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  #4113 (permalink)
Market Wizard
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myrrdin View Post
Excellent concept - thank you for sharing it with us.

When entering the short option trades, there are three possibilities:

1. Enter the trade on a fixed date each month,
2. Waiting for a drop in stock prices, which usually yields higher volatility, and, thus, higher premium.
3. Averaging over a period of time, eg. selling one option per trading day.

How do you proceed ?

Best regards, Myrrdin

I try, but don't always accomplish, to have about half of my positions going off at a time.

I used to try to wait for a drop in ES futures to sell options but half the time I lost out on premium because the price didn't drop. And if it did drop I didn't always make up the loss in premium if I hadn't waited. So now I just put them on and don't wait for a drop.

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  #4114 (permalink)
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Adjustments

If it drops more than 150 you will have to adjust your position because you will be on margin call.

Ron,
Can you show some adjustments examples (besides the usual roll down, roll further in time or both)?
Thank you.

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  #4115 (permalink)
Market Wizard
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meyer99 View Post
If it drops more than 150 you will have to adjust your position because you will be on margin call.

Ron,
Can you show some adjustments examples (besides the usual roll down, roll further in time or both)?
Thank you.

For me the reason why the futures are dropping tells me which adjustment to use.

If it is going down for no legitimate reason then I roll further OTM. If it is a legitimate reason, like a US government shutdown, I get out and wait for what I think is the bottom.

I would roll further out in time if the DTE of the option was getting below 80.

It's hard to give examples when each circumstance is different.

Here are the biggest gains and drops in ES since 2006. It has dropped more than 158 only once since the recession. Summer of 2011 during US government shutdown.

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  #4116 (permalink)
Trading Apprentice
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ES Puts Selling Methodology


ron99 View Post
Number of contracts held.

Thank you for the response and for the description of this approach. Are these approximate parameters?

1,384 Jan ES IM $968,000 Cash cushion $1,936,000
1,955 Feb ES IM $1,368,500 cash cushion $2,737,000
3,738 Mar ES IM $2,616,600 cash cushion $5,233,200
2,487 Apr ES IM $1,740,00 cash cushion $3,481,800
4,186 May ES IM $2,930,200 cash cushion $5,860,400
9,179 Jun ES IM 6,425,300 cash cushion $12,850,600

[Assumes approx. IM $700/1 contract]

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  #4117 (permalink)
Market Wizard
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traderfour View Post
Thank you for the response and for the description of this approach. Are these approximate parameters?

1,384 Jan ES IM $968,000 Cash cushion $1,936,000
1,955 Feb ES IM $1,368,500 cash cushion $2,737,000
3,738 Mar ES IM $2,616,600 cash cushion $5,233,200
2,487 Apr ES IM $1,740,00 cash cushion $3,481,800
4,186 May ES IM $2,930,200 cash cushion $5,860,400
9,179 Jun ES IM 6,425,300 cash cushion $12,850,600

[Assumes approx. IM $700/1 contract]

No because the contracts were not all held at the exact same time. Average days held was only 19 on the last 3 months.

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  #4118 (permalink)
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ron99 View Post
Here is my study to see at what point I should exit.

I took each month and used as close to 90 DTE and 0.0300 delta as I could get. The MROI is using the settlement price for the first day the option settled below that percent drop.

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I thought that some of the 40% ones were just held too short a time frame and decided 50% was a better balance. Clearly those two were far better than 60 or 75%.

One of the best posts on the forum thank you.

From the sheets provided is it wise to suggest the losers (in red) I presume seemed to be max 120% or so of the premium?

I guess you just roll out to next level down selling next put on rollover if I'm understanding u correctly?

Thinking aloud this is something that I think may have a lot of legs left in European equities.

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  #4119 (permalink)
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to ron99

Very interesting strategy.

What happens if you simultaneously sell puts and calls with low deltas? Reduced margin and better ROI?

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  #4120 (permalink)
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leinster View Post
One of the best posts on the forum thank you.

From the sheets provided is it wise to suggest the losers (in red) I presume seemed to be max 120% or so of the premium?

I guess you just roll out to next level down selling next put on rollover if I'm understanding u correctly?

Thinking aloud this is something that I think may have a lot of legs left in European equities.

The ones that went negative on Buying Power would have lost 20-25% of the account if you exited the positions on that day and did not roll them.

Correct, roll down to 0.0300 delta or lower. Or get out and wait for bottom (not easy picking bottom).

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