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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,254 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old April 17th, 2015, 08:47 PM   #4121 (permalink)
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uuu1965 View Post
Very interesting strategy.

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

Does not work in ES. Short calls in ES have very poor ROI.

For example, selling a July ES 2270 call, delta 0.0324, premium of only 0.85 and IM of 1599.

A July ES 1640 put, delta 0.0310, premium of 3.50 and IM of 692.

But does work in many other commodities. It would give higher ROI if you can do both.

You would lose the margin reduction of the strangle when you closed one side of the strangle.

But be careful reducing margin because then you have less excess to cover market moving against you. The premiums we sell for on the winning side don't cover much of the increase in margin and loss of premium on the losing side.

In my second example margin was increasing by $800-$1200 when ES dropped 115 in 5 days.

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Old April 17th, 2015, 10:10 PM   #4122 (permalink)
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Ron: Question on roll

Ron:

You said awhile ago you only use month to sell ES puts. Do you use weeklies to roll?

Could you elaborate on your technique on how you put positions on? You said you don't have them all on at once but if you're only using month contracts then you vary strikes? at different times of month?

My fear is the timing and losing on the position so I would have to close or roll. Your answer on the above would I hope help me understand how you accomplish this scaling method.

Many thanks for your sharing. Muffin

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Old April 18th, 2015, 10:49 AM   #4123 (permalink)
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muffin58 View Post
Ron:

You said awhile ago you only use month to sell ES puts. Do you use weeklies to roll?

No to weeklies because I am selling 90-110 DTE. There are no weeklies there. Plus weeklies are far more risky because you are closer to ITM and closer to expiration. That makes them far more volatile than contracts 90-110 DTE.

Could you elaborate on your technique on how you put positions on? You said you don't have them all on at once but if you're only using month contracts then you vary strikes? at different times of month?

Correct. A strike that is 0.0300 delta now will probably not be 20 days from now. So I either go to a different strike or I move to the next month.

My fear is the timing and losing on the position so I would have to close or roll. Your answer on the above would I hope help me understand how you accomplish this scaling method.

Many thanks for your sharing. Muffin

Having to roll happens rarely. If you keep the excess when you acquired the position for the entire time you have on the position, you should be covered for at least a 160-170 point drop in ES futures (depends on how fast it drops). That has only happened once since the recession. Once in almost 6 years. And that time (gov shutdown) was very predictable and you should not be holding short puts during that time. Same for the recession.

For example, if the IM when you acquire the option is $700, then you should keep $2,100 of your balance for that position the entire time you hold that contract. That is your safety net.

I keep track of that excess with my Access database. You could also do it in Excel or other spreadsheet.

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Old April 18th, 2015, 11:26 AM   #4124 (permalink)
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ron99 View Post
Does not work in ES. Short calls in ES have very poor ROI.

For example, selling a July ES 2270 call, delta 0.0324, premium of only 0.85 and IM of 1599.

A July ES 1640 put, delta 0.0310, premium of 3.50 and IM of 692.

But does work in many other commodities. It would give higher ROI if you can do both.

You would lose the margin reduction of the strangle when you closed one side of the strangle.

But be careful reducing margin because then you have less excess to cover market moving against you. The premiums we sell for on the winning side don't cover much of the increase in margin and loss of premium on the losing side.

In my second example margin was increasing by $800-$1200 when ES dropped 115 in 5 days.

Thank you.
I try to apply your approach to another commodities.
For example, HEN 15 (DTE = 90 day)
Put 58 at 0,175 (delta -0,03)
Call 104 at 0,15 (delta 0,03)
Premium = 0,325 (130$) less commissions
Margin = 124 x3 = 372$ (from Zaner platform)
Monthly ROI = 130/372*100/90*30 = 11,6%
Target (50% drop) = 75$

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Old April 18th, 2015, 11:59 AM   #4125 (permalink)
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uuu1965 View Post
Thank you.
I try to apply your approach to another commodities.
For example, HEN 15 (DTE = 90 day)
Put 58 at 0,175 (delta -0,03)
Call 104 at 0,15 (delta 0,03)
Premium = 0,325 (130$) less commissions
Margin = 124 x3 = 372$ (from Zaner platform)
Monthly ROI = 130/372*100/90*30 = 11,6%
Target (50% drop) = 75$

$248 excess is not enough to cover the market moving against you. If HEn moves down by 8 (happened in 2013) that excess is more than gone. The IM for a 66 put is 338. Plus the premium is $180 higher.

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Old April 18th, 2015, 12:59 PM   #4126 (permalink)
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ron99 View Post
$248 excess is not enough to cover the market moving against you. If HEn moves down by 8 (happened in 2013) that excess is more than gone. The IM for a 66 put is 338. Plus the premium is $180 higher.

Thats mean that you are looking not only for low delta but also for such amount of excess than can cover a big move down (for puts)?
For example, HEn Put 66 witd delta = -11. IF HE drop for 8 p, Put 66 value will rise by 352$ (11% from 400 = 44 x 8 = 352$)

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Old April 27th, 2015, 04:19 PM   #4127 (permalink)
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Thanks Ron for sharing.
Sorry I don't understand.
1: What is MROI?
2: "for the first day the option settled below that percent drop."
What is the percent drop? the percent of market drop?

Thanks,
Jenny

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%.


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Old April 27th, 2015, 04:32 PM   #4128 (permalink)
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daydayup8 View Post
Thanks Ron for sharing.
Sorry I don't understand.
1: What is MROI?

Monthly Percent Return on Investment.

Monthly ROI% = 365/DTE/12*(Premium - fees)/(Margin * 3)

"Margin * 3" is using 1/3 of my account for initial margin and 2/3 of my account for cash excess. That is the minimum amount of excess I recommend. In fact for some of my accounts that I want to be extra careful I am using 3/4 cash.

Use Days Held (DH) instead of days to expiration (DTE) if you are computing return for a contract that you no longer hold.


2: "for the first day the option settled below that percent drop."
What is the percent drop? the percent of market drop?

If I am looking for a 50% decrease in premium before I exit, if I sell an ES option for 3.00 then when the settlement is below 1.50 that is the 50% drop.

Thanks,
Jenny

.

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Old April 27th, 2015, 04:42 PM   #4129 (permalink)
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Thanks Ron, one more question: Those numbers in red is the percentage loss of the whole account value or is it MROI when you exit the position with certain percentage of premium collected?

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.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


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%.



Last edited by daydayup8; April 27th, 2015 at 04:55 PM.
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Old April 27th, 2015, 04:52 PM   #4130 (permalink)
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daydayup8 View Post
Thanks Ron, one more question: Those numbers in red is the percentage loss of the whole account value?

Are you asking about the red background on the chart you quoted? Those are the best return days for that option. Those are all positive numbers.


Last edited by ron99; April 27th, 2015 at 04:55 PM. Reason: Wrong answer
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