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Selling Options on Futures?
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Selling Options on Futures?

  #4161 (permalink)
Elite Member
vancouver BC/Canada
 
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Interesting...would this same strategy work with SPY or SPX? My biggest fear with trading the S&P is getting slammed with a huge move down. I'm almost thinking of trading with enough capital to just tolerate getting assigned, if it happens, and sell calls until I can get out. I know a few people who do this with individual stocks. I'll give it a try with paper trading and see what happens. Right now I'm just waiting out my current positions...

/rsm005/


Last edited by rsm005; May 13th, 2015 at 08:27 PM.
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  #4162 (permalink)
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There was a question that was posed to ron99 regarding the Flash crash and for which he didn't have option price data.

I have attempted to model the prices for a couple of price drops including the flash crash to estimate the option prices for those times.

Data: Quandl OptionWorks Futures data (specifically volatility surface)
Model: Black-Scholes (using Hoadley software)
Method: To obtain the options price I've attempted to input the correct data for the following - strike price, spot price, deal date, expiry date, volatility at the current delta, risk free rate. Starting delta was modeled at .03 and the correct volatility surface was imputed for shifted delta after the subsequent drop. I chose the drop dates based on the most adverse strike and volatility surface and the DTEs the furthest out to ensure minimal theta decay.

Model Test:

5/11/15
Strike 1620
Spot 2100
Deal date 5/11/15
Expiry date 8/21/15
DTE 100
Vol at .03 delta 27%
Risk Free Rate .03%
Put 3.6

3.6 is very close to the actual which was 3.7

Flash Crash:

4/26/10
Strike 900
Spot 1208.25
Deal date 4/26/10
Expiry date 7/31/10
DTE 95
Vol at .03 delta 33%
Risk Free Rate .03%
Put 2.8

5/6/10
Strike 900
Spot 1122.5
Deal date 5/6/10
Expiry date 7/31/10
DTE 85
Vol at .14 delta 48%
Risk Free Rate .03%
Put 21.06

5/19/10
Strike 900
Spot 1110.00
Deal date 5/19/10
Expiry date 7/31/10
DTE 72
Vol at .12 delta 44%
Risk Free Rate .03%
Put 14.07

August 2011

7/11/11
Strike 970
Spot 1318.5
Deal date 7/11/11
Expiry date 10/16/11
DTE 95
Vol at .03 delta 34%
Risk Free Rate .03%
Put 3.01

8/9/11
Strike 970
Spot 1171.75
Deal date 8/9/11
Expiry date 10/16/11
DTE 68
Vol at .16 delta 54%
Risk Free Rate .03%
Put 29.18

One item of note is that you'll see I was not able to get a strike 400 below the spot price for these prior drops and still meet .03 delta (I tried to keep delta constant for the entry). This was likely due to the large difference in the spot price between current prices and now (it certainly wasn't due to volatility which was historically higher).

Please let me know if you observe any other discrepancies.

Now if we just had the SPAN margins for these we'd have a very accurate picture indeed.


Last edited by eudamonia; May 14th, 2015 at 12:00 PM. Reason: Corrected spot prices to Ron's
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  #4163 (permalink)
Market Wizard
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rsm005 View Post
Interesting...would this same strategy work with SPY or SPX? My biggest fear with trading the S&P is getting slammed with a huge move down. I'm almost thinking of trading with enough capital to just tolerate getting assigned, if it happens, and sell calls until I can get out. I know a few people who do this with individual stocks. I'll give it a try with paper trading and see what happens. Right now I'm just waiting out my current positions...

/rsm005/

Why would you want to do SPY or SPX instead of ES?

The option volume in SPX is low.

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  #4164 (permalink)
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eudamonia View Post
Please let me know if you observe any other discrepancies.

Your spot numbers don't match ES futures. Is there a reason for that?

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  #4165 (permalink)
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ron99 View Post
Your spot numbers don't match ES futures. Is there a reason for that?

I have for the settlement on that date,

4/26/10 1208.25
5/6/10 1122.50
5/19/10 1110.00

7/11/11 1318.50
8/9/11 1171.75

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  #4166 (permalink)
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eudamonia View Post
I used continuous contract data from Tradestation which probably explains most of the discrepancy. However, going back and looking at the individual contracts my data doesn't exactly match yours. Funny how every data provider is slightly different. I'll go back and re-run the model with your spot prices.

I used data from QST and the June ES 2010 contract and the Sep ES 2011 contract.

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  #4167 (permalink)
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2.57 to 28.17....Wow! Talk about an account killing event.

Ron,

With regards to the SPY or SPX the only reason it crossed my mind was that it's easier to get assigned. In the event of a violent move against you, as noted above, you take ownership of the asset and sell calls until the price comes back.

With ES, and correct me if I'm wrong, you can't just get assigned.

/rsm005/

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  #4168 (permalink)
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ron99 View Post
I used data from QST and the June ES 2010 contract and the Sep ES 2011 contract.

I have gone back and used your spot prices in the calculations above.

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  #4169 (permalink)
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rsm005 View Post
2.57 to 28.17....Wow! Talk about an account killing event.

Ron,

With regards to the SPY or SPX the only reason it crossed my mind was that it's easier to get assigned. In the event of a violent move against you, as noted above, you take ownership of the asset and sell calls until the price comes back.

With ES, and correct me if I'm wrong, you can't just get assigned.

/rsm005/

You will be assigned futures, but this way of thinking really makes no sense in this context. If the violent move occurs you just get out at whatever criteria you SET BEFOREHAND, wait till things settled down, and then get back in.

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  #4170 (permalink)
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eudamonia View Post
I have gone back and used your spot prices in the calculations above.

My QST is a little weird but it does give me option prices for the Nov 2011 970 put for 8/08/11. 38.50. It won't give me the price on 7/11/11 or 8/09/11. It does give me the price on 8/12/11. 19.75. ??? I don't know for sure if that is correct.

It won't give me 2010 option prices at all. It won't give me any volatility numbers at all.

Thanks for your work.

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