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Selling Options on Futures?
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Selling Options on Futures?

  #4231 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Favorite Futures: Options on Futures
 
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gold101 View Post
Very nice study Ron.

One question comes to mind is that during this time, ES has generally been in an uptrend. Would it be possible, when you get some time, do a shorter study for a year when market has been a choppy market and also when the market is in some down trend.

Also, it would be beneficial, for a novice like me, if you could add a column, listing the value of the ES, so that we can quickly see, how low your strike prices are.

Thanks.

I have learnt a lot from this site... Thanks

To your first question, sorry but no. We only have the SPAN files since 2012.

The options are all 0.300 deltas.

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  #4232 (permalink)
Elite Member
vancouver BC/Canada
 
Futures Experience: Beginner
Platform: Zaner360, OX
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ron99 View Post
I ran a real life backtest of my new ES strategy starting on 1/1/2013. I started with $100,000. I picked an ES put that was 90+ DTE and as close to 0.0300 delta. I exited the position the day the option settled at 50% or more drop from the price when acquired. The exit price was 50%+ of entry price. I used 7.50 per RT for costs. I entered the next option the day I exited the prior position using the settlement for that day.

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In 2013 the strategy made 62.6%. In 2014 it made about 40.2% (it wasn't a full 12 months). In 2015 it was up 25.8% in 4 months.

For the entire time period, 28 months, it made 186.8% for 31 trades. 100% winners. The worst day the margin was using 88.2% of the account balance.

I never would have attempted this research without Dudetooth's SPAN excel spreadsheet.



Ron,

Can you explain this line in a little more detail?

The worst day the margin was using 88.2% of the account balance.

Was this the IM+MM when the position was opened or the peak margin required while the position was held? If the later wouldn't it force you to exit, absorb the loss, and skew the ROI?

Thanks,
/rsm005/

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  #4233 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Favorite Futures: Options on Futures
 
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rsm005 View Post
Ron,

Can you explain this line in a little more detail?

The worst day the margin was using 88.2% of the account balance.

Was this the IM+MM when the position was opened or the peak margin required while the position was held? If the later wouldn't it force you to exit, absorb the loss, and skew the ROI?

Thanks,
/rsm005/

On 10/3/14 the study had a balance of $210,125. It acquired 101 Jan 15 1520 ES puts. I put the cost of $7.50 each at the beginning so taking $210,125 and subtracting (101 X 7.50) $757.50 = $209,367.50.

On 10/15/14 the price of the options changed from 3.55 to 12.90. A loss of $467.50 each or $47,217.50 for 101 of them.

That changed the account balance down to $209,367.50 - $47,217.50 = $162,150.

The IM for the position went from $694 each to $1,360 each. That's a $666 increase. For 101 of them times $1,360 the total IM required is $137,360.

On 10/15/14 the account balance was $162,150. The IM required was $137,360. The IM is 84.7% of the account balance (the Max % balance column on the table is off. The Lowest Buying Power column is correct. I will fix it.).

The position did not go on margin call. It did not hit the exit point of the strategy.

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  #4234 (permalink)
Elite Member
tennessee/USA
 
Futures Experience: Intermediate
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So the Drawdown (DD) of the account is 47217.5/209367.5=22.55%.


ron99 View Post
On 10/3/14 the study had a balance of $210,125. It acquired 101 Jan 15 1520 ES puts. I put the cost of $7.50 each at the beginning so taking $210,125 and subtracting (101 X 7.50) $757.50 = $209,367.50.

On 10/15/14 the price of the options changed from 3.55 to 12.90. A loss of $467.50 each or $47,217.50 for 101 of them.

That changed the account balance down to $209,367.50 - $47,217.50 = $162,150.

The IM for the position went from $694 each to $1,360 each. That's a $666 increase. For 101 of them times $1,360 the total IM required is $137,360.

On 10/15/14 the account balance was $162,150. The IM required was $137,360. The IM is 84.7% of the account balance (the Max % balance column on the table is off. The Lowest Buying Power column is correct. I will fix it.).

The position did not go on margin call. It did not hit the exit point of the strategy.


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  #4235 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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daydayup8 View Post
So the Drawdown (DD) of the account is 47217.5/209367.5=22.55%.

Correct.

I don't worry about DD. With this style of trading you will have large account balance movements.

I can cut the DD to be low but you won't make much money in the long run.

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  #4236 (permalink)
Trading for Fun
Ottawa
 
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Great thread. Slight tangent. Anyone have thoughts if this method ron99 describes in last few pages would be viable using IB? I live in Canada so my choices of a broker who does futures is extremely limited.
I have just been reading some other threads of IB liquidating clients accounts when margin usage increased.

My intention would be to trade it as a covered spread that has similar spread ROI to the naked option. I assume that would help keep them from aggressive liquidation but I am not sure. I would do as ron99 suggested and keep 3x reserve in cash. I am just not sure if that is enough for IB

Feel free to PM me if this is 2 far off tangent of the thread


Last edited by Chubbly; May 24th, 2015 at 01:35 PM.
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  #4237 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Favorite Futures: Options on Futures
 
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Chubbly View Post
Great thread. Slight tangent. Anyone have thoughts if this method ron99 describes in last few pages would be viable using IB? I live in Canada so my choices of a broker who does futures is extremely limited.
I have just been reading some other threads of IB liquidating clients accounts when margin usage increased.

My intention would be to trade it as a covered spread that has similar spread ROI to the naked option. I assume that would help keep them from aggressive liquidation but I am not sure. I would do as ron99 suggested and keep 3x reserve in cash. I am just not sure if that is enough for IB

Feel free to PM me if this is 2 far off tangent of the thread

From what I have seen IB charges at least triple SPAN minimum margin. So your ROI will be much lower.

As long as IB keeps the same percentage above minimum, you should be OK as far as riding it out. If they increase their percentage above minimum during high volatility, then it would be ugly and costly.

Can you check to see if IB IM for spreads is the same amount above minimum as they charge for naked options? That would make a difference.

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  #4238 (permalink)
Trading for Fun
Ottawa
 
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ron99 View Post
From what I have seen IB charges at least triple SPAN minimum margin. So your ROI will be much lower.

As long as IB keeps the same percentage above minimum, you should be OK as far as riding it out. If they increase their percentage above minimum during high volatility, then it would be ugly and costly.

Can you check to see if IB IM for spreads is the same amount above minimum as they charge for naked options? That would make a difference.

I did a quick test and the naked option was $2950 in margin. Creating an extremely wide vertical to get almost as much credit (1675/1400) was $900 in margin. TOS was showing $419 required

If they keep it at that number I am OK, but I am a bit worried they won't and there is no way to back test what IB will do in a volatility spike. So I may be looking for a more predictable broker. (any suggestions for a Canadian please PM)

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  #4239 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,649 since Jul 2011
Thanks: 769 given, 4,575 received
Forum Reputation: Legendary


Chubbly View Post
I did a quick test and the naked option was $2950 in margin. Creating an extremely wide vertical to get almost as much credit (1675/1400) was $900 in margin. TOS was showing $419 required

If they keep it at that number I am OK, but I am a bit worried they won't and there is no way to back test what IB will do in a volatility spike. So I may be looking for a more predictable broker. (any suggestions for a Canadian please PM)

Go to this forum and search the forum for Canadian or Canada. https://futures.io/brokers-data-feeds/

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  #4240 (permalink)
Trading Apprentice
Santiago/Chile
 
Futures Experience: Beginner
Platform: MT4,TradeStation
Favorite Futures: Options
 
Posts: 1 since May 2015
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Hi guys,

very interesting thread, thanks ron for sharing you experience!

I have a question for you guys, I'm trying to open an account on optionsXpress and my main goal was to trade futures (starting with small trades to get experience), but I receive this mail:


Thank you for your interest in futures trading. We have received and reviewed your application.

Based on the information you provided on your futures application, we are unable to offer futures trading at this time (please refer to our Futures minimum requirements FAQ for more information). Keep in mind that this notice only applies to futures trading. You are still able to trade stocks, options, mutual funds and bonds in your account.

We apologize for any inconvenience this may cause you. If you have any questions regarding this notice please feel free to contact us by calling at (888) 280-8020 or via Live Help.


Do you guys have any clue on why they denied this application? Any recommendation? I'm from Brazil but I live in Chile, maybe this is the reason?

Thanks,

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