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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,479 / 5,734
Last Reply:4 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old May 25th, 2015, 07:03 PM   #4241 (permalink)
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tiago156 View Post
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,

Did you review the FAQs, as they stated in their denial? Or, you could just call them, as they suggested. Anyone who answers here is just speculating.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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Old May 25th, 2015, 07:09 PM   #4242 (permalink)
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You have to have a residence or legal presence in the US and file taxes as a citizen of the US to trade options with most brokers. It's a new set of laws passed to prevent tax evasion and money laundering. If you maintain a residence in the US then use that address and all your information from the states such as your SS number, etc to open the account and you'll be fine. Also, make sure to file everything properly with the US IRS otherwise they'll take extreme pleasure in auditing you over and over .

/rsm005/

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Old May 26th, 2015, 08:54 AM   #4243 (permalink)
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ron99 View Post
Yes. It is also in post #2 Quick Summary on the first page.

When your (CURRENT IM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (3 * OPENING IM), you exit your trade

I find that when you hit this exit point, you will lose about 25% of the account if it is full of this position. But waiting for this point keeps you from exiting too early and miss keeping on a profitable position.

Hopefully you have picked your positions well and rarely hit this exit point.

Ron99 is there a rough approximation of your equation with regards to the change (loss experienced) in terms of the premium at entry?
The reason is that I just wanted to compare the equation to the exit that I had been using which is Take Profit at 50% and my stop loss at 100% of the potential premium at entry. I was just curious if I was being to conservative or liberal with the SL I had been using. The reason I chose that ratio of TP to SL was that I should only need to right approx 70% of the time and I will make money

I am just trying to make sure I set enough/correct alarms and emergency automated exits if I breach the SL max. I usually do make exits if in loss a discretionary decision by taking into account fundamental and DTE but I sleep better at night knowing I have a hard SL in place just in case.


Last edited by Chubbly; May 26th, 2015 at 09:03 AM.
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Old May 26th, 2015, 02:31 PM   #4244 (permalink)
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Chubbly View Post
Ron99 is there a rough approximation of your equation with regards to the change (loss experienced) in terms of the premium at entry?
The reason is that I just wanted to compare the equation to the exit that I had been using which is Take Profit at 50% and my stop loss at 100% of the potential premium at entry. I was just curious if I was being to conservative or liberal with the SL I had been using. The reason I chose that ratio of TP to SL was that I should only need to right approx 70% of the time and I will make money

I am just trying to make sure I set enough/correct alarms and emergency automated exits if I breach the SL max. I usually do make exits if in loss a discretionary decision by taking into account fundamental and DTE but I sleep better at night knowing I have a hard SL in place just in case.

If you use the excess of the strategy, you will be exiting too soon and losing money if you get out at doubling of entry premium. You will have far more losing trades.

If you look at the table in this post https://futures.io/options-cfd-trading/12309-selling-options-futures-416.html#post493812 the strategy for Dec 1590 says you can be more than 4X entry premium and ride it out and make a profit.

If you exited at doubling of premium, your loss would have been 3.9% of the account balance at entry.

I realize some traders can't deal with their account balance dropping 25%. And that is OK. If so then getting out at doubling of entry premium would keep each trade's losses low.

Looking at this test run of the strategy https://futures.io/options-cfd-trading/12309-selling-options-futures-423.html#post495702 using these entry points and using doubling of premium to exit, you would have exited 3 times in 2014 (none in 2013 or 2015). Using the number contracts in that study for each trade, the losses would have been $52,205 out of the $186,767.50 profit if you didn't exit at doubling of premium. But that loss is not figured correctly because you would have had less positions on after the first loss. That would have reduced profit later but also reduced the later losses.

Of course what you did after exiting the trade at doubling of premium would affect the net profit at the end of the study.

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Old May 26th, 2015, 09:07 PM   #4245 (permalink)
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Futures Edge on FIO

Are you a NinjaTrader user?

 
ron99, yes I have studied your posts with the results of your studies quite a bit. There is much to be learned from them. I thank you for sharing the results with us.
Some of the data confirms what I was always thinking and other data opens up new ways of thinking about this strategy. The 50% TP and 0.03 delta are definitely the way to go, that I have no doubt.

What I have been thinking a lot about the past few weeks with a defined X%TP of max prem what is the optimal number to risk in order to make that X% TP.
In the example of a 100K account acceptable loss set at 25% with the TP being $50 per contract and you have 50 contracts @666 IM x3=$2000/contract, then if you hit the SL with the 3x cushion you lose $500/contract ($25,000 total) so the risk reward ratio is 10:1 the drawdown is very large but is acceptable because since the win rate is so high (100% in your study). If you know your numbers you can figure always out how risky a strategy really is with a risk of ruin calculator. It won't tell you how much you will make but will tell you if there is a probability that a strategy could run into a bad streak and result in a total loss. There are more elaborate calculators out there but this first one is easy to use quickly.
http://2ndskiesforex.com/risk-of-ruin-calculator/
http://www.automated-trading-system.com/resources/risk-of-ruin-and-drawdown-calculation-tool/
So depending on your win rate you have varying accuracy and be profitable as long as the payoff ratio works for the strategy accuracy.

So basically my thoughts are if I choose a SL at X% of Premium and a TP at X% of premium, could I safely have a smaller cushion? Hence if I needed a smaller cushion (example 2x) could I create more puts contracts and hence earn more revenue that makes up for the higher rate of losing trades. I think this needs exploring. The closer you get to a 1:1 risk:reward the lower your accuracy needs to be to be profitable.

The other thing to think about is what is my own psychological tolerance for a risk of major drawdown


Last edited by Chubbly; May 27th, 2015 at 12:58 AM.
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Old May 27th, 2015, 12:46 PM   #4246 (permalink)
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Chubbly View Post
So basically my thoughts are if I choose a SL at X% of Premium and a TP at X% of premium, could I safely have a smaller cushion? Hence if I needed a smaller cushion (example 2x) could I create more puts contracts and hence earn more revenue that makes up for the higher rate of losing trades.

Yes you would make more profit with more positions. You would also lose more profit with more positions when things don't work.

The % of account balance lost when exiting because the market went against you would be higher when you have more positions.

I am not saying not to do what you are proposing just showing what the ramifications would be.

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Old May 27th, 2015, 07:22 PM   #4247 (permalink)
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Ron,

I did a quick search on this thread but really couldn't find anything so I'm not sure if this was brought up already. Have you done any back testing with your latest method of trading during periods of extremely high volatility with the S&P 500? Is the win rate approximately the same? Did you find that you had to have higher amounts of cash reserves to ride out the position?

Thanks,
/rsm005/

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Old May 28th, 2015, 10:21 AM   #4248 (permalink)
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rsm005 View Post
Ron,

I did a quick search on this thread but really couldn't find anything so I'm not sure if this was brought up already. Have you done any back testing with your latest method of trading during periods of extremely high volatility with the S&P 500? Is the win rate approximately the same? Did you find that you had to have higher amounts of cash reserves to ride out the position?

Thanks,
/rsm005/

This table shows biggest drops since 2006. I do not have IM data prior to 2013 so I can't run back tests to see what IM was during that time. But the only drops bigger than 158 in 30 days that this system should be able to handle was summer 2011 and during recession. https://futures.io/options-cfd-trading/12309-selling-options-futures-412.html#post490353

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Old May 30th, 2015, 03:18 AM   #4249 (permalink)
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Backtest for calls or put strategy in downtrend

Hi Ron,
Your backtesting of new ES strategy is really amazing. But I was wondering like few who have posted. My questions are:
1. During the period of backtesting market was going up most times. So, perhaps put strategy would have worked although I agree that no one knew market would be going up. So, what would backtestng of calls would yield? Have you done testing of calls during same period?
2. You have mentioned that calls' ROI is poor. But during downtrend would you do calls or still do puts with lower delta eg 1?
Regards
Dilip

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Old May 30th, 2015, 10:34 AM   #4250 (permalink)
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dvbattul View Post
Hi Ron,
Your backtesting of new ES strategy is really amazing. But I was wondering like few who have posted. My questions are:
1. During the period of backtesting market was going up most times. So, perhaps put strategy would have worked although I agree that no one knew market would be going up. So, what would backtestng of calls would yield? Have you done testing of calls during same period?
2. You have mentioned that calls' ROI is poor. But during downtrend would you do calls or still do puts with lower delta eg 1?
Regards
Dilip

I would never do ES calls. The ROI is horrible.

If you sold a Sep 2320 call, delta 0.0315 Monday for 0.95 the IM is 1408. If you hold it 10 days (fast dropping market) and get out at 0.45 your MROI is 0.9%. Not worth the risk for so little return.

If market is in severe downtrend then I am not selling any ES options.

Moving to lower delta doesn't work for more protection because you still have the same percent excess. See tables here. https://futures.io/options-cfd-trading/12309-selling-options-futures-411.html#post490254

If you want more protection then you would use more excess. So maybe instead of 67% excess you go to 75% excess. Or even 80%.

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