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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,134 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old June 4th, 2015, 03:44 PM   #4281 (permalink)
Market Wizard
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rsm005 View Post
Ron,

I know you're getting peppered so I apologize for continuing to pile on but let me ask you something about positioning. Suppose the following scenario, you trade with 100 contracts. Do you sell all of them at a single strike or do you split it up across multiple strikes expiring at multiple times?

I'm trying to figure out the best way to structure trades going forward. I put my 50 contracts at 1700 but was debating putting 20 at 1700 and 40 at 1600 and then thought of putting 20 at 1700 in Sept and 50 at 1650 expiring in August. I just kept things simple for now but wanted to know if there is a preference?

/rsm005/

With ES puts there is enough vol that I feel comfortable having 1000+ of the same strike. I have had no problem getting in or out of that many quickly.

I find it works well to have half my positions newly added and the other half having been held for about half the time before exiting them. That way you don't have all your position newly added and then they all might be being hit by a futures price drop. If half your positions have been on for a while they will have more cushion than a newly entered position.

FYI for everybody, when the price of ES options is above 5.00 they trade in 0.25 premium increments. Below 5.00 they trade in 0.05 increments.

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Old June 4th, 2015, 04:05 PM   #4282 (permalink)
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Ron,

What advantages are there for trading ES future options vs SPY or SPX options?

Thanks,
Brad

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Old June 4th, 2015, 04:40 PM   #4283 (permalink)
Trading for Fun
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blb014 View Post
Ron,

What advantages are there for trading ES future options vs SPY or SPX options?

Thanks,
Brad


I think the biggest advantage is being able to use SPAN margins which allows for more position that can be placed.
I think it has more Open Intrest as well

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Old June 4th, 2015, 07:16 PM   #4284 (permalink)
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blb014 View Post
Ron,

What advantages are there for trading ES future options vs SPY or SPX options?

Thanks,
Brad

What he said ^ plus I believe the tax treatment is better for ES vs SPY. But ask your tax advisor.

SPX electronic vol is poor.

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Old June 5th, 2015, 05:49 AM   #4285 (permalink)
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Chubbly View Post
Ron: I was just curious if you would share what your portfolio ratios are approximately? I assume that you trade other futures other than ES. The reason l ask is I am trying to calculate what a safe % of my portfolio I want to apply to a single underlying. I have read a few places that 30 was a good number to ensure that a portfolio is diverse enough that there is a low degree of correlation. I think it would be hard to find that many futures options products that I could apply a variation of this strategy. I could be wrong I am still very new to this compared to you.

I prefer to hold many different positions. I usually hold 8 to 15 short option positions (I count different puts of one commoditiy as one position, eg. ESQ P1600, ESU P1500, ESV P1400), currently 13. ES puts are about 25 % of the volume I trade, their percentage obviously is larger than the average.

I try to hold as many puts and calls in the commodities, eg. currently a lot of SN calls and WU puts, or 1 lot of BPU, CDU and ADU puts and 3 lots of ECU calls.

In addition I hold some spread and outright positions, mainly for commodities without options or small option open interest (eg. NKD - ES, MWEZ-MWEN), currently 4.

All together I currently hold 17 positions, and this is about average. In my opinion, holding 30 different positions is ambitious. (As long as you count a spread as one position and different puts of one commodity as one position).

Advantage of this strategy: The moves of the account are smaller. Disadvantages: It is a lot of work to follow many commodities.

Best regards, Myrrdin

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Old June 5th, 2015, 06:01 AM   #4286 (permalink)
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rsm005 View Post
Ron,

I know you're getting peppered so I apologize for continuing to pile on but let me ask you something about positioning. Suppose the following scenario, you trade with 100 contracts. Do you sell all of them at a single strike or do you split it up across multiple strikes expiring at multiple times?

I'm trying to figure out the best way to structure trades going forward. I put my 50 contracts at 1700 but was debating putting 20 at 1700 and 40 at 1600 and then thought of putting 20 at 1700 in Sept and 50 at 1650 expiring in August. I just kept things simple for now but wanted to know if there is a preference?

/rsm005/

I hold a maximum of 10 lots. When I started I entered two lots per week on different days, one usually on Friday. After five weeks I was fully invested. When I buy back a lot at 50 %, I buy the next one. But I never buy more than two per week, and only one per day. The main argument is the same as Ron's: At all times a part of the options already has lost value. And I sell options at different prices of the underlaying. Disadvantage: Reduced profit, as I am not always fully invested.

I do not care to buy different strike - I simply take the one with about the correct delta. If there is a choice I take the one with larger open interest. Regarding the expiry date I follow the 80 - 110 days rule.

Best regards, Myrrdin

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Old June 5th, 2015, 07:31 AM   #4287 (permalink)
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Chubbly View Post
Ron: I was just curious if you would share what your portfolio ratios are approximately? I assume that you trade other futures other than ES. The reason l ask is I am trying to calculate what a safe % of my portfolio I want to apply to a single underlying. I have read a few places that 30 was a good number to ensure that a portfolio is diverse enough that there is a low degree of correlation. I think it would be hard to find that many futures options products that I could apply a variation of this strategy. I could be wrong I am still very new to this compared to you.

I found some intersting points about diversification in this article
John Kay - Asset allocation should be the outcome (not the driver of) investment decisions

"Diversification is essential to prudent investment but the herding behaviour of modern investors means that in the short term almost every asset is correlated with every other, even if the underlying characteristics of the assets are completely different. Quantitative easing has boosted all asset prices and exacerbated this problem."

Just a thought,

Chris

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Old June 5th, 2015, 11:16 AM   #4288 (permalink)
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MGBRoadster View Post
I found some intersting points about diversification in this article
John Kay - Asset allocation should be the outcome (not the driver of) investment decisions

"Diversification is essential to prudent investment but the herding behaviour of modern investors means that in the short term almost every asset is correlated with every other, even if the underlying characteristics of the assets are completely different. Quantitative easing has boosted all asset prices and exacerbated this problem."

Just a thought,

Chris

I agree - the price of many commodities depends on the Dollar. But not all depend on the Dollar to the same degree. Trading spreads (eg. S - 2*C, RB - HO) can help to avoid this problem.

Best regards, Myrrdin

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Old June 5th, 2015, 01:08 PM   #4289 (permalink)
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"I hold a maximum of 10 lots. When I started I entered two lots per week on different days, one usually on Friday. After five weeks I was fully invested. When I buy back a lot at 50 %, I buy the next one. But I never buy more than two per week, and only one per day. The main argument is the same as Ron's: At all times a part of the options already has lost value. And I sell options at different prices of the underlaying. Disadvantage: Reduced profit, as I am not always fully invested."

I'll try this, or some variant there of, out for my next trade(s).

/rsm005/

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Old June 5th, 2015, 01:46 PM   #4290 (permalink)
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myrrdin View Post
I hold a maximum of 10 lots. When I started I entered two lots per week on different days, one usually on Friday. After five weeks I was fully invested. When I buy back a lot at 50 %, I buy the next one. But I never buy more than two per week, and only one per day. The main argument is the same as Ron's: At all times a part of the options already has lost value. And I sell options at different prices of the underlaying. Disadvantage: Reduced profit, as I am not always fully invested.

I do not care to buy different strike - I simply take the one with about the correct delta. If there is a choice I take the one with larger open interest. Regarding the expiry date I follow the 80 - 110 days rule.

Best regards, Myrrdin

That is an interesting approach to use time as a method to assist in diversification. The reduced profit comes with reduced risk

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