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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,059 / 5,728
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Selling Options on Futures?

Old July 6th, 2015, 03:39 PM   #4471 (permalink)
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daydayup8 View Post
I think there is a limit of how much the market can drop in one day (5% or 6%?), for EMINI it is 1923 for today, check this:

http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500.html

That is a circuit breaker number. It is not a limit. Trading halts for a set amount time but that is not a limit.

http://www.cmegroup.com/trading/equity-index/price-limit-guide.html

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Old July 6th, 2015, 03:47 PM   #4472 (permalink)
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sorry, I still don't understand, so what is about 1923? does that mean the trading will be halted when the market (ES) drops to 1923 today then resume sometime later?

Thanks Ron.

ron99 View Post
That is a circuit breaker number. It is not a limit. Trading halts for a set amount time but that is not a limit.

http://www.cmegroup.com/trading/equity-index/price-limit-guide.html


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Old July 6th, 2015, 06:20 PM   #4473 (permalink)
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Quoting 
Specifically, the circuit-breaker halt for a Level 1 (7%) or Level 2 (13%) decline occurring after 9:30 a.m. Eastern and up to and including 3:25 p.m. Eastern, or in the case of an early scheduled close, 12:25 p.m. Eastern, would result in a trading halt in all stocks for 15 minutes. If the market declined by 20%, triggering a Level 3 circuit-breaker, at any time, trading would be halted for the remainder of the day.

A Level 1 or Level 2 halt can only occur once per trading day. For example, if a Level 1 Market Decline was to occur and trading was halted, following the reopening of trading, the NYSE would not halt the market again unless a Level 2 Market Decline was to occur. Likewise, following the reopening of trading after a Level 2 Market Decline, the NYSE would not halt trading again unless a Level 3 Market Decline were to occur, at which point, trading in all stocks would be halted until the primary market opens the next trading day.

https://www.nyse.com/markets/nyse/market-model

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Old July 7th, 2015, 01:51 AM   #4474 (permalink)
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A question for some of the more experienced folks. When you are neutral on a Futures direction and you decide to play both sides do you have an opinion if it is better to do a Strangle (or IC) with a TP & SL in mind versus a Naked Put & Call (or 2 verticals) with each side having a TP/SL working as individual trades.

The reason I ask is I was neutral on oil (CL) a few weeks ago when it was about 60 and entered an IC (49/50 and 69/70) at around the 10 delta on each side for Oct expiry. Horrible timing..... The position is currently under water but haven't reached my 2x max credit point and far from my 50% max credit TP point. So I am staying in till I reach 2x Max credit loss . Margin has gone from 130 to 200 (as I am with IB still sadly due to being in Canada) but it didn't go up as much as I thought it would with a 1 day 8% drop

I am looking at the trade and wondering would it have been better to have entered as 2 separate verticals and been taking profits on the Call side on the way down and keep re-entering as the Call side reaches the 50% max credit and banking that cash and letting the Put side reach the SL and not re-enter a Put till it starts pointing up and I am back to neutral on my opinion

Does it really make any difference if the 10 delta Strangle (or IC) has a 80% probability versus 2 individually managed verticals each have 90% probability

Any thoughts are most welcome (I am relatively new to Options so please don't roast me if I asked a dumb question)

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Old July 7th, 2015, 04:34 AM   #4475 (permalink)
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Chubbly View Post
A question for some of the more experienced folks. When you are neutral on a Futures direction and you decide to play both sides do you have an opinion if it is better to do a Strangle (or IC) with a TP & SL in mind versus a Naked Put & Call (or 2 verticals) with each side having a TP/SL working as individual trades.

The reason I ask is I was neutral on oil (CL) a few weeks ago when it was about 60 and entered an IC (49/50 and 69/70) at around the 10 delta on each side for Oct expiry. Horrible timing..... The position is currently under water but haven't reached my 2x max credit point and far from my 50% max credit TP point. So I am staying in till I reach 2x Max credit loss . Margin has gone from 130 to 200 (as I am with IB still sadly due to being in Canada) but it didn't go up as much as I thought it would with a 1 day 8% drop

I am looking at the trade and wondering would it have been better to have entered as 2 separate verticals and been taking profits on the Call side on the way down and keep re-entering as the Call side reaches the 50% max credit and banking that cash and letting the Put side reach the SL and not re-enter a Put till it starts pointing up and I am back to neutral on my opinion

Does it really make any difference if the 10 delta Strangle (or IC) has a 80% probability versus 2 individually managed verticals each have 90% probability

Any thoughts are most welcome (I am relatively new to Options so please don't roast me if I asked a dumb question)

The naked strategy allows you to manage your winners more quickly, as compared to the defined risk IC strategy.

However, the drawback of the strangle as compared to the IC would be the theoretical unlimited risk as compared to defined risk with an IC.

Also, margin required for strangle should be higher than that of an IC (which is basically the width of the spreads minus the net credit recveived).

In summary, a strangle with 80% probability of success as compared to an IC with 80% probability of success:
- allows you to manage winners more quickly (theta will work faster with a strangle)
- allows the strategist to collect more premium
- leaves the strategist exposed to theoretically undefined losses
- leaves the strategist with a lower ROC due to the higher margin requirement for a strangle.

Not an expert here, feel free to add/correct me if i'm wrong.

cheers.

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Old July 9th, 2015, 10:42 AM   #4476 (permalink)
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Ron, I'm interested to know if in your research and drawdown calculations are you looking purely are adverse margin adjustments based on maintenance margin on your initial margin for the position as well as any increases in initial margin imposed by the exchange? (which typically happens during times of increased volatility).

To me that can be a real curve ball when calculation margin movements, because the exchange could step in at any time and increase initial margin to whatever they see fit which could see a a substantial re- rating of the initial margin and existing maintenance margin on ones position, which could result in a sudden very large increase in margin forcing one out.

Just wondering if that's factored this into your calculation.

Thanks

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Old July 9th, 2015, 11:20 AM   #4477 (permalink)
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Harvard16 View Post
Ron, I'm interested to know if in your research and drawdown calculations are you looking purely are adverse margin adjustments based on maintenance margin on your initial margin for the position as well as any increases in initial margin imposed by the exchange? (which typically happens during times of increased volatility).

To me that can be a real curve ball when calculation margin movements, because the exchange could step in at any time and increase initial margin to whatever they see fit which could see a a substantial re- rating of the initial margin and existing maintenance margin on ones position, which could result in a sudden very large increase in margin forcing one out.

Just wondering if that's factored this into your calculation.

Thanks

The CME rarely changes ES IM compared to other commodities. The last change to IM for ES was up on 7/25/14. Prior to that it was
up on 1/29/14,
up on 10/15/13,
up on 10/3/13,
down on 3/26/12,
down on 6/2/11,
down on 3/20/09.

http://www.cmegroup.com/clearing/risk-management/files/SP_2008_to_present.pdf
http://www.cmegroup.com/clearing/risk-management/files/SP_prior_to_2009.pdf
Divide the SP margin by 5 to get ES margin.

They didn't raise it last year in Oct when ES was rising 158. They didn't raise it when ES was rising 240 in 2011. They didn't raise it after 9/11/01. They did raise it three times in Oct 2008. But it was pretty clear you shouldn't be selling puts then.

Now in other commodities this is a whole different story. CL margin was increased 5 times in Oct-Dec 2014.
http://www.cmegroup.com/clearing/risk-management/historical-margins.html

So for ES I do not worry about IM increases.

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Old July 9th, 2015, 08:06 PM   #4478 (permalink)
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Man, the bad news around /ES keeps coming in waves. First Greece, then China, then Puerto Rico. I'm not sure how far the downside to this will go, seems like everyone is making for the door.

/rsm005/

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Old July 9th, 2015, 10:09 PM   #4479 (permalink)
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rsm005 View Post
Man, the bad news around /ES keeps coming in waves. First Greece, then China, then Puerto Rico. I'm not sure how far the downside to this will go, seems like everyone is making for the door.

/rsm005/

Volatility is good for the market and trading. The US economy is hitting on full cylinders, Greece has been going on for five years, and even though the Shanghai index has fell drastically it is still positive for 2015. Will we have a correction? maybe and I am down on my puts also but long term I think there is upside to the market

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Old July 10th, 2015, 11:46 PM   #4480 (permalink)
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Margin for ES in OX increased


I think OX increased margin about 25%, for example, the SPAN margin for ESV51575p (98 DTE) is $576 today, but it is $759 in OX, the delta is also wrong, it is 0.01 at OX while it should be 0.0315 according to SPAN. Anybody has the same information for this strike in OX?

Thanks.

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