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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,198 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old July 16th, 2015, 12:59 AM   #4511 (permalink)
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Sorry, I didn't mean to classify you as impatient. I do think that watching the market too closely after putting on a trade is counterproductive.

I think I've finally learned to just "tune out" the short term market movements and only start worrying if my IM doubles from it's initial value. So far it hasn't come close. Time decay is a very powerful force.

Best of luck to us all!

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Old July 16th, 2015, 01:42 AM   #4512 (permalink)
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Ron,

Does it make sense to trade the November contract on Friday? I have 2 options on the table in front of me and I'm not exactly sure which way to go.

1. 50 contracts Oct. P1700 tomorrow and 50 contracts in Nov. P1700 next week or so
2. 100 contracts in Nov P1700 on Friday.

Of course this 100% depends on volume but I'm curious. Considering I'm only using 100 contracts and if the open interest is there, is there any particular reason not to trade November on its first day? Or is it a simple volume thing? Would you expect there to be a lot of volume on a new contract on its first day?

Thanks,
/rsm005/

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Old July 16th, 2015, 03:46 PM   #4513 (permalink)
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I try to shoot for 70 days to expiration for opening a position and 40 days to expiration for closing a position, plus better liquidity. IMO and for my account, 120 day options would have too much vega risk especially leveraging 8.5 million (100 1700 puts)

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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Old July 16th, 2015, 04:11 PM   #4514 (permalink)
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rsm005 View Post
Ron,

Does it make sense to trade the November contract on Friday? I have 2 options on the table in front of me and I'm not exactly sure which way to go.

1. 50 contracts Oct. P1700 tomorrow and 50 contracts in Nov. P1700 next week or so
2. 100 contracts in Nov P1700 on Friday.

Of course this 100% depends on volume but I'm curious. Considering I'm only using 100 contracts and if the open interest is there, is there any particular reason not to trade November on its first day? Or is it a simple volume thing? Would you expect there to be a lot of volume on a new contract on its first day?

Thanks,
/rsm005/

I don't think the Nov options will be trading on Friday. I think they start on Monday. The July options are still trading on Friday.

There is no reason to not trade Nov on its' first day. When selling those far DTE options place your ask just below the current ask and then walk it down till you get filled. You don't need to hit the bid. Most of the time you will get filled above the bid.

You're missing a lot of premium erosion because you are waiting for Friday. ES tends to rise into option expiration Friday but not always. So you should have on your positions early in option expiration week.

Also price erosion happens early on Friday for weekend price erosion.

As far as Oct or Nov? I haven't researched it that close to pick an option 88 DTE or 123 DTE. I would lean towards the 88s for Monday.

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Old July 16th, 2015, 04:19 PM   #4515 (permalink)
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I try to shoot for 70 days to expiration for opening a position and 40 days to expiration for closing a position, plus better liquidity. IMO and for my account, 120 day options would have too much vega risk especially leveraging 8.5 million (100 1700 puts)

I'm curious why you sell 70 DTE when this study shows they are more at risk than higher DTE options.

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Old July 16th, 2015, 05:19 PM   #4516 (permalink)
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ron99 View Post
I'm curious why you sell 70 DTE when this study shows they are more at risk than higher DTE options.

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I don't sell puts that far out of the money (around .10 to .20 delta) and not at that quantity or margin used. There are theta time decay graphs for around that delta, I would have to locate one.

Time decay will be accelerated on the front end for far out of the money options. I have sold the longer dated options before on equities and indices and I have found the sweet spot (for me) to be between 80 and 40 days, minimizing vega risk. Especially with futures with the amount money be leveraged. I look at it from a risk perspective. If I'm am leveraging 850,000; I am going have to get a decent premium, with less quantity and be in the trade for hopefully a shorter time period. And with a less margin being used, the ability to roll down if there is a vol pop or sudden gap down.

Having traded options through since 2006 with all the ups and down, that has shaped my perspective on risk. I embrace volatility and it is needed for premium sellers. I also respect it and analyze what if scenarios before I sell a put. If there is a vol pop or gap down would I be ok losing 14,000 or 750,000. Just a different perspective, I appreciate your perspective and this thread and your help for others.

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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Old July 16th, 2015, 06:09 PM   #4517 (permalink)
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Hi @ron99 thanks for starting this thread. have hardly scratched the surface of the thread by reading just 10%. Will catch up in coming weeks and would like to get a lil savy of options hence will do side reading over next few months.

had a question...The Index roots have various options tied to them. Do the Put/Call Options traded during the day at various strike prices have a determination on the intra-day direction of the index futures. Any thoughts per experience.

thnx
s

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Old July 16th, 2015, 06:29 PM   #4518 (permalink)
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paps View Post
Hi @ron99 thanks for starting this thread. have hardly scratched the surface of the thread by reading just 10%. Will catch up in coming weeks and would like to get a lil savy of options hence will do side reading over next few months.

had a question...The Index roots have various options tied to them. Do the Put/Call Options traded during the day at various strike prices have a determination on the intra-day direction of the index futures. Any thoughts per experience.

thnx
s

Not much if any for Index futures. ES futures traded 1,148,938 times yesterday. Calls 120,654. Puts 229,797. Not enough vol in options to affect that much vol in futures.

But for low volume commodity futures yes because market makers in options will hedge their positions with futures.

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Old July 16th, 2015, 06:48 PM   #4519 (permalink)
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paps View Post
Hi @ron99 thanks for starting this thread. have hardly scratched the surface of the thread by reading just 10%. Will catch up in coming weeks and would like to get a lil savy of options hence will do side reading over next few months.

had a question...The Index roots have various options tied to them. Do the Put/Call Options traded during the day at various strike prices have a determination on the intra-day direction of the index futures. Any thoughts per experience.

thnx
s


According to this paper not of whole lot of pinning action on /ES on expiration days http://www.econ.upf.edu/docs/seminars/jens.pdf

Pinning of individual equities and indices to a actively traded option strike price close to expiration does happen though and there have been books written and strategies around this subject

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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Old July 16th, 2015, 07:23 PM   #4520 (permalink)
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ron99 View Post
I don't think the Nov options will be trading on Friday. I think they start on Monday. The July options are still trading on Friday.

There is no reason to not trade Nov on its' first day. When selling those far DTE options place your ask just below the current ask and then walk it down till you get filled. You don't need to hit the bid. Most of the time you will get filled above the bid.

You're missing a lot of premium erosion because you are waiting for Friday. ES tends to rise into option expiration Friday but not always. So you should have on your positions early in option expiration week.

Also price erosion happens early on Friday for weekend price erosion.

As far as Oct or Nov? I haven't researched it that close to pick an option 88 DTE or 123 DTE. I would lean towards the 88s for Monday.

Thanks for the help Ron. I went ahead and placed the trade today. I realized that as an investor my money wouldn't be working for me while waiting and there's nothing that says I can't exit before 50% if i wanted to. I didn't take out as big a position as I was planning so I can have enough reserve to sell November next week. If I sell the total number of positions I'm planning in October and November, assuming November margin is where I think it should be, I should still have 4x cash left to ride out both.

Current Position
Option: OESV5 P1750
Quantity: 80
Open Price: $4.55
Initial Margin: $978 per contract
Days to expiration: 92 days
Delta: .038

I opened 1750 because of the slightly better premium and the fact that there was a good amount of volume and open interest relative to my position size. I'll post the second trade when I execute it sometime next week.

/rsm005/

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