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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,025 / 5,728
Last Reply:22 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old July 25th, 2015, 02:50 PM   #4581 (permalink)
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jawadde001 View Post
I fear that one major correction could easily wipe out blb014 entire capital.

Black swan happened in the past and they will occur in the future with disastrous consequences for many beginners in the business of put selling.

Go read my posts in this thread. I have been trading options since 2006 and haven't been wiped out once.

Risk is not how close your strike price is to the market price.

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

Last edited by blb014; July 25th, 2015 at 04:05 PM.
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Old July 25th, 2015, 03:08 PM   #4582 (permalink)
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Sosnoff talking about Volatility and the market:

https://www.tastytrade.com/tt/shows/truth-or-skepticism-with-dylan-ratigan/episo...&utm_source=social-share

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 25th, 2015, 04:04 PM   #4583 (permalink)
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blb014,

I thought you were a beginner because your profile says so.

May i ask you what your investment capital is for those short puts?

Maybe i'm wrong, but i assume you are working with high leverage because you always emphasize the huge notional value of those puts.

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Old July 25th, 2015, 04:24 PM   #4584 (permalink)
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jawadde001 View Post
blb014,

I thought you were a beginner because your profile says so.

May i ask you what your investment capital is for those short puts?

Maybe i'm wrong, but i assume you are working with high leverage because you always emphasize the huge notional value of those puts.

My mentor had traded since the 1970's so that's why I consider myself a beginner. Some might consider themselves advanced and have only traded for 2 years, so I do not pay much attention to that because its all personal perspective.

Let's analyze a possible "black swan" event or just a reasonable gap down for what I have allotted for /ES puts

-6% gap down before a roll down:

10 1920 Oct puts -58,853.50 Leveraging 960,000

3xIM Delta .03 1,000 1690 Oct puts -429,012.61 Leveraging 84,500,000

It really depends on risk tolerance, my risk tolerance is quite lower than most on here but that doesn't mean that their strategy is not effective. I want to have plenty in excess margin to roll down in case of a gap down, which is why the 3xM Delta .03 puts are not suited for me.

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

Last edited by blb014; July 26th, 2015 at 01:39 PM.
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Old July 25th, 2015, 09:20 PM   #4585 (permalink)
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Futures Edge on FIO

Are you a NinjaTrader user?

 
Hello,

I've been eyeing this thread for awhile and this is pretty much my first post since joining futures.io (formerly BMT).

I found what blb014 is saying interesting and did a small exercise to see if I can compare apples to apples.

If we sell 10 1920 Oct puts now, that is approximately $32,438 reduction in buying power (in TOS). In order to use the same amount of initial capital it would be equivalent to selling 38 1690 Oct puts, which currently is around .04 delta.

Here are the results: (unfortunately, I do not have enough postings to upload pictures yet)


What I have found is that, 1920 puts will receive higher credits by approximately 40 credits in total. Vega risk for 1690 puts are much greater due to the quantity (around double if vol increases by 20%). Gamma risk is slightly greater for 1920 puts initially but with increase in vol. (which is a highly likely scenario if prices are dropping), 1690 puts are at greater risk.

That being said, theta is greater for the 1690 puts than the 1920 puts. Which to me states, in relation to initial capital, the smaller delta options in high quantity is more risky and aggressive in collecting theta than the higher delta options should black swan events occur.

All of these are just based on a model so during real life events, they will probably play out differently. However, I find this shows there is no magical formula but is a matter of finding the comfortable area for traders to manage their positions in.

I have found using Ron's 3 x IM .03 delta method to be very profitable and easy to follow/manage under most circumstances. However, it does come with the risk of being wiped out should the market gap down 10% with a vol. pop above 20% (whether this is a likely scenario in current condition is debatable). I personally have not found a better formula than Ron's method and manage my risks simply by analyzing fundamentals and diversifying in multiple accounts among different instruments.

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Old July 25th, 2015, 10:20 PM   #4586 (permalink)
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Opstar View Post
Hello,

I've been eyeing this thread for awhile and this is pretty much my first post since joining futures.io (formerly BMT).

I found what blb014 is saying interesting and did a small exercise to see if I can compare apples to apples.

If we sell 10 1920 Oct puts now, that is approximately $32,438 reduction in buying power (in TOS). In order to use the same amount of initial capital it would be equivalent to selling 38 1690 Oct puts, which currently is around .04 delta.

Here are the results: (unfortunately, I do not have enough postings to upload pictures yet)


What I have found is that, 1920 puts will receive higher credits by approximately 40 credits in total. Vega risk for 1690 puts are much greater due to the quantity (around double if vol increases by 20%). Gamma risk is slightly greater for 1920 puts initially but with increase in vol. (which is a highly likely scenario if prices are dropping), 1690 puts are at greater risk.

That being said, theta is greater for the 1690 puts than the 1920 puts. Which to me states, in relation to initial capital, the smaller delta options in high quantity is more risky and aggressive in collecting theta than the higher delta options should black swan events occur.

All of these are just based on a model so during real life events, they will probably play out differently. However, I find this shows there is no magical formula but is a matter of finding the comfortable area for traders to manage their positions in.

I have found using Ron's 3 x IM .03 delta method to be very profitable and easy to follow/manage under most circumstances. However, it does come with the risk of being wiped out should the market gap down 10% with a vol. pop above 20% (whether this is a likely scenario in current condition is debatable). I personally have not found a better formula than Ron's method and manage my risks simply by analyzing fundamentals and diversifying in multiple accounts among different instruments.

Good points especially about vega risk

Not all drops in /ES price correlate to a certain percentage increase in vol. and is something broker platforms can not even predict.

Examples already mention in this thread:

July 2008 - 194 point drop in ES
.03 delta put price increase 3.83->18.67

Sept 2008 - 83 point drop in ES
.03 delta put price increase 3.4 -> 38.08

The 83 point drop in Sept. 2008, was on a Monday when the markets open and news came out of the failure of Lehman Brothers over the weekend. The drop in ES price was much less than July but volatility exploded and caused the option price to increase much more than the option increase in July. Vega risk is very important

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

Last edited by blb014; July 25th, 2015 at 10:27 PM.
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Old July 26th, 2015, 10:50 PM   #4587 (permalink)
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I do vaguely remember seeing those numbers from 2008.

It's interesting to note that the 38 puts in those examples will not result in total annihilation.

If we are utilizing 3xIM for these positions, the initial capital in the account should be about $90,000.

194 point drop would have resulted in approximately $28,000 = [(18.67-3.83)x50x38] loss if it was to close at 18.67, while the 83 point drop results in approximately $69,000 = [(38.08-3.4)x50x38] loss. Of course the 76%ish drop in the latter is as good as being wiped out but I would like to know at what point the margin call, if at all, may have been made during these events.

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Old July 27th, 2015, 05:11 PM   #4588 (permalink)
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blb014 View Post
Sold to open 10 /ES Oct 1920 put leveraging 960,000

Don't know how low this pullback is going so I might have to roll down on my two positions (1900 and 1920) but will update.

What are your losses on this position?

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Old July 27th, 2015, 06:17 PM   #4589 (permalink)
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IM

Hi,

I've opened a sim account with TOS to try out some different strategies and get familiar with options as I've only ever really traded OTC/Futs products. I'm having trouble figuring out how to calculate the margin as I'm getting a much larger number than others here.

I Sold 1 SPX SEP15 Call @ 2250, receiving a premium of $160 after costs. My margin is $23,400.00 though which seems astronomical vs what others have mentioned. It's been about 2 months since I last read through this thread so apologies if it's been posted somewhere along the way already. Do I need to be dividing this down or just stay away from the SPX and use the SPY or ES instead?

Cheers

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Old July 27th, 2015, 06:20 PM   #4590 (permalink)
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datahogg View Post
What are your losses on this position?

Unrealized: ($1,000) currently

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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

Last edited by blb014; July 27th, 2015 at 07:57 PM.
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