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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,280 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old July 27th, 2015, 08:57 PM   #4591 (permalink)
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Another Q

I also have a Q regarding Buying and Selling Options in the same contract in the same month at different strikes. For example - looking on Bloomberg I have the following which I think looks good:

Sell 1 SEP15 CL Put @ 30
Premium = 4.42 = $4,420.00
Margin = $47,050.00 ( I think )
ROI = 9.394%

Buy 1 SEP15 CL Put @ 29
Premium Paid = 2.35 = -$2,350.00
Margin = $0.00
ROI = -2.35%

So you would be taking advantage of the higher premium at $30 vs the lower at $29 to cover the difference of a $1 price move in Oil. I used the ROI for the buy as the money to buy the premium vs cash balance of $100,000.00 as I suppose if it expires worthless then I will lose that %. Someone may need to confirm these prems are right on another platform but this is what BBG is showing me at the moment using the OVML feature. How does this sound on paper?

Cheers

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Old July 27th, 2015, 09:42 PM   #4592 (permalink)
World'sWorstTrader
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CobblersAwls View Post
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

I believe Reg T margin is applied to the SPX. Reg T margin is astronomical. /ES probably will use SPAN Margin.

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Old July 27th, 2015, 09:44 PM   #4593 (permalink)
World'sWorstTrader
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CobblersAwls View Post
I also have a Q regarding Buying and Selling Options in the same contract in the same month at different strikes. For example - looking on Bloomberg I have the following which I think looks good:

Sell 1 SEP15 CL Put @ 30
Premium = 4.42 = $4,420.00
Margin = $47,050.00 ( I think )
ROI = 9.394%

Buy 1 SEP15 CL Put @ 29
Premium Paid = 2.35 = -$2,350.00
Margin = $0.00
ROI = -2.35%

So you would be taking advantage of the higher premium at $30 vs the lower at $29 to cover the difference of a $1 price move in Oil. I used the ROI for the buy as the money to buy the premium vs cash balance of $100,000.00 as I suppose if it expires worthless then I will lose that %. Someone may need to confirm these prems are right on another platform but this is what BBG is showing me at the moment using the OVML feature. How does this sound on paper?

Cheers

It would be good for you to use simulation for a while. ( My opinion.)

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Old July 27th, 2015, 09:48 PM   #4594 (permalink)
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datahogg View Post
It would be good for you to use simulation for a while. ( My opinion.)

Yes, I don't plan to trade products I know nothing about - hence the abundance of Qs.

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Old July 27th, 2015, 11:18 PM   #4595 (permalink)
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CobblersAwls View Post
I also have a Q regarding Buying and Selling Options in the same contract in the same month at different strikes. For example - looking on Bloomberg I have the following which I think looks good:

Sell 1 SEP15 CL Put @ 30
Premium = 4.42 = $4,420.00
Margin = $47,050.00 ( I think )
ROI = 9.394%

Buy 1 SEP15 CL Put @ 29
Premium Paid = 2.35 = -$2,350.00
Margin = $0.00
ROI = -2.35%

So you would be taking advantage of the higher premium at $30 vs the lower at $29 to cover the difference of a $1 price move in Oil. I used the ROI for the buy as the money to buy the premium vs cash balance of $100,000.00 as I suppose if it expires worthless then I will lose that %. Someone may need to confirm these prems are right on another platform but this is what BBG is showing me at the moment using the OVML feature. How does this sound on paper?

Cheers

I don't know what the heck you are looking at but those contracts settled at 0.01.

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Old July 27th, 2015, 11:26 PM   #4596 (permalink)
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ron99 View Post
I don't know what the heck you are looking at but those contracts settled at 0.01.

Hi Ron,

I think I found my error. I was looking at the Premium (red box) on BBG and thinking I had to then multiply that by the contract size. It looks like that is the $ amount I would receive based on the price (blue box). Sorry for the confusion/time wasting.

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So really I'd need to move further out in time or bring up the strike to make these viable. Does the idea work in general though? Can you often find large enough premium differences between strikes that are fairly close?

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Old July 29th, 2015, 06:19 PM   #4597 (permalink)
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CobblersAwls View Post
Hi Ron,

So really I'd need to move further out in time or bring up the strike to make these viable. Does the idea work in general though? Can you often find large enough premium differences between strikes that are fairly close?

I'm going to rephrase your question because it's loaded to give you the wrong answer. The question should be, can selling premium deep out of the money be a worthwhile cause? The short answer is yes. The long answer is very long and there's 400 some odd pages of it.

I'm only on page 280 or this thread after about a month so I can't speak authoritatively about all this, but from what I've read, you have to look at this from a return on investment standpoint instead of the typical risk vs reward perspective. Selling the DOTM options are already in your favor, the idea is to use your capital as efficiently as possible.

I could be completely off base here, so someone please correct me if I'm wrong.

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Old July 29th, 2015, 09:16 PM   #4598 (permalink)
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fminus View Post
I'm going to rephrase your question because it's loaded to give you the wrong answer. The question should be, can selling premium deep out of the money be a worthwhile cause? The short answer is yes. The long answer is very long and there's 400 some odd pages of it.

I'm only on page 280 or this thread after about a month so I can't speak authoritatively about all this, but from what I've read, you have to look at this from a return on investment standpoint instead of the typical risk vs reward perspective. Selling the DOTM options are already in your favor, the idea is to use your capital as efficiently as possible.

I could be completely off base here, so someone please correct me if I'm wrong.

Well said. Since asking the Q's I have gone back to re-read the entire word document from the Summary section as it nicely compiles all the key points. I have found a lot of answers to most of my Q's already.

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Old July 30th, 2015, 07:58 AM   #4599 (permalink)
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Hi everyone!

As some of the people here prefer to sell spreads instead of naked options, I was wondering how you approach entering the spread trade. Namely, for me it seems very difficult to get a reasonable price on both long/short legs.

Question regarding entry:
Do you "fish" for the short leg and then initiate the long leg later on more agressively? Do you just create a spread in the trading platform and enter the limit order on the aggregare position? Or are you willing to open two separate positions over a longer period of time to assure a good price on both sides?

Question regarding exit:
Similar question for the exit as it seems to me that just entering a limit order might end up with you holding one side of the trade.

Anyways, I understand that there are lots of ways for skinning the cat and it all depends on the risk profile and preferences, but nevertheless I thought it would be great to hear how other people approach this.

PS! I tend to fish for good price on short leg (as it is more costly of the two) and then enter more aggressively into the long leg (to reduce the black swan risk as quickly as possible).

Regards,
Jyrgen

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Old July 30th, 2015, 08:10 AM   #4600 (permalink)
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Jyrgen View Post
Hi everyone!

As some of the people here prefer to sell spreads instead of naked options, I was wondering how you approach entering the spread trade. Namely, for me it seems very difficult to get a reasonable price on both long/short legs.

Question regarding entry:
Do you "fish" for the short leg and then initiate the long leg later on more agressively? Do you just create a spread in the trading platform and enter the limit order on the aggregare position? Or are you willing to open two separate positions over a longer period of time to assure a good price on both sides?

Question regarding exit:
Similar question for the exit as it seems to me that just entering a limit order might end up with you holding one side of the trade.

Anyways, I understand that there are lots of ways for skinning the cat and it all depends on the risk profile and preferences, but nevertheless I thought it would be great to hear how other people approach this.

PS! I tend to fish for good price on short leg (as it is more costly of the two) and then enter more aggressively into the long leg (to reduce the black swan risk as quickly as possible).

Regards,
Jyrgen


Personally, I prefer naked options but for the odd times I place spreads, I let the spread market do their job .

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