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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,597 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old August 1st, 2015, 10:46 AM   #4621 (permalink)
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jawadde001 View Post
Obviously someone who hasn't been active in the stock market for a long period.
A 10% drop is perfectly possible for so many trading weeks.

Please calculate how many succesful months you have to make to recover from one losing month.

I don't say you should not make this trade. But i shiver when i hear words like "incredible" and "steady income". It suggests that you were not in the market in 2008 or 2001. Those who were, would never use that kind of words, because history told them a very valuable lesson.

Oil fell about 21% in July, worst since October 2008 and I was still able to make money this month trading CL (I only lost 1 trade)

I suggest you go back and read the entire thread from the start

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Old August 1st, 2015, 12:06 PM   #4622 (permalink)
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ron99 View Post
Please read the whole thread before you come in here making comments like this.

We have risk controls in place to limit losses.

The only word he used that would be inaccurate is "steady". The income from this trading style is not steady monthly. It is up and down. But on a yearly basis you could say steady.

Ok,

Suppose we have these short put options during a "manageable" stock market correction (but it rarely works that way). Can you tell me how many succesful months one of these losing months wipe out?

But this is the IDEAL scenario. Now suppose we witness a black swan. Your stop-loss fails to prevent huge losses, because the market can open -8%. If you sell 12% OTM this means your positions are almost ATM when you are trying to close them. How big are you losses now?

Selling OTM puts can be profitable (i do it as well), but my point is that thinking you are conservative is wrong. If you know something of finance you should agree with the fact that a higher return is inextricably linked to higher risk. ALWAYS. If someone thinks it isn't, you must urgently contact a finance professor because our graduate handbooks should be rewritten in this case...

So if someone beats the S&P with a huge margin, he must admit that he takes more risk. Thats why we should alert beginners reading this topic that a return of 30% can't be done with little risk. Using words like "save", "conservative", "easy", "steady" is not consistent with reality.
Yes it is now, but the markets are not always so friendly.


Last edited by jawadde001; August 1st, 2015 at 12:15 PM.
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Old August 1st, 2015, 01:13 PM   #4623 (permalink)
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uuu1965 View Post
Hi,
I try to develop further as far as possible safe put selling on ES (behind a IM cushion, low delta etc.) and establish some rulles or parametrs (without any predictions - that remain for other guys).
It's clear that no one strategy give you a 100% safety and there isn't any Holy grail. By being in the market you take the risk and try to manage it.

1. September and October 2008: largest drop in 30 days = 379.75 points
(worldwide mortage and credit crisis, bank collapse etc.) - best solution: avoid to sell puts (we were previously aware of that).
2. August 2011: largest drop in 30 days = 231.25 points
(debt crisis in Europe, USA government bailout, Standard&Poor's downgraded America's credit reiting) - best solution: avoid to sell puts (we were previously aware of that).
3. October 2014: largest drop in 30 days = 157.75 points - what the reasons? or just normal market correction? Could we know before? Any ideas?

P.S. Thanks Ron for data of largest drop.

You are right there is no holy grail.

All three of those situations couldn't have been avoided, I know because I traded through them. If anyone says the contrary, that is hindsight trading.


1. No one knew Lehman brothers was going to collapse over the weekend in September. There was reports that Lehman Brothers was meeting with the gov. on friday. But Monday morning the news came out. That was the huge volatility spike that made put premium explode. That started the financial crisis, TARP and the great recession.

2. August 2011- S&P downgrade - Moody's and fitch reaffirm the AAA US debt rating before the S&P release on Friday evening (after the market close) The government immediately responded by saying the S&P numbers were inaccurately and not computed correctly. So the debate was would the S&P even matter since the government said they were wrong over the weekend. The market open down that Monday morning.

3. October 2014 normal market correction, some bad earnings reports couldn't have been avoided.

Trading futures options are risky no way around it especially if over-leveraged. Just because it hasn't happen in 2 years (very small time frame) does not mean it will never happen. Just need to accept that risk and trade accordingly. Just because one strategy works for someone (they might be a multi-millionaire that can weather a massive drawdown) doesn't mean it will work for yourself. Find out the risk that you are willing to accept.

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; August 1st, 2015 at 01:28 PM.
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Old August 1st, 2015, 02:17 PM   #4624 (permalink)
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blb014 View Post
You are right there is no holy grail.

All three of those situations couldn't have been avoided, I know because I traded through them. If anyone says the contrary, that is hindsight trading.


1. No one knew Lehman brothers was going to collapse over the weekend in September. There was reports that Lehman Brothers was meeting with the gov. on friday. But Monday morning the news came out. That was the huge volatility spike that made put premium explode. That started the financial crisis, TARP and the great recession.

2. August 2011- S&P downgrade - Moody's and fitch reaffirm the AAA US debt rating before the S&P release on Friday evening (after the market close) The government immediately responded by saying the S&P numbers were inaccurately and not computed correctly. So the debate was would the S&P even matter since the government said they were wrong over the weekend. The market open down that Monday morning.

3. October 2014 normal market correction, some bad earnings reports couldn't have been avoided.

Trading futures options are risky no way around it especially if over-leveraged. Just because it hasn't happen in 2 years (very small time frame) does not mean it will never happen. Just need to accept that risk and trade accordingly. Just because one strategy works for someone (they might be a multi-millionaire that can weather a massive drawdown) doesn't mean it will work for yourself. Find out the risk that you are willing to accept.

Yes they clearly could have been avoided. If you couldn't see the warning signs that was your fault.

1. Bear Stearns folded March 2008, months before Lehmans. ES lost 200 in June & July. CL started crashing in July. These were clear signs months before Sep telling you to not be short puts.

2. On Thu 8/4/11 ES was down 55 because congress hadn't raised the debt ceiling that day (they did that evening). This was down 144 from 7/22/11. S&P lowered credit rating 8/5/11. With the debt ceiling not raised by beginning of Aug this was a clear sign to not be short puts well before the crash.

3. Normal correction able to be rode out with excess. No need to avoid.

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Old August 1st, 2015, 02:39 PM   #4625 (permalink)
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jawadde001 View Post
Ok,

Suppose we have these short put options during a "manageable" stock market correction (but it rarely works that way). Can you tell me how many succesful months one of these losing months wipe out?

Four. Which means you are still profitable for the year.

But this is the IDEAL scenario. Now suppose we witness a black swan. Your stop-loss fails to prevent huge losses, because the market can open -8%.

Other than 1987, there has never been a 8% loss day.

If you sell 12% OTM

Most of us don't sell 12% OTM. On Friday I sold 21% OTM.

this means your positions are almost ATM

I'm 21% OTM. Biggest drop of 8% does not put me near ATM.

when you are trying to close them. How big are you losses now?

Selling OTM puts can be profitable (i do it as well), but my point is that thinking you are conservative is wrong. If you know something of finance you should agree with the fact that a higher return is inextricably linked to higher risk. ALWAYS. If someone thinks it isn't, you must urgently contact a finance professor because our graduate handbooks should be rewritten in this case...

So if someone beats the S&P with a huge margin, he must admit that he takes more risk.

Nope.

Thats why we should alert beginners reading this topic that a return of 30% can't be done with little risk. Using words like "save", "conservative", "easy", "steady" is not consistent with reality.
Yes it is now, but the markets are not always so friendly.

I get so tired of the sky is falling people coming into this thread who haven't looked closely at the numbers and the strategy we are using. You are talking generalities without looking at what we are doing. You're following the herd mentality without seeing if someone has figured out a better way.

30% is low and easy profit with the current system we are using. I'm up 51% already this year. You can use ultra safe IMx4 and make more than 30%. That's only 2.2% monthly.

Your graduate handbooks need to be rewritten because Karen and myself have made millions doing this without huge risk. Others in this thread are doing quite well too.

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Old August 1st, 2015, 03:08 PM   #4626 (permalink)
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ron99 View Post
Yes they clearly could have been avoided. If you couldn't see the warning signs that was your fault.

1. Bear Stearns folded March 2008, months before Lehmans. ES lost 200 in June & July. CL started crashing in July. These were clear signs months before Sep telling you to not be short puts.

2. On Thu 8/4/11 ES was down 55 because congress hadn't raised the debt ceiling that day (they did that evening). This was down 144 from 7/22/11. S&P lowered credit rating 8/5/11. With the debt ceiling not raised by beginning of Aug this was a clear sign to not be short puts well before the crash.

3. Normal correction able to be rode out with excess. No need to avoid.


We will have to agree to disagree on this, I have no angle in this discussion

1. No comparison. Bear Stern had been in trouble since 2007 so it was no surprise when JP Morgan offer cleared for 1.2 billion to buy Bear Sterns compared to Lehman Brothers which was 600 billion+ bankruptcy largest in US History.

The market also rebounded in Aug and first part of September 2008 before Lehman Brothers. CL and Natural Gas had ran straight up to highs unseen from Jan 2008 to July 2008, then the market sold off to previous levels to Jan 2008 high. But CL didn't start tanking below $100 until the fall of Lehman Brothers all the way down to $30ish at the end of 2008

Before Lehman Brothers fell September 15, 2008, no one knew that the market was about to go through the deepest recession since the great depression.

After Lehman Brothers, yes the market was in trouble

The /ES drop wasn't even that substantial compare to previous drops but volatility exploded as previous mentioned:

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

Sept 15, 2008 - 83 point drop in ES
.03 delta put price increase $3.4 -> $38.08


2. The debt ceiling was being raised every month back in 2011 because Congress would kick the can down the road. Moody and Fitch, the other credit ratings agencies, reaffirmed the AAA rating for the US the week before. On that friday there was talk that S&P was going to do the same. That evening after the market closed S&P downgraded the rating and the government refuted the numbers. The market gap down Monday and continue down

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; August 1st, 2015 at 03:24 PM.
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Old August 1st, 2015, 03:14 PM   #4627 (permalink)
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Ron,

You said you could foresee the previous crashes. Guess what, nobody could. And if you could it once (by chance), do not even think you are capable of forecasting all the next crashes.

You don't think there is link between risk/return and making 30% is easy and with low risk.
Buffett and all those hedge funds with the most brilliant workforce don't make consistently that much money and in addition you laugh at the assumptions made by finance professors.

Sorry, but how you think and what you believe makes me laugh. I've been trading for +10 years and i've read a lot of books about investing and derivatives and what you say contradicts with everything i've personally experienced or read about it.

Please Ron, read the story of Victor Niederhoffer who blew up several of his hedge funds by selling puts.

I prefer to end this discussion. I don't want to be rude, but it seems to me that you are missing elementary knowledge. I thought the relation risk/return is common knowledge and that everybody would agree that making 30% (not to mention your +50%) is exceptional (with high risk and in the long run not maintainable. Or it must be that you are smarter and better than Buffet, Goldman sachs,...).

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Old August 1st, 2015, 03:20 PM   #4628 (permalink)
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ron99 View Post
Your graduate handbooks need to be rewritten because Karen and myself have made millions doing this without huge risk. Others in this thread are doing quite well too.

I think you can expect very soon a call from Goldman Sachs. I bet they would be thrilled hiring someone who can make +30% 40% consistently and with lower risk than a S&P investment. You would be the BEST trader that have ever existed if this was true. There was nobody in history who did that before, but maybe you are the first one.

Oh, and about Karen. Have you seen here last result (2013)? It was (slightly) less (!) than the S&P. The big returns are not that easy to repeat apparently...
But it is possible that Karen beats the S&P during a 10 year period. But this comes with higher risk and it won't be so good as the previous years (the coming years will prove that).


Last edited by jawadde001; August 1st, 2015 at 03:39 PM.
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Old August 1st, 2015, 03:47 PM   #4629 (permalink)
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blb014 View Post
2. The debt ceiling was being raised every month back in 2011 because Congress would kick the can down the road.

The debt ceiling was only raised once by congress in 2011. Not every month.


Quoting 
The market also rebounded in Aug and first part of September 2008

Uh no. Dec ES was 1284.25 the last trading day of Aug 2008. It never settled that high in Sep.

Peak was 1307 on 8/11/08.


Quoting 
But CL didn't start tanking below $100 until the fall of Lehman Brothers all the way down to $30ish at the end of 2008

It was down $40 from mid July to mid Sep. I'd call that tanking.

It's not good when you have to make up stuff to support your point.


Last edited by ron99; August 1st, 2015 at 04:08 PM.
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Old August 1st, 2015, 04:06 PM   #4630 (permalink)
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jawadde001 View Post
Ron,

You said you could foresee the previous crashes. Guess what, nobody could. And if you could it once (by chance), do not even think you are capable of forecasting all the next crashes.

You don't think there is link between risk/return and making 30% is easy and with low risk.
Buffett and all those hedge funds with the most brilliant workforce don't make consistently that much money and in addition you laugh at the assumptions made by finance professors.

Sorry, but how you think and what you believe makes me laugh. I've been trading for +10 years and i've read a lot of books about investing and derivatives and what you say contradicts with everything i've personally experienced or read about it.

Please Ron, read the story of Victor Niederhoffer who blew up several of his hedge funds by selling puts.

You mean this clueless trader?

In 1997, Niederhoffer Investments was not finding many opportunities for investments and, having returned much of its funds to customers such as George Soros, began investing the remaining 100 million dollars in areas where Niederhoffer later admitted that he did not have much expertise.


I prefer to end this discussion. I don't want to be rude, but it seems to me that you are missing elementary knowledge. I thought the relation risk/return is common knowledge and that everybody would agree that making 30% (not to mention your +50%) is exceptional (with high risk and in the long run not maintainable. Or it must be that you are smarter and better than Buffet, Goldman sachs,...).

Sorry if you can't believe my actual performance over 17 years. That's your problem. Not everybody makes or loses money at the same rate.

I've made over 61% each year 7 of the last 8 years through various trading strategies. And that includes a very profitable 2008.

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