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Selling Options on Futures?
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Selling Options on Futures?

  #4651 (permalink)
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ron99 View Post
I know many in the media are watching drilling rigs, but it is far more important to watch oil production. The wells being started now are much more productive than in the past.

North Dakota drillers completed an unusually high number of superwells flowing >2000 b/d in July

Production has hardly dropped even though drilling rigs have dropped by quite a but.

This Week In Petroleum Crude Oil Section

RON, do you have an alternative strategy for the time ES will be bearish? I mean, not just a correction but a change of trend. I know it could last between 6 months and 2 years so it could be nice if we could find something similar to that so easy strategy.

I do not expect that to happen in the short term, but you never know

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  #4652 (permalink)
Market Wizard
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Hills View Post
RON, do you have an alternative strategy for the time ES will be bearish? I mean, not just a correction but a change of trend. I know it could last between 6 months and 2 years so it could be nice if we could find something similar to that so easy strategy.

I do not expect that to happen in the short term, but you never know

We are no where close to long term bearish ES.

Too many things change to make a suggestion now for something that might happen years from now.

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  #4653 (permalink)
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Interesting tidbit.


Quoting 
the debt-to-equity ratio for S&P 500 companies now sits at 105%, well below the long-term average of 161%.

One thing this means is that an interest rate hike will affect companies less.

Here's a reliable recession warning indicator.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


https://research.stlouisfed.org/fred2/series/T10YFFM

Almost every time the 10 year rate was less than the Fed rate a recession happened soon after.


Last edited by ron99; August 3rd, 2015 at 10:03 PM.
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  #4654 (permalink)
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ron99 View Post
Having to roll happens rarely. If you keep the excess when you acquired the position for the entire time you have on the position, you should be covered for at least a 160-170 point drop in ES futures (depends on how fast it drops). That has only happened once since the recession. Once in almost 6 years. And that time (gov shutdown) was very predictable and you should not be holding short puts during that time. Same for the recession.

For example, if the IM when you acquire the option is $700, then you should keep $2,100 of your balance for that position the entire time you hold that contract. That is your safety net.

I keep track of that excess with my Access database. You could also do it in Excel or other spreadsheet.

Doing some searching of this thread to learn more about how margin increases/decreases over the life of the option and found this post.

@ron99, do the majority of losses related to this style of trading come from being wrong (direction/strike/etc) at expiration or mainly from margins going against one's position too much?

From what I have been reading, it seems like the main risk is margin going against one's position, even if one is "correct" that the price will close on the right side of the strike for that option.


Last edited by TheTradeSlinger; August 4th, 2015 at 01:31 PM.
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  #4655 (permalink)
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Managing at 25%

Hi Ron,

New to the thread and doing my best to catch up.

Was wondering if you have looked at managing your winners more aggressively than 50%, say at 25%?

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  #4656 (permalink)
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rocky64 View Post
Hi Ron,

New to the thread and doing my best to catch up.

Was wondering if you have looked at managing your winners more aggressively than 50%, say at 25%?

Welcome. Here is my initial research.
https://futures.io/options-cfd-trading/12309-selling-options-futures-412.html#post490400

Here is what @uuu1965 found.
https://futures.io/options-cfd-trading/12309-selling-options-futures-461.html#post508160

I hope to do some more long term studies of the exit point and spreads when I find the time.

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  #4657 (permalink)
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TheTradeSlinger View Post
Doing some searching of this thread to learn more about how margin increases/decreases over the life of the option and found this post.

@ron99, do the majority of losses related to this style of trading come from being wrong (direction/strike/etc) at expiration or mainly from margins going against one's position too much?

If you are far OTM then yes it is margin calls that will force you out not going ITM.

From what I have been reading, it seems like the main risk is margin going against one's position, even if one is "correct" that the price will close on the right side of the strike for that option.

Beginners to option selling think that as long as futures don't hit their strike then they are good to go. But that is rarely the case. Not having enough excess to ride out losses in premium and increases in margin is the main problem.

IMx3 is a good start to having enough excess. IMx4 is even better but you will give up profits for the safety. Personal preference of amount of safety will decide risk and reward.

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  #4658 (permalink)
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Ron,

Thanks for the study links. I did notice that on both studies, managing at 40% had a greater ROI than 50%.

So, it does beg the question if managing even more aggressively will continue to raise the ROI.

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  #4659 (permalink)
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rocky64 View Post
Ron,

Thanks for the study links. I did notice that on both studies, managing at 40% had a greater ROI than 50%.

So, it does beg the question if managing even more aggressively will continue to raise the ROI.

Till the increased costs to trade, more trades, become too large a percentage of the profit.

My study's summary was just a simple average of each month's ROI. I want to see a long term study what the comparable numbers turn out to be.

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ron99 View Post
Beginners to option selling think that as long as futures don't hit their strike then they are good to go. But that is rarely the case. Not having enough excess to ride out losses in premium and increases in margin is the main problem.

IMx3 is a good start to having enough excess. IMx4 is even better but you will give up profits for the safety. Personal preference of amount of safety will decide risk and reward.

Thank you for taking your time to answer my questions, along with everyone else's!

From the studying I've done, I believe IMx3 would be right up my alley.

I'm going to be opening up an options on futures account soon to explore this style of trading in real time soon. I'll post here and in my journal some of my first few trades.

@ron99 and others, what's a good rule of thumb for a "large" movement in margin? Are we talking doubling if the underlying goes heavily against you, tripling, quadrupling? I'm beginning to understand how this methodology works, just trying to get a grasp on exactly how much margin moves can affect a position.

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