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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,446 / 5,734
Last Reply:2 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old August 12th, 2015, 11:37 AM   #4711 (permalink)
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ron99 View Post
Good thing you don't trade futures. You would have had a heart attack!

The reason you sell far OTM options is so that you don't have to worry about prices changes by the minute.

When I was on vacation I checked prices at 8 am, 10 am, 1 pm and 4 pm. That's it.

One place I trade at, QST, has online app. In that app I can set an alarm to go off when ES futures hit a certain level. If no alarm then no worry about my options.

With experience you will realize that option selling allows you to be less worried about the markets.

Very interesting, I was wondering how often options traders checked on their positions. When trading outrights you'll mainly be stuck to the screen whilst you have positions on, whereas I was wondering how you fill the time when trading options. I suppose it allows for more time spent researching and scouting for opportunities...amongst other internet activites

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Old August 12th, 2015, 12:27 PM   #4712 (permalink)
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CobblersAwls View Post
Very interesting, I was wondering how often options traders checked on their positions. When trading outrights you'll mainly be stuck to the screen whilst you have positions on, whereas I was wondering how you fill the time when trading options. I suppose it allows for more time spent researching and scouting for opportunities...amongst other internet activites

For my short option positions I execute a GTC order for all of them at 50% drop so I don't even have to be there to exit profitable position.

I have been surprised that sometimes I traded while I was sleeping. If I didn't have that order on, I would have missed getting out then because futures' prices dropped later.

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Old August 12th, 2015, 01:25 PM   #4713 (permalink)
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I thought I would post a quick update about some of the things that I've observed so far with my last trade. Most of these things pretty much confirm what's already been said in this thread but it's always good to have firsthand knowledge. Some of you may remember I posted two different trades this time around, one that expires approximately 100 days out in the other 130 days. What I found so far is that even though the 130 day trade provided a higher premium it just isn't worth it. There is a substantially higher-margin hold and very little liquidity that far out.

Another thing to note is that Ron mentioned looking at trades that are approximately 350 to 400 points below the current market value with a delta of 3. What I can safely say here is that delta is more important than the number of points below the market. In my last trade I went approximately 350 points down but the delta was a little bit higher. The net result was a slower rate of decay which left me in the position longer exposed me to more risk in the marketplace.

So does look like 100 days is the maximum and does seem to provide the best performance.

For some of the folks that are opening up test accounts are just looking to fund new accounts don't go chasing the higher premiums too far out. It's tempting but in the end it's just not worth it.

As it stands I am just unhappy with the trade that is 130 days out. What I plan to do is exit that position as soon as the market rebounds from this latest selloff and then reposition myself for a better trade going forward.

/rsm005/

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Old August 12th, 2015, 01:54 PM   #4714 (permalink)
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Here is rsm005's post from July 24th to show the positions he was talking about in the post above.

The Oct contract was traded on 7/16. Delta was 4.74.

The Nov end of month contract was traded on 7/21. Delta was 6.93. The IM was 1,221 not 978.


rsm005 View Post
All,

To continue my experiment on how a position decays over time and if 90 days or 130 days is preferable I opened the following positions a few days ago.

Contract: OESV5 P1750
Quantity: 80
Premium: $4.55
Days to Expiration at Open: 93
Initial Margin: $978
Days Open: 8
Current IM: $872

Contract: OEWX5 P1750
Quantity: 40
Premium: $9.75
Days to Expiration at Open: 132
Initial Margin: $978
Days Open: 3
Current IM: $1,315 (ouch)

Both positions are currently underwater due to the latest pullback. The first contract has been open for 8 days while the second for just 3 so still very new. Although both positions are underwater by a good chunk I'm not as nervous as I was with my first trade because of how I saw everything play out last time. Huge gaps down didn't kill my position the way I thought it would...things moved in such a way that it gave time the chance eat away at the losses.

Here's to watching a hoping time does its magic again.

/rsm005/



Last edited by ron99; August 12th, 2015 at 02:14 PM.
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Old August 12th, 2015, 01:57 PM   #4715 (permalink)
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ron99 View Post
I think that DeCarley is well worth the money. Multiply the number of trades you do a year times the extra cost at DeCarley and then think if that much extra money is worth the cost for the best customer service in the industry.

As far as small ROTH IRA, I doubt you will find any place that allows you to trade futures in them and doesn't require a custodian. Most custodians are around $300 per year.

Thanks Ron. I have been thinking about opening an account with DeCarley as TOS limits my options to only few popular instruments. I have no complaints with TOS as far as /ES is concerned but it's frustrating when it comes to trading others, such as coffee for example, as the platform doesn't allow option trading in them.

I guess I can't get away with those custodian fees if I want to grow the IRA account starting immediately.

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Old August 12th, 2015, 02:13 PM   #4716 (permalink)
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rsm005 View Post
I thought I would post a quick update about some of the things that I've observed so far with my last trade. Most of these things pretty much confirm what's already been said in this thread but it's always good to have firsthand knowledge. Some of you may remember I posted two different trades this time around, one that expires approximately 100 days out in the other 130 days. What I found so far is that even though the 130 day trade provided a higher premium it just isn't worth it. There is a substantially higher-margin hold and very little liquidity that far out.

Another thing to note is that Ron mentioned looking at trades that are approximately 350 to 400 points below the current market value with a delta of 3. What I can safely say here is that delta is more important than the number of points below the market. In my last trade I went approximately 350 points down but the delta was a little bit higher. The net result was a slower rate of decay which left me in the position longer exposed me to more risk in the marketplace.

So does look like 100 days is the maximum and does seem to provide the best performance.

For some of the folks that are opening up test accounts are just looking to fund new accounts don't go chasing the higher premiums too far out. It's tempting but in the end it's just not worth it.

As it stands I am just unhappy with the trade that is 130 days out. What I plan to do is exit that position as soon as the market rebounds from this latest selloff and then reposition myself for a better trade going forward.

/rsm005/

To add a bit more color the the trade 130 days out vs the one that's approx. 100 days out, here's how the margin has behaved after the most recent pounding by the Chinese currency devaluation.

Contract: OESV5 P1750
Quantity: 80
Premium: $4.55
Days to Expiration at Open: 93
Initial Margin: $978
Days Open: 8
Current IM: $872
Margin as of 8/12/2015: $810

Contract: OEWX5 P1750
Quantity: 40
Premium: $9.75
Days to Expiration at Open: 132
Initial Margin: $978
Days Open: 3
Current IM: $1,315 (ouch)
Margin as of 8/12/2015: $1,251

Notice how little time has actually affected the position further out in time. That $9 premium looked very sexy .... but it would have been a far better use of capital to have a larger position in the OESV5.

/rsm005/

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Old August 12th, 2015, 02:27 PM   #4717 (permalink)
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rsm005 View Post
To add a bit more color the the trade 130 days out vs the one that's approx. 100 days out, here's how the margin has behaved after the most recent pounding by the Chinese currency devaluation.

Contract: OESV5 P1750
Quantity: 80
Premium: $4.55
Days to Expiration at Open: 93
Initial Margin: $978
Days Open: 8
Current IM: $872
Margin as of 8/12/2015: $810

Contract: OEWX5 P1750
Quantity: 40
Premium: $9.75
Days to Expiration at Open: 132
Initial Margin: $978
Days Open: 3
Current IM: $1,315 (ouch)
Margin as of 8/12/2015: $1,251

Notice how little time has actually affected the position further out in time. That $9 premium looked very sexy .... but it would have been a far better use of capital to have a larger position in the OESV5.

/rsm005/

The Oct contract was traded on 7/16. Delta was 4.74.

The Nov end of month contract was traded on 7/21. Delta was 6.93. The IM was 1,221 not 978.

The Oct option went from 4.55 to 3.20 yesterday. A drop of 29.7%.

The Nov option went from 9.75 to 9.00 yesterday. A drop of 7.7%.

A Nov option that was about the same delta as his Oct option was the 1680. Delta 4.70. Premium 6.20. IM was 913.

That Nov option went from 6.20 to 5.50 yesterday. A drop of 11.3%.

So even with about the same delta the drop in premium was far less for the Nov contract than the Oct contract. So it is mainly a DTE issue.

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Old August 12th, 2015, 03:04 PM   #4718 (permalink)
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Ron,

How are you getting the margin number for Nov?

"The Nov end of month contract was traded on 7/21. Delta was 6.93. The IM was 1,221 not 978."


Here's the original margin information I captured the day I opened the position.

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$39,120/40 contracts = $978 per contract in IM.


I agree on the delta bit of your assessment and was going to add a small position at the same delta to see what would happen but didn't find enough volume. More importantly it would have passed my excess cash amount.

/rsm005/

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Old August 12th, 2015, 03:48 PM   #4719 (permalink)
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rsm005 I'm using the SPAN files and Dudetooth's spreadsheet.

Look at the maintenance column. It is higher than the initial column. That is not normal.

If you take the maintenance number of 44,400 and multiply by 1.10 (CME factor to get from maintenance to initial) you get 48,480. Divided by 40 equals 1,221.

The IM number 39,120 is wrong.

All of your other IMs are maintenance margin times 1.1 off only by rounding errors.

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Old August 12th, 2015, 04:06 PM   #4720 (permalink)
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ron99 View Post
rsm005 I'm using the SPAN files and Dudetooth's spreadsheet.

Look at the maintenance column. It is higher than the initial column. That is not normal.

If you take the maintenance number of 44,400 and multiply by 1.10 (CME factor to get from maintenance to initial) you get 48,480. Divided by 40 equals 1,221.

The IM number 39,120 is wrong.

All of your other IMs are maintenance margin times 1.1 off only by rounding errors.

That's crazy. That margin number was lifted straight from the platform when the trade was made. I spoke to my broker and she said that there can be discrepancies like that and to check the statement to be 100% sure!!!! I've tried to use dudetooth's calculator but just can't figure it out. I'll spend a bit more time on that and see what comes out of it.

/rsm005/

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