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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,362 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old August 26th, 2015, 09:13 AM   #4871 (permalink)
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SMCJB View Post
Many of you saw my earlier post on how rare consecutive 2% down days is...



So I decided to expand the analysis a little to see what the daily change is day by day rather than just 1 day, 5 days & 20 days later and this is what I got...

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I think this does a good job showing that on average we get a pretty good bounce the next day and how much the data is skewed by Black Monday. Black Monday was actually a 4th consecutive >2% down day.

But then this evening I was reading @rsm005's post in the ES Option Selling thread...


Which got me thinking, is that true, is Friday selling really that scary... which then had me generate this pretty scary chart...

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Post 1987 there have been 24 consecutive down days.
21 of these have occurred on Mon-Thur and the next day the market is up and average of 2.1%
Just 3 of these have occurred on a Friday. ALL All 3 OCCURENECES the market was DOWN the next day by an average of 2.2%. Even worse 2 of the 3 occurrences the market was down AGAIN on the following day.

Remember this is post 1987 and excludes Black Monday If you include 1987 these numbers will look much much worse.

The 3 Fridays in question were 7/19/2002, 8/2/2002 & 1/30/2009
Re Black Monday. On Wed 10/14/1987 -2.95%, Thu 15 -2.34%, Fri 16 -5.08%, Mon 19 -20.46%, Tue 20 +5.23% & Wed 21 +9.10%

Apologies for cross posting this but I'm posting it in the ES options Selling Thread, ES Analysis Thread, Big Mike's Thread & the Homework Thread.

So far, this has been playing out exactly like the black line wow

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Old August 26th, 2015, 09:40 AM   #4872 (permalink)
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I wanted to see what positions would still not be on margin call if you added them on the worst day. Aug 17th.

All IMx3 and IMx4 positions would be on margin call. Naked and spreads.

IMx5 has a few positions that haven't gone on margin call but they are close. All positions have a draw down of 40+%.

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Some of the IMx6 positions have more room yet before going on margin call. The draw down is less but still in the 30s for the lowest ones. The ROI is still decent at IMx6 for some of the positions. I'm surprised.

Notes: the Mon ROI column is exiting at 50% drop in premium at 30 days held. The YR ROI column is not compounded monthly. Added 3-5% if you compounded monthly.

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Notice how the options at about 60 DTE perform the worst. This is the same as every other backtest I have run.

I like how the 100 wide spread, IMx6 1600-1700, performs compared to the rest. The ROI is basically the same for the spreads with 100, 200 and 300 differences between the short and long sides. And since it is I would use the narrowest spread of those 3.

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Old August 26th, 2015, 10:43 AM   #4873 (permalink)
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@zerohedge: Betting On "The End Of The World" Just Returned 2400% In One Day http://www.zerohedge.com/news/2015-08-26/betting-end-world-just-returned-2400-one-day

https://twitter.com/zerohedge/status/636528511059128325

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Old August 26th, 2015, 08:11 PM   #4874 (permalink)
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I can't believe it....... I was actually going to buy cheap VIX calls a couple weeks ago when VIX was at 10.... I would have made like 5000%

https://futures.io/trading-journals/36537-selling-options-es-s-p-500-futures-contract-5.html#post514775

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Old August 26th, 2015, 08:19 PM   #4875 (permalink)
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I can't believe it....... I was actually going to buy cheap VIX calls a couple weeks ago when VIX was at 10.... I would have made like 5000%

https://futures.io/trading-journals/36537-selling-options-es-s-p-500-futures-contract-5.html#post514775

Shoulda, woulda, coulda...

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Old August 26th, 2015, 08:34 PM   #4876 (permalink)
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Shoulda, woulda, coulda...

Mike

ES was down 58 Wed and Thu. Shoulda known it would be down on Friday.

Shoulda bought ESu5p1500 at 20 cents on Thu. On Monday they traded at 32 DOLLARS!

I really need to work on my Black Swan trading.

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Old August 26th, 2015, 08:39 PM   #4877 (permalink)
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ES was down 58 Wed and Thu. Shoulda known it would be down on Friday.

Shoulda bought ESu5p1500 at 20 cents on Thu. On Monday they traded at 32 DOLLARS!

I really need to work on my Black Swan trading.

I guess anyone following the Nicholas Taleb style of trading would have made off like a bandit. I would have to assume you would need a very large capital to even think of trading that style

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Old August 26th, 2015, 08:43 PM   #4878 (permalink)
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I guess anyone following the Nicholas Taleb style of trading would have made off like a bandit. I would have to assume you would need a very large capital to even think of trading that style

Not really. Buy options for <$50, be wrong 90% of the time, and still make a profit. Trick is to pick and choose where and when you buy.

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Old August 26th, 2015, 08:46 PM   #4879 (permalink)
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Not really. Buy options for <$50, be wrong 90% of the time, and still make a profit. Trick is to pick and choose where and when you buy.

True, I assume he has his algorithms scan for option chains that are at extreme leptokurtic so that any increase in volatility is likely to have a bigger impact

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Old August 26th, 2015, 09:03 PM   #4880 (permalink)
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ron99 View Post
Not really. Buy options for <$50, be wrong 90% of the time, and still make a profit. Trick is to pick and choose where and when you buy.

Buying an option for black swans is an asymmetric trade where the reward far outstrips the risk. This is the mark of a smart trader.

Selling options in a low vol environment is also asymmetric but in the wrong way, especially if you sell based on delta only and don't look at the environment.

For those thinking of selling naked because you think it's an easy 30% a year, this is a wake up call - 40% draw down and the market didn't even fall that hard. Imagine what your account will look like if a real crash like 2008 came around, you will owe money. The value of your sold puts will rise exponentially as they approach delta 1, the market makers will disappear so you can't close and your broker will probably go bust from margin calls that aren't being met. You will be absolutely amazed how much you could potentially owe.

I sell naked options, but I market time it, sell at the money for the most premium during elevated levels of vol, fully cash covered on stocks, never roll unless it's at the money and I get good premium for it and if it makes sense to do it. I don't roll hoping it will come back. I only do spreads on cash settled index. Only safe way to do it. Argue all you want but I've seen a lot of blow ups. The options game is littered with the blown accounts of naked sellers.

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