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Selling Options on Futures?
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Selling Options on Futures?

  #4901 (permalink)
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PeakGrowth View Post
The curve is convex for OTM and concave for FOTM. For best decay and least risk, sell 50-60 for OTM and hold till expiry,for FOTM sell 60-90 and close at 30.

The majority of the FOTM decay happens before 30 days because the probability of them expiring ITM as they approach day 30 becomes exponentially unlikely.

This is if delta price/vol doesn't change.

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I agree about your point in regards to the curve. But the numbers suggest, if you sell the same delta for 50-60 you will reach 50% of max profit in a matter of 14-18 days vs 30 days for 90+ days. Now, at current IV and price level, 3 delta is approximately 1470 strike for 50 dte and around 1350 for 95 dte. I consider both of these FOTM as they are both 500+ (25%+) points away from price.

95 option was trading for about $5 and 50 option around $3.5. The initial margin was about 700 and 500 respectively.

In 31 days, 95 option should have the same value as the 64 option at the same strike which was trading at about $2.75 give or take $0.20. I'm going to round down and say this is about 50% of max profit. Or about $0.08 decay per day (rounding to $2.50 to assume 50%).


50 option traded at $3.5. At 34 dte the same strike trades at $1.75 give or take $0.10. That's about 50% of max profit in 16 days. No reason to hold for another 34 days to get the same $1.75 remaining in my opinion. This translates to approximately $0.11 decay per day.

If we are comparing the same delta, 50 option had less margin requirement AND higher decay per day in this case. This is why I am proposing the 50-60 dte options are higher risk. They require less margin, and if you utilize the same margin as 90+, you will end up with higher number of contracts that can put you at even bigger risk when delta starts accelerating higher from IV and/or gamma.

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  #4902 (permalink)
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Good analysis, but is this because of the current situation where premiums are higher on the front month than the back month due to recent events? Not sure if that is always the case, and I can't test it so that's a genuine question - this might be situation specific.

In any case, selling the front month will make sense now because the IV would be much higher than HV at this point in time.

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  #4903 (permalink)
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mu2pilot View Post
I've compared them in the past (there's actually a portfolio margin calculator online) and they were pretty close. Definitely not 2:1 difference. If anything portfolio margin offered slightly more leverage.

Can you point me to where this calculator might be? I can't seem to find it. I used to have portfolio margin but I got rid of them after I started trading futures as I realized the futures and the margin accounts are actually separate and can be margin called on one and not the other if I'm not careful.

Anyway, as we know I'm saying 1000 margin to 500 not because 2:1 difference but rather $3 credit in /es means $150 ($3 x 50) vs $3 credit in $SPX means well... $300.

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  #4904 (permalink)
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Opstar View Post
Can you point me to where this calculator might be? I can't seem to find it. I used to have portfolio margin but I got rid of them after I started trading futures as I realized the futures and the margin accounts are actually separate and can be margin called on one and not the other if I'm not careful.

Anyway, as we know I'm saying 1000 margin to 500 not because 2:1 difference but rather $3 credit in /es means $150 ($3 x 50) vs $3 credit in $SPX means well... $300.

OCC - ENCORE (TM)

One of the most, if not THE most, non-intuitive programs/apps I've ever used. I got it to work and was able to get good information from it, but it wasn't easy. I would walk you thru it, but it has been a few months and I would have to figure it out from scratch.

And yes, I was taking into account the different multiplier of the ES vs SPX. My finding was that the relative leverage (margin required vs credit received) was fairly comparable.

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  #4905 (permalink)
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PeakGrowth View Post
Good analysis, but is this because of the current situation where premiums are higher on the front month than the back month due to recent events? Not sure if that is always the case, and I can't test it so that's a genuine question - this might be situation specific.

In any case, selling the front month will make sense now because the IV would be much higher than HV at this point in time.

Sent from my SM-N9005 using Tapatalk

The premium is NOT higher in the front month, just stretched further than it used to be. So yes, I agree that it's easier to sell front month further away from money than used to as a result of recent volatility and I took full advantage by selling bunch of 1500 level puts expiring... tomorrow.

On the serious note, IV is higher in the front month and that's how it usually is all year round. Theta premium gives cushion to expire ITM as well as OTM and fight off the current volatility further dated to expiry. The recent events seem to have exaggerated the difference a bit. Reminds me of the interest rate curve.

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  #4906 (permalink)
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Opstar View Post
The premium is NOT higher in the front month, just stretched further than it used to be. So yes, I agree that it's easier to sell front month further away from money than used to as a result of recent volatility and I took full advantage by selling bunch of 1500 level puts expiring... tomorrow.

On the serious note, IV is higher in the front month and that's how it usually is all year round. Theta premium gives cushion to expire ITM as well as OTM and fight off the current volatility further dated to expiry. The recent events seem to have exaggerated the difference a bit. Reminds me of the interest rate curve.

Sorry when I said higher I meant higher relatively to what it is normally versus the back months (so IV vs HV at the same month), so I think we are on the same page.

Should have said IV not premium

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  #4907 (permalink)
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mu2pilot View Post
OCC - ENCORE (TM)

One of the most, if not THE most, non-intuitive programs/apps I've ever used. I got it to work and was able to get good information from it, but it wasn't easy. I would walk you thru it, but it has been a few months and I would have to figure it out from scratch.

And yes, I was taking into account the different multiplier of the ES vs SPX. My finding was that the relative leverage (margin required vs credit received) was fairly comparable.

Thanks.

And what the....


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  #4908 (permalink)
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PeakGrowth View Post
Good analysis, but is this because of the current situation where premiums are higher on the front month than the back month due to recent events? Not sure if that is always the case, and I can't test it so that's a genuine question - this might be situation specific.

In any case, selling the front month will make sense now because the IV would be much higher than HV at this point in time.

Sent from my SM-N9005 using Tapatalk


Opstar View Post
The premium is NOT higher in the front month, just stretched further than it used to be. So yes, I agree that it's easier to sell front month further away from money than used to as a result of recent volatility and I took full advantage by selling bunch of 1500 level puts expiring... tomorrow.

On the serious note, IV is higher in the front month and that's how it usually is all year round. Theta premium gives cushion to expire ITM as well as OTM and fight off the current volatility further dated to expiry. The recent events seem to have exaggerated the difference a bit. Reminds me of the interest rate curve.

I believe you will find that the recent spike in Volatility means that the Vol Curve is significantly steeper than it normally is and that when the curve flattens you will find the trades you are currently discussing occur with a greater DTE.

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  #4909 (permalink)
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MJ888 View Post
Ron99, I have always had some questions about your strategy of selling naked ES puts. And now that you have finally had to exit at a loss, I think it is the right time to bring them up.

Actually not really. The right time to bring them up was when you had the original questions. Now you just seem like somebody smugly twisting a knife and taking pleasure from it.

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  #4910 (permalink)
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