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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,610 / 5,734
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Selling Options on Futures?

Old August 27th, 2015, 11:47 PM   #4911 (permalink)
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SMCJB View Post
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.

You are perfectly entitled to feel that way. And I expected some to say that I am "smugly" stomping on someone who lost money. Taking pleasure? Well just for your reference I too lost quite a bit of money the past week with my accounts. And based on the numbers Ron has provided, I know his losses are heavier than mine but then again, he knew the possibilities going in. He had his exit strategy which he executed. But my questions remain to Ron, what is your game plan from here?

We have discussed it on here for years that selling options is a probabilities game. And trading this way has been a money maker. All of us also knew that the party would end one day when we would have to get out at 3x IM for a loss. So now that it has finally happened I would like to know how one of the biggest traders of ES naked puts (at least one that I know) is dealing with it and how he will go forward.

We all learned something when this worked and money was being made and I also believe that we all can learn from a loss too. The thing with trading this way is that a loss may not happened for months and in this case years.

Ron, reply when you feel it is appropriate for you. But I will say this, if Ron does not answer or if my questions leads to me being reprimanded or banned from this thread or site then this entire thread will lose credibility.

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Old August 28th, 2015, 08:10 AM   #4912 (permalink)
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SMCJB View Post
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.

Not sure which trade we are talking about. I agree the curve is steeper than it was but if we are talking about trades I discussed in relations to premium decay, we are not in agreement for that part. I actually believe your research with the heat maps support this.


Last edited by Opstar; August 28th, 2015 at 08:20 AM.
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Old August 28th, 2015, 11:44 AM   #4913 (permalink)
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MJ888 View Post
Well just for your reference I too lost quite a bit of money the past week with my accounts.

Sorry to hear that.

MJ888 View Post
We have discussed it on here for years that selling options is a probabilities game. And trading this way has been a money maker. All of us also knew that the party would end one day when we would have to get out at 3x IM for a loss. So now that it has finally happened I would like to know how one of the biggest traders of ES naked puts (at least one that I know) is dealing with it and how he will go forward.

We all learned something when this worked and money was being made and I also believe that we all can learn from a loss too. The thing with trading this way is that a loss may not happened for months and in this case years.

So what is your plan going forward if you experienced losses? Are you continuing with the same or similar strategy?


MJ888 View Post
Ron, reply when you feel it is appropriate for you. But I will say this, if Ron does not answer or if my questions leads to me being reprimanded or banned from this thread or site then this entire thread will lose credibility.

If you put an @ infront of anybodies name, for example @MJ888, they get a message that they have been mentioned in a specific post on the site. If you want to ask somebody, like @ron99, a specific question I recommend you use the @ so that they know the question has been asked.

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Old August 28th, 2015, 11:45 AM   #4914 (permalink)
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Opstar View Post
Not sure which trade we are talking about. I agree the curve is steeper than it was but if we are talking about trades I discussed in relations to premium decay, we are not in agreement for that part. I actually believe your research with the heat maps support this.

I'll try and run the heat maps again this weekend so we can see how they have changed. Note that those heat maps are obviously very dependent upon IM values.

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Old August 28th, 2015, 11:50 AM   #4915 (permalink)
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MJ888 View Post
You are perfectly entitled to feel that way. And I expected some to say that I am "smugly" stomping on someone who lost money. Taking pleasure? Well just for your reference I too lost quite a bit of money the past week with my accounts. And based on the numbers Ron has provided, I know his losses are heavier than mine but then again, he knew the possibilities going in. He had his exit strategy which he executed. But my questions remain to Ron, what is your game plan from here?

We have discussed it on here for years that selling options is a probabilities game. And trading this way has been a money maker. All of us also knew that the party would end one day when we would have to get out at 3x IM for a loss. So now that it has finally happened I would like to know how one of the biggest traders of ES naked puts (at least one that I know) is dealing with it and how he will go forward.

We all learned something when this worked and money was being made and I also believe that we all can learn from a loss too. The thing with trading this way is that a loss may not happened for months and in this case years.

Ron, reply when you feel it is appropriate for you. But I will say this, if Ron does not answer or if my questions leads to me being reprimanded or banned from this thread or site then this entire thread will lose credibility.

I had not answered your long post yet because I am working on a strategy that would cover catastrophic changes in futures.

Your questions are fair. I am asking myself the same questions. The timing of the post does have the unintended consequence of looking like rubbing it in, but I feel that was not your intent. At least I hope it wasn't.

Yes the best time to improve your trading is after something goes wrong. Learn from your mistakes. I should have learned from the Jan 2014 NG fiasco. This week is similar to that. I won't make the same mistake 3 times.

I was headed in the right direction. I had added spreads instead of naked options. 50% of my positions were in spreads. Spreads had lower IM increases compared to naked options but they had about the same dollar loss on the account balance. They help for riding out moderate drops just not the huge drop this week.

Here is what I found. For research using the worst day, 8/17, to add positions, selling one ESx5p1700, buying one ESx5p1500 and buying 2 ESu5p1600 (notice this is Sep).

What I have found is that buying 2 tiny options at 20 cents, $20, for each short position would have totally covered the losses on Monday. Actually your account would have be up on Monday because the ESu5p1600 went from 20 cents or $20 for 2, on Wed to 16.50 or $1,650 on Monday. That combined with the gain on a long ESx5p1500 would have put the position up $413 at Monday's settlement. It was easily double that mid day.

I'm also finding that when you add the two tiny longs that the IM changes very little during a drop. IM for the entire position was 352 on 8/17. The highest it got since then was 429 on 8/19. After trading closed on Monday 8/24 the IM was 333. It is 283 today. You might be able to switch to IMx2. Not sure about that one yet.

I also backtested this for NG Jan 2014. It worked well then too.

It is sell $200 option, buy $50 option and buy two $10 options. But I am sure I will change these numbers later.

The problem is that ROI is lowered. But the chances of blowing up are reduced. Having higher ROI but blowing up is probably worse than lower ROI and not blowing up.

Many more hours of research are needed. I greatly appreciate the handful of posters that have done some research. I wish more posters were doing research.

I am doing what I can. I had 6 hour surgery on Monday 8/17 to successfully remove a benign growth in my head. I am not 100% yet. But getting there. Thank goodness my "job" is sitting in front of a computer.


Last edited by ron99; August 28th, 2015 at 12:15 PM.
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Old August 28th, 2015, 12:03 PM   #4916 (permalink)
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Buying "Teenies"

Following on from Ron's post, this is something I heard about a long time ago from more experienced options traders.

Cutting a long story short, buying a bunch of "teenies" (options trading in the 'teens cents), when selling options higher up the chain would prevent or mitigate blowups dramatically.

I think your research is showing that the sage advice I received all those years ago was right and something that more option sellers should do.

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Old August 28th, 2015, 01:14 PM   #4917 (permalink)
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ron99 View Post

I was headed in the right direction. I had added spreads instead of naked options. 50% of my positions were in spreads. Spreads had lower IM increases compared to naked options but they had about the same dollar loss on the account balance. They help for riding out moderate drops just not the huge drop this week.

Here is what I found. For research using the worst day, 8/17, to add positions, selling one ESx5p1700, buying one ESx5p1500 and buying 2 ESu5p1600 (notice this is Sep).

What I have found is that buying 2 tiny options at 20 cents, $20, for each short position would have totally covered the losses on Monday. Actually your account would have be up on Monday because the ESu5p1600 went from 20 cents or $20 for 2, on Wed to 16.50 or $1,650 on Monday. That combined with the gain on a long ESx5p1500 would have put the position up $413 at Monday's settlement. It was easily double that mid day.

I'm also finding that when you add the two tiny longs that the IM changes very little during a drop. IM for the entire position was 352 on 8/17. The highest it got since then was 429 on 8/19. After trading closed on Monday 8/24 the IM was 333. It is 283 today. You might be able to switch to IMx2. Not sure about that one yet.

I also backtested this for NG Jan 2014. It worked well then too.

It is sell $200 option, buy $50 option and buy two $10 options. But I am sure I will change these numbers later.

The problem is that ROI is lowered. But the chances of blowing up are reduced. Having higher ROI but blowing up is probably worse than lower ROI and not blowing up.

Many more hours of research are needed. I greatly appreciate the handful of posters that have done some research. I wish more posters were doing research.


ron99 View Post
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.

Love this.

Getting closer to working on that Black Swan trading

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Old August 28th, 2015, 03:46 PM   #4918 (permalink)
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@ron99 get well soon i find this thread fascinating.

I dont know where to get historical option data that doesnt cost a fortune but some back of the beermat calculations suggest that perhaps hedging through VIX could be a way to lower the hedge cost. Here comes the hindsight part excuse and ignore if you believe its irrelevant however hindsight sometimes makes future clearer.

As i see it selling options 90DTE puts, so to hedge this your main concern is volatility in a low volatility regime. As in a case of regime switch that we want to hedge out some of the risk. Time is very much your friend. If i had the data id run this to try it out and if anyone can send me the data ill knock it up.

From Mid JUL, October VIX futures have been trading at around ATM 17 october 2015.

When the S&P options are written the objective would be to buy cheap vix OTM call's > 15-20% of market price so in case of 17 buy the 19 OTM calls. These i believe traded @ between 1$ and .20 per contract through JUL. Today they trade @ 7.

VIX moves 16.8% when index drops 3% or so.

I was guessing 15-20 but appears 25% is tested here.

This table is plagerised from seeking alpha unsure if i can post it if not respond and ill remove link below (i notice no OTM SPX Puts listed):
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Buying VIX Calls As A Portfolio Hedge | Seeking Alpha

http://www.cboe.com/micro/buywrite/AssetConsultingGroupTailRiskMarch7Final.pdf

Page 28 portfolio growth mar06-dec08. Page 26 (for the fancy pics):
http://www.cboe.com/micro/vix/VIXFuturesOptionsUMass43pgJuly2009.pdf

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Old August 28th, 2015, 04:23 PM   #4919 (permalink)
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SMCJB View Post
If you put an @ infront of anybodies name, for example @MJ888, they get a message that they have been mentioned in a specific post on the site. If you want to ask somebody, like @ron99, a specific question I recommend you use the @ so that they know the question has been asked.

@SMCJB

Thanks!

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Old August 28th, 2015, 04:35 PM   #4920 (permalink)
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ron99 View Post
I had not answered your long post yet because I am working on a strategy that would cover catastrophic changes in futures.

Your questions are fair. I am asking myself the same questions. The timing of the post does have the unintended consequence of looking like rubbing it in, but I feel that was not your intent. At least I hope it wasn't.

I am doing what I can. I had 6 hour surgery on Monday 8/17 to successfully remove a benign growth in my head. I am not 100% yet. But getting there. Thank goodness my "job" is sitting in front of a computer.

Get well soon @ron99! I understand the "timing" aspect part of my post and how it can be seen as "rubbing it in" but quite honestly I feel the best time to learn is from a loss. Like I have said, there is no hurry in responding and you pretty much responded already. I agree with the concept of buying some tiny priced options to offset Black Swan events. I can totally accept lower ROI in exchange for not blowing up. I look forward to your research on this. Get some rest this weekend.

MJ888

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