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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,597 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old August 28th, 2015, 04:52 PM   #4921 (permalink)
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@SMCJB View Post
Sorry to hear that.

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

A majority of my trading is done with equity options. I use the "buy-write" and "covered calls" selling of equity options. I look for stocks that have options that expire weekly. This allows for a lot of flexibility and having options expire every Friday at a profit is very nice! And then I look for a strike where I would be comfortable owning the stock and I write puts. If I am assigned the stock, I would write covered calls to profit from the premium collected.

I was badly in the red last week when one of stocks that I wrote puts against traded $5 below the strike I sold at. But the stock has recovered nicely the past few days. I will be assigned the stock at the end of close today and on Monday I will look to sell covered calls while I wait for the stock to trade back up to my purchase price.

Recently I have had some success selling NG strangles. I exit the strangle after I make about 60% of the premium. Somewhat similar to Ron's 3xIM ES strategy.

To be honest, I am not a huge fan of the 3xIM strategy because it ties up a lot of capital. I fully understand that having the excess allows for the position to endure draw downs but I feel that I can employ the capital better with my equity options trading. And as I detailed in my original post, I don't like how one loss will wipe out months and years of gains. Like Ron99 suggested, maybe adding buying some "tiny" options will prevent this. Only way to truly find out is to trade it.

MJ888

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Old August 28th, 2015, 09:53 PM   #4922 (permalink)
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Chubbly View Post
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

Although the article doesn't state how much he lost before the big win this week.....


Nassim Taleb's Universa Investments crushed it - Business Insider

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Old August 28th, 2015, 10:38 PM   #4923 (permalink)
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Chubbly View Post
Although the article doesn't state how much he lost before the big win this week.....


Nassim Taleb's Universa Investments crushed it - Business Insider

Mark Spitznagel was Taleb's trader but has apparently since taken the theory to an all new level. I believe that Taleb is a non-owmer, non-investor, & not aware what the company positions are, but still an 'adviser' whatever that means. I also believe that Spitznagel has made significantly more than Taleb ever did. Spitznagel was rumored to be the enormously large put buyer that imbalanced the market before Waddell & Reed executed their Flash Crash causing ES sell order, and I think he was called before the SEC to testify on the subject.

Basically I think the headline is wrong. Spitznagel not Taleb crushed it.

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Old August 29th, 2015, 09:26 AM   #4924 (permalink)
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ron99 View Post
I wish more posters were doing research.

@ron99,

Best wishes for a speedy recovery.

I took a look at some possible variations to your black swan protection idea that I hope may help.

I noticed that your long options were covering about 40% of the short's delta. One thing that I thought might be an issue is that the 30 DTE options protecting the 90 DTE options may only have a narrow window of coverage, so I looked at combinations that would extend that window but still cover about 40% of the short option's delta.

#1 is your original posted position: -1 ESX5 P1700, 1 ESX5 P1500, 2 ESU5 P1600
#2 moves to a 60 DTE for coverage: -1 ESX5 P1700, 2 ESV5 P1600
#3 keeps the coverage at 90 DTE: -1 ESX5 P1700, 3 ESX5 P1400
#4 for the heck of it this looks at keeping all the protection at 30 DTE, but covering more delta: -1 ESX5 P1700, -2 ESU5 P1800

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Then, just to see what it would look like during a less volatile period, I went back to June and looked at similar setups.

#5 similar to #1: -1 ESU5 P1700, 1 ESU5 P1500, 2 ESU5 P1600
#6 similar to #2: -1 ESU5 P1700, 2 ESQ5 P1560
#7 similar to #3: -1 ESU5 P1700, 3 ESU5 P1400

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These were just a couple of small tests, but I think that it may show that the same type of protection might be possible with a less complicated spread.

Hope this may help.

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Old August 29th, 2015, 10:37 AM   #4925 (permalink)
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Futures Edge on FIO
Yes the tiny long options would need to be greater than 25 DTE or else they wouldn't provide much coverage. So you would have to adjust the month on them when entering so that they covered your expected holding time of the short and be at least 25 DTE at all times.

Here is table using one Nov 1700 short and two Sep 1600 longs. As you can see as the DTE for the Sep gets below 25 (20150826) the position goes on margin call.

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Here is table for using one Nov 1700 short and two Oct 1600 longs. IM is less to start and actually decreases. More interestingly the potential ROI is higher (exiting at 50% premium drop at 30 days held). Draw down is half as much.

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Now the 25 DTE number is a spot I chose based my what I saw in the markets. I have no research as to if that is the limit. And looking at the 2nd table that may be a mute point and I won't be using that low a DTE long.


Last edited by ron99; August 29th, 2015 at 12:23 PM.
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Old August 29th, 2015, 12:30 PM   #4926 (permalink)
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ron,

I'd love to help you with your analysis but have to claim ignorance as I'm just too new to the process. The last thing I want to do is make more work or put some math on this thread that will get people into more trouble. Something to consider is if you or any of the more tenured members could do a webinar on how you actually perform your back tests with a walk through. I know I'd jump at the chance to see that and then run more simulations.

All the best in your recovery.
/rsm005/

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Old August 29th, 2015, 12:42 PM   #4927 (permalink)
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SMCJB View Post
Mark Spitznagel was Taleb's trader but has apparently since taken the theory to an all new level. I believe that Taleb is a non-owmer, non-investor, & not aware what the company positions are, but still an 'adviser' whatever that means. I also believe that Spitznagel has made significantly more than Taleb ever did. Spitznagel was rumored to be the enormously large put buyer that imbalanced the market before Waddell & Reed executed their Flash Crash causing ES sell order, and I think he was called before the SEC to testify on the subject.

Basically I think the headline is wrong. Spitznagel not Taleb crushed it.

FWIW, Futures magazine has profiled Fitznagel and he wrote a book called "The Dao of Capital."

From what I've read, Taleb had a mixed record as a fund manager.

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Old August 29th, 2015, 01:59 PM   #4928 (permalink)
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ron99 View Post
Yes the tiny long options would need to be greater than 25 DTE or else they wouldn't provide much coverage. So you would have to adjust the month on them when entering so that they covered your expected holding time of the short and be at least 25 DTE at all times.

Here is table using one Nov 1700 short and two Sep 1600 longs. As you can see as the DTE for the Sep gets below 25 (20150826) the position goes on margin call.

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



Here is table for using one Nov 1700 short and two Oct 1600 longs. IM is less to start and actually decreases. More interestingly the potential ROI is higher (exiting at 50% premium drop at 30 days held). Draw down is half as much.

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


Now the 25 DTE number is a spot I chose based my what I saw in the markets. I have no research as to if that is the limit. And looking at the 2nd table that may be a mute point and I won't be using that low a DTE long.


At first I want to thank Ron for this great thread. Unfortunately, I am not able to add any relevant research on options. But I wonder how a ratio credit spread 1:2 or 1:3 would have performed last week. Maybe even with different DTE for both legs.

Has anybody done research on ratio credit spreads for this trading method?

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Old August 29th, 2015, 02:36 PM   #4929 (permalink)
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Kevalo View Post
At first I want to thank Ron for this great thread. Unfortunately, I am not able to add any relevant research on options. But I wonder how a ratio credit spread 1:2 or 1:3 would have performed last week. Maybe even with different DTE for both legs.

Has anybody done research on ratio credit spreads for this trading method?

@Kevalo,

I may have the terminology mixed up, but in post #4925 I believe I have two examples of how a ratio credit spread with the same and with different DTEs would have faired last week.

#3 is a 1:3 credit ratio spread both legs ~90 DTE

#2 is a 1:2 credit ratio spread with the short leg at ~90 DTE and the long leg ~60 DTE.

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Old August 29th, 2015, 02:40 PM   #4930 (permalink)
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Dudetooth View Post
@Kevalo,

I may have the terminology mixed up, but in post #4925 I believe I have two examples of how a ratio credit spread with the same and with different DTEs would have faired last week.

#3 is a 1:3 credit ratio spread both legs ~90 DTE

#2 is a 1:2 credit ratio spread with the short leg at ~90 DTE and the long leg ~60 DTE.

There are different definitions of a ratio credit spread.

Cordier has this definition


Quoting 
A ratio credit spread is really just selling a group of out of the money naked options, and then adding one final twist: After selling the naked options, the trader takes part of the premium collected and buys a close to, or at the money option.

The Ratio Credit Spread | Option Sellers

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