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Selling Options on Futures?
Created: by ron99 Views / Replies:621,577 / 5,909
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Selling Options on Futures?

  #4951 (permalink)
Trading Apprentice
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Dear Ron99 & Dudetooth

Thank you for posting the black swan protection idea
would you kind to enlight me on several items below ... thanks in advance ...

@ron99 , i see that some of the strategy being posted by you using protection by Buy 2 Put contract 60DTE to cover Sell 1 Put contract 90DTE (just like strategy #2 post by Dudetooth below)... i just curious is it possible that after 60 day the Premium hasn't reduce 50% yet (i.e due to the ES price is fall moderate but faster than the time decay) ? ... (So we still have the Sell Put contract but no more Buy Put contract after 60 days) ... if that is possible, is that mean that we don't have a protection if the flash crash is happen after 60 days ...

@Dudetooth ... i am interested in finding more on the strategy #3 normal credit spread 90 DTE with ratio 1 : 3 (1 sell, 3 buy). I think it can be strong candidate for protection mechanism. To make it mechanical can you share what is the original delta for the put contract that we buy on strategy #3 ? (in your example : ESX5 P1400 on 17 Aug)

I am hoping later on we can create the mechanical of the strategy i.e :
* Sell 1 Put contract ES 0.0300 deltas at 90-110 DTE
* Buy 3 Put contract ES 0.0100 deltas with the same expiry
* IMx3

thanks for the enlighment ... Ron99 hope you get speedy recovery ...



Dudetooth View Post
@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



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



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.



Last edited by Zulutrade76; August 31st, 2015 at 07:21 AM.
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  #4952 (permalink)
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Zulutrade76 View Post
can you share what is the original delta for the put contract that we buy on strategy #3 ? (in your example : ESX5 P1400 on 17 Aug).

@Zulutrade76,

The ESX5 P1700 had a delta of 3.9 and each P1400 had a delta of 0.49 on Aug 17 ... combined the spread had a delta of 2.43.

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  #4953 (permalink)
Market Wizard
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Forum Reputation: Legendary



Zulutrade76 View Post
Dear Ron99 & Dudetooth

Thank you for posting the black swan protection idea
would you kind to enlight me on several items below ... thanks in advance ...

@ron99 , i see that some of the strategy being posted by you using protection by Buy 2 Put contract 60DTE to cover Sell 1 Put contract 90DTE (just like strategy #2 post by Dudetooth below)... i just curious is it possible that after 60 day the Premium hasn't reduce 50% yet (i.e due to the ES price is fall moderate but faster than the time decay) ? ... (So we still have the Sell Put contract but no more Buy Put contract after 60 days) ... if that is possible, is that mean that we don't have a protection if the flash crash is happen after 60 days ...

You will just have to buy more longs.

@Dudetooth ... i am interested in finding more on the strategy #3 normal credit spread 90 DTE with ratio 1 : 3 (1 sell, 3 buy). I think it can be strong candidate for protection mechanism. To make it mechanical can you share what is the original delta for the put contract that we buy on strategy #3 ? (in your example : ESX5 P1400 on 17 Aug)

I am hoping later on we can create the mechanical of the strategy i.e :
* Sell 1 Put contract ES 0.0300 deltas at 90-110 DTE
* Buy 3 Put contract ES 0.0100 deltas with the same expiry
* IMx3

This won't work for a couple of reasons.

1. If you buy the same month as the short you don't get enough protection during a Black Swan move. The longs that are a month closer will be a higher strike than if you buy the same month. They will then give more coverage during a Black Swan.

2. You won't get any premium credit. For example, right now a ESz5p1330 is 3 delta and the price is 6.00. A ESz5p1075 is 1 delta and the price is 2.00.


thanks for the enlighment ... Ron99 hope you get speedy recovery ...

PS My recovery is going very well. Thanks for the well wishes, everybody. Now lets concentrate on finding a good strategy.

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  #4954 (permalink)
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VIX FRENZY - a recap of the moving pieces on Monday, August 24

30-Minute VIX Frenzy Exposes Obsession With Volatility Hedging - Bloomberg Business

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  #4955 (permalink)
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ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

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  #4956 (permalink)
Trading Apprentice
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Question please.


ron99 View Post
ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

First, thanks for starting this thread and doing the webinar. I think it is great on both accounts.

Please forgive me if this is a naive question. I did not want to bother unless I had something
to contribute, unfortunately I do not yet. With that said, your post requires me to ask a question however.

When you say we are to volatile for equities is that because of the danger of a margin call?

Using today as an example. If you sold 1620 puts expiring in 17 days when we were falling for $4.10,
is the danger more about the margin then ending in the money?

Please only answer if you are in the mood and have the time.

Thanks again...

PS I did take a draw-down as well as others. I could of minimized it more if I would have exercised
discipline and took my stop when I should have. I will next time...

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  #4957 (permalink)
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ron99 View Post
ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

After exiting my CL position on Monday I have not sold anymore Options until the premium price reflects the risk that I am taking on. I looked at CL option chain yesterday and I felt it was still 2 low after such large moves in CL (biggest 3 consecutive days up in 25 years)

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  #4958 (permalink)
Market Wizard
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LordV View Post
First, thanks for starting this thread and doing the webinar. I think it is great on both accounts.

Please forgive me if this is a naive question. I did not want to bother unless I had something
to contribute, unfortunately I do not yet. With that said, your post requires me to ask a question however.

When you say we are to volatile for equities is that because of the danger of a margin call?

Using today as an example. If you sold 1620 puts expiring in 17 days when we were falling for $4.10,
is the danger more about the margin then ending in the money?

Please only answer if you are in the mood and have the time.

Thanks again...

PS I did take a draw-down as well as others. I could of minimized it more if I would have exercised
discipline and took my stop when I should have. I will next time...

Yes the main concern when selling far OTM options is being forced out of a position because of a margin call. If you are far enough out your strike rarely will go ITM.

Here is what that option has done lately.

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The option went from $35 to $905 in two trading days. IM went from 331 to 1462 in two days.

Of course as the option gets closer to expiration the less it will move in both premium and IM because there are less days for the option to become ITM. I haven't studied it enough to know the sweet spot.

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  #4959 (permalink)
Market Wizard
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ron99 View Post
ES moved 5.08% on Aug 24th. Biggest move since 2011.

CL has moved
+10.26%
+6.25%
+8.80%
-7.70%

the last 4 days in a row. Far bigger moves than ES.

I hope everyone realizes that equities and liquid energies are far too volatile right now to be selling options.

Another way of putting these moves in context.

Quoting 
Front-month Brent crude futures rose by more than 10 percent on Thursday, 5 percent on Friday and 8 percent on Monday, before plunging by more than 8 percent on Tuesday.

To put that in context, the percentage daily price movements were 4.6 standard deviations away from the mean on Thursday, 2.4 standard deviations on Friday, 3.7 on Monday and 3.8 on Tuesday.

If price changes followed a normal distribution, a move of 3.5 standard deviations should occur only once every eight years and a move of greater than 4.5 standard deviations should happen once every six centuries.

COLUMN-Oil market takes a walk on the wild side (again): Kemp | Reuters

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  #4960 (permalink)
Market Wizard
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Favorite Futures: Options on Futures
 
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I was trying to find a combination of short and long calls that wouldn't blow up your account when Dec Corn went from 3.6875 on 6/19/15 to 4.5175 on 7/13/15. A 22.5% increase. (the 10.9% decrease in ES last month wasn't even half of that)

Well I can't find any. I tried short dec long dec. I tried short dec long sep. I tried short sep long sep. I tried short sep long aug. (oct wasn't trading on 6/19). I tried different quantities of longs.

Next I will try this for CL.

EDIT Same thing for CL. I tried to cover the 6/30/15 to 8/24/15 drop from 59.47 to 38.24. Not happening. But I was able to cover the 7.82 drop, 13.1%, in first 5 trading days. 76% was highest percent of balance used for IM in those 5 days but it did have a 52% draw down.

So the lesson is we can protect against a flash crash (V shaped) but you still need to be correct about long term moves.


Last edited by ron99; September 2nd, 2015 at 04:25 PM.
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