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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,534 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old September 6th, 2015, 06:49 AM   #4981 (permalink)
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Blash View Post
IMHO you should never ever buy options. If bullish sell puts if bearish sell calls. 75-80% of options expire worthless meaning you keep the premiums you collected upon shorting a put or call in most cases. Selling options puts time decay in your favor instead of against you as when buying. Yes naked short options in theory have unlimited risk but this just means you have to control risk yourself. Just like I'm sure you already do when you go long or short in the underlying. And in doing so you are granted very favorable probabilities by taking care of risk yourself.

Spreading options with short Ratio Credit Spreads (3:1) will increase your odds as well as.

Ron

From CBOE home page:
"Contrary to what many people think, the vast majority of options do not expire worthless. The facts are as follows: approximately 10% of options are exercised, from 55% to 60% of option positions are closed prior to expiration, and about 30% to 35% of options expire worthless. Note that 90% of options go unexercised, which is very different than expiring worthless. It should also be noted that this says nothing about profitability. Option positions closed prior to expiration may be profitable or unprofitable. Options that expire worthless may not be unprofitable if they were part of a strategy that involved other securities such as covered call writing. :
(Ask the Institute)

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Old September 6th, 2015, 10:26 AM   #4982 (permalink)
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uuu1965 View Post
From CBOE home page:
"Contrary to what many people think, the vast majority of options do not expire worthless. The facts are as follows: approximately 10% of options are exercised, from 55% to 60% of option positions are closed prior to expiration, and about 30% to 35% of options expire worthless. Note that 90% of options go unexercised, which is very different than expiring worthless. It should also be noted that this says nothing about profitability. Option positions closed prior to expiration may be profitable or unprofitable. Options that expire worthless may not be unprofitable if they were part of a strategy that involved other securities such as covered call writing. :
(Ask the Institute)

~10% exercised................................................check



90% are not exercised.......................................check



55% - 60% closed prior to expiration, one sells it off or buys it back (transfers to another trader)


30% - 35% expire worthless


Quoting 
the vast majority of options do not expire worthless

So the question is how do you let an option expire with value? Why would someone? (I'm being a bit facetious here with these 2 rhetorical questions). Time decay does the job for OTM options (the worthless category).

If the option is not exercised (90%) and is closed out (55%-60%) this just means a more savvy trader has unloaded it to another trader and now they have to deal with it. There is no closing it out in and of itself that makes it disappear. It's a contract and will run it's course. Again closing it means you buy it back or sell it off .......to someone else.

The option will end once its time is gone.

Ron

Doubt kills more dreams than failure ever will. Perfect: the enemy of Done. per·fec·tion·ist: ultimately one lacking self-confidence

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Buy Low And Sell High (read left to right or right to left....lol)
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Old September 6th, 2015, 11:32 AM   #4983 (permalink)
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Some months ago I started discussing a diversified option selling portfolio. Interest was limited as at this time Ron's concept of selling exclusively ES puts worked very successful. I profited myself from Ron's generous sharing his knowledge and experience - again, thanks a lot, Ron.

After the incident in August, there might be again more interest in diversification to reduce risk. Thus, I started a new thread "Diversified Option Selling Portfolio". I would like to discuss all issues regarding trading a diversified option selling portfolio, including all deltas and DTEs.

I am unable to include a link to this thread. If someone can give me advice, please let me know.

Best regards, Myrrdin

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Old September 6th, 2015, 12:59 PM   #4984 (permalink)
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myrrdin View Post
Some months ago I started discussing a diversified option selling portfolio. Interest was limited as at this time Ron's concept of selling exclusively ES puts worked very successful. I profited myself from Ron's generous sharing his knowledge and experience - again, thanks a lot, Ron.

After the incident in August, there might be again more interest in diversification to reduce risk. Thus, I started a new thread "Diversified Option Selling Portfolio". I would like to discuss all issues regarding trading a diversified option selling portfolio, including all deltas and DTEs.

I am unable to include a link to this thread. If someone can give me advice, please let me know.

Best regards, Myrrdin

Select that little Globe and Paper clip Icon under the smiley face and insert your link. (I will do it) https://futures.io/options-cfd-trading/36932-diversified-option-selling-portfolio.html#post519166

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Old September 6th, 2015, 03:12 PM   #4985 (permalink)
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Futures Edge on FIO
An update: Performance History | LJM Partners

You need to click on the Aggressive Strategy tab and then scroll down a bit to see table that contains individual months.

They were down 14% in August but remain up 11% on the year.

That *seems* decent and barring another plunge in price/a moonshot in IV, they might have a really good September.

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Old September 6th, 2015, 04:45 PM   #4986 (permalink)
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CafeGrande View Post
An update: Performance History | LJM Partners

You need to click on the Aggressive Strategy tab and then scroll down a bit to see table that contains individual months.

They were down 14% in August but remain up 11% on the year.

That *seems* decent and barring another plunge in price/a moonshot in IV, they might have a really good September.


That strategy lost -56% in Oct 2008. I hope they have modified it since then a that seems excessive

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Old September 6th, 2015, 05:08 PM   #4987 (permalink)
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Chubbly View Post
That strategy lost -56% in Oct 2008. I hope they have modified it since then a that seems excessive

Yeah, I don't know a lot about their strategy, but there are not a lot of firms with a narrow focus (mostly short S&P volatility) and easy to access results. At a glance, the Aggressive strategy results that surprise me are calendar years 2013 and 2014 - basically treading water.

Anyway, for newcomers to selling equity volatility, I think studying the performance charts and tables would be time well spent. It's been said here before, but there's a reason Wall Street doesn't have billion dollar mutual funds that sell options: most people/institutions will not tolerate the drawdowns.

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Old September 6th, 2015, 05:54 PM   #4988 (permalink)
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I do not advocate or endorse either of these 2 websites. I am merely posting for comparison.

I just did some quick searching around to see if I could find anyone else posting results that were selling options on the major index in 2008 to compare to the one CafeGrande posted. I have no way of verifying either website results.
Both posted about the same loss of -30% in Oct 2008 and they both did poorly in 2014 which isn't surprising as they seem to be following pretty much the same strategy. Both are newsletter/signal services. You could likely do better without paying them and by learning what you are doing which is more important than following signals blindly.

10PercentPerMonth.com

Return on Investment | Monthly Cash Thru Options

Edit - It also looks like LJM did poorly in 2014 on their 3 funds 2.35% 3.24% 0.98% which makes me wonder how much different their strategy is compared to these little newsletter guys...
FYI - S&P in 2014 was 13.69%


Last edited by Chubbly; September 6th, 2015 at 07:32 PM.
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Old September 6th, 2015, 06:17 PM   #4989 (permalink)
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Blash View Post
If the option is not exercised (90%) and is closed out (55%-60%) this just means a more savvy trader has unloaded it to another trader and now they have to deal with it. There is no closing it out in and of itself that makes it disappear. It's a contract and will run it's course. Again closing it means you buy it back or sell it off .......to someone else.

The option will end once its time is gone.

Ron

Not true. If the person on the other side of the trade is holding the position then the option does go away. That is what closed out means. Holders of opposite sides of the contract trade with each other to close their positions.

OI can go down before expiration.

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Old September 7th, 2015, 09:25 AM   #4990 (permalink)
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ron99 View Post
Not true. If the person on the other side of the trade is holding the position then the option does go away. That is what closed out means. Holders of opposite sides of the contract trade with each other to close their positions.

OI can go down before expiration.

Thank you kind sir @ron99. Very grateful for the education. Love futures.io (formerly BMT) and all of us helping each other out. And again a thanks to @Big Mike for making it all possible.
Spent a good part of the night studying offsetting or closing options.

Ron



"Regard man as a mine rich in gems of inestimable value. Education can, alone, cause it to reveal its treasures, and enable mankind to benefit therefrom."

Doubt kills more dreams than failure ever will. Perfect: the enemy of Done. per·fec·tion·ist: ultimately one lacking self-confidence

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Buy Low And Sell High (read left to right or right to left....lol)
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