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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,022 / 5,727
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Selling Options on Futures?

Old October 21st, 2015, 11:25 AM   #5091 (permalink)
Market Wizard
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datahogg View Post
Probably each person has different ways of viewing risk. Since the sell off in August I have required initially for positions that the ratio of (Vega/Theta) be <= 2.0 with some exceptions. This reduces the DTE to
40 - 45 days. This is at variance with previous positions, but some positions with large DTE have a (Vega/Theta) of
30 or more. To me this ratio implies a very high sell off risk.

Ohhhh Options Theory... This is one of the things I really miss about working on a trading desk, conversations like this... and I am now probably very (very) rusty.

With all else equal, longer dated options have greater Vega but lower Theta than shorter dated ones. Hence as DTE increases Vega/Theta increases as well. Note that this is a function of time rather than risk, although of course there is obviously more risk the longer you have a position on. Of course the corollary to this is that volatility moves a lot less for longer dated options than short ones (ignoring things like seasonality, ie March NG etc), while a day of decay is a day no matter what the term of the option. So while longer dated options do have higher Vega/Theta ratios, the fact that volatility moves less means in real life practice they may have lower ones.

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Old October 22nd, 2015, 11:24 PM   #5092 (permalink)
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Earlier in this thread I posted a table. I found out it has errors in it. Here is the corrected table.

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Old October 23rd, 2015, 03:26 AM   #5093 (permalink)
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ron99 View Post
Earlier in this thread I posted a table. I found out it has errors in it. Here is the corrected table.

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To me it looks like it would be best to exit at 60 % (= value of the options at exit is 40 % of the original value). Profit per day is the same as at 50 %, but commission, fees and slippage is lower due to the longer holding time.

Do I interprete your figures correctly ?

Best regards, Myrrdin

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Old October 23rd, 2015, 07:27 AM   #5094 (permalink)
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myrrdin View Post
To me it looks like it would be best to exit at 60 % (= value of the options at exit is 40 % of the original value). Profit per day is the same as at 50 %, but commission, fees and slippage is lower due to the longer holding time.

Do I interprete your figures correctly ?

Best regards, Myrrdin

Be careful with the interpretation of the average values.

Each line of the table is showing, after how many days an option sold at 90 DTE will reach the given MROI percentage and will give you the MROI in percent. But you need to look at each line independently from the others.

BUT:
This means, there are times, when you will not be invested and times when you will hold more than only one position.

F.e. the ESJ4 position
20140117 ESJ4 sold
for MROI 30 % this means, you exit the trade after 25 days and wait till Feb 14 for the next one
for MROI 60 % 39 days
for MROI 75 % 49 days
20140214 ESK4 sold, no mather if ESJ4 is closed or still open

For MROI 60 and 70, there will be 2 open trades overlap a few days.

Or the first position:
ESX3
for MROI 30 it means in 7 days 8.7%, or 40 $ for the whole month
for MROI 50 it means in 25 days 4.4%, or 72 $ for the whole month
for MROI 60 it means in 26 days 5.1%, or 82 $ for the whole month
for MROI 75 it means in 33 days 5.1%, or 103 $ for the whole month (in this example, even 75 would not overlap trades)
I say "whole month" because the next trade will start about 30 days after the previous one.

So from the total premium collected the MROI 75 would be the best for the ESX3 trade.
But this is only for this trade!

To get more general suggestions, you need to look at the prereqs.

I am looking more for contigous trades, no entry points fixed on dates. Maybe switching to the next option instead of waiting till 90 DTE will increase the collected premium ... But at which MROI percentage.

I am trying to get the historical option premiums as suggested by Ron, then I will try backtesting it.

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Old October 23rd, 2015, 09:31 AM   #5095 (permalink)
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Futures Edge on FIO
I prefer to sell further options, when the value of all puts in this program has decreased to about 90 % of the target value. Thus, I am always fully invested. Additionally, in the portfolio there are a lot of different options with different exit points, thus, reducing cluster risk.

The procedure is described in thread "Diversified Option Selling portfolio"on 20th of October:

https://futures.io/options-cfd-trading/36932-diversified-option-selling-portfolio.html

Best regards, Myrrdin

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Old October 23rd, 2015, 10:13 AM   #5096 (permalink)
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If you remove the outlier numbers for the ESF5 contract (it hit exit point at 4 days) you get these averages.

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This study was not done to be a years long strategy. It was only to find the best exit point for ES for this time period.

Attached Files
Register to download File Type: xlsx ES MROI.xlsx (501.8 KB, 9 views)
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Old October 23rd, 2015, 10:27 AM   #5097 (permalink)
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@satghost I have already posted studies that didn't use a fixed entry point in this thread.

Here is the first study. Read the thread from here through end of August to see other studies.

https://futures.io/options-cfd-trading/12309-selling-options-futures-439.html#post500334

Here is one for spreads.
https://futures.io/options-cfd-trading/12309-selling-options-futures-468.html#post509731

Someday when I find the time I will do a long term study using my 5.00 delta short with two 1.5 delta longs.

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Old October 23rd, 2015, 10:53 AM   #5098 (permalink)
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@ron99
I appreciate your work. I do not want to criticize the study, I think it gives very good hints.
I justed wanted to put my 0.02 cents in, because if someone is only looking at the average line, it could be misleading for a as myrrdin calls it "always fully invested" person.

I think it is difficult to answer his question, and it seems no one has tried it till now.

"To me it looks like it would be best to exit at 60 % (= value of the options at exit is 40 % of the original value). Profit per day is the same as at 50 %, but commission, fees and slippage is lower due to the longer holding time.

Do I interprete your figures correctly ?"


I will study the older pages from this thread on the weekend, thanks for the hint.

Thanks for your work.

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Old October 23rd, 2015, 11:12 AM   #5099 (permalink)
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satghost View Post
@ron99
I appreciate your work. I do not want to criticize the study, I think it gives very good hints.
I justed wanted to put my 0.02 cents in, because if someone is only looking at the average line, it could be misleading for a as myrrdin calls it "always fully invested" person.

I think it is difficult to answer his question, and it seems no one has tried it till now.

"To me it looks like it would be best to exit at 60 % (= value of the options at exit is 40 % of the original value). Profit per day is the same as at 50 %, but commission, fees and slippage is lower due to the longer holding time.

Do I interprete your figures correctly ?"


I will study the older pages from this thread on the weekend, thanks for the hint.

Thanks for your work.

You are correctly interpreting the study. The average line will not give you what your results would be if you traded this way. It was to find the best exit point. That can then be used to make your own strategy.

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Old October 24th, 2015, 04:26 PM   #5100 (permalink)
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Here is an updated long term study. It uses naked 3.00 delta options and exit at 50% drop. 7.00 RT costs.

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The account was doing well until 8/24/15.

Compare this to the next post.


Last edited by ron99; October 24th, 2015 at 04:34 PM.
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