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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,720 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old October 24th, 2015, 04:33 PM   #5101 (permalink)
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Here is a long term study using one short 5.00 delta and two long 1.50 delta options same month as the short and exiting at 50% drop.

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It just missed hitting the 50% drop and exiting on 8/17/15 by 0.05. So 8/24/15 happened when the options were down to 52 DTE. They just went on margin call by 6%.

But even with that losing day the spreads are up 83.8% for the 2 1/2 year study. They are only down 6.7% for 2015. That is far better than the naked options.

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Old November 6th, 2015, 05:56 AM   #5102 (permalink)
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HE options trade question

On 11/03 I decided to create a bull call calendar spread on Lean Hogs (in the hope for quick short reverseal):
* HE G6 C 68 1.65 and HE Z5 +1.35 (120$ credit)
On 11/05 I closed:
* HE G6 C 68 + 0.825 and HE Z5 1 (70$ credit)
P/L = 190$ per position - commissions

I don't understood: how could this spread to bring a profit while HE futures continue to drop?

Any suggestions?

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Old November 6th, 2015, 11:05 AM   #5103 (permalink)
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uuu1965 View Post
On 11/03 I decided to create a bull call calendar spread on Lean Hogs (in the hope for quick short reverseal):
* HE G6 C 68 1.65 and HE Z5 +1.35 (120$ credit)
On 11/05 I closed:
* HE G6 C 68 + 0.825 and HE Z5 1 (70$ credit)
P/L = 190$ per position - commissions

I don't understood: how could this spread to bring a profit while HE futures continue to drop?

Any suggestions?

What option was the Z5?

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Old November 6th, 2015, 11:36 PM   #5104 (permalink)
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ron99 View Post
What option was the Z5?

Sorry,
HE Z5 C 61

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Old November 7th, 2015, 10:32 PM   #5105 (permalink)
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Ron's Backtesting of ES, 1 short+ 2 long options

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Hi Ron,
Thanks for your backtesting of new strategy of 1 short+ 2 longs with reference to your post #5101. This backtesting shows that it can work in spite of loss on 8/25/15 which can be absorbed by the profits of other trades to give your overall profit. I have a question regarding this loss in trade number 32 which is -366.
1. Is this loss when exit is based on the condition of New Margin+(New price- initial price) >= 3X IM or just exiting on 8/25 when price has moved too much?
2. Could you have exited earlier based on New Margin+(New price- initial price) >= 3X IM or there was no opportunity to exit earlier and it had to be exited on 8/25?
Regards.

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Old November 9th, 2015, 11:53 AM   #5106 (permalink)
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uuu1965 View Post
On 11/03 I decided to create a bull call calendar spread on Lean Hogs (in the hope for quick short reverseal):
* HE G6 C 68 1.65 and HE Z5 +1.35 (120$ credit)
On 11/05 I closed:
* HE G6 C 68 + 0.825 and HE Z5 1 (70$ credit)
P/L = 190$ per position - commissions

I don't understood: how could this spread to bring a profit while HE futures continue to drop?

Any suggestions?

It looks like you did an excellent job of getting filled on your trade.

On 11/03 you sold the 68 call for 1.65 but it settled at 1.25. A 0.40 difference. While your long you bought at 1.35 and it settled at 1.225. A 0.125 difference. The settlement for the spread was -0.025. So you were up 0.275 the first day's settlement.

On 11/05 you traded out of the spread at -0.175 while it settled at +0.025. A difference of 0.200.

The spread made $20 based on settlements but you made $190 because both days you traded at a better price than the settlement.

If you had entered this spread on 10/20 you would have lost a lot of money in 2 weeks. The value of your long decreased faster than the short. This is what you were expecting for your trade.

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Old November 9th, 2015, 12:04 PM   #5107 (permalink)
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dvbattul View Post
Hi Ron,
Thanks for your backtesting of new strategy of 1 short+ 2 longs with reference to your post #5101. This backtesting shows that it can work in spite of loss on 8/25/15 which can be absorbed by the profits of other trades to give your overall profit. I have a question regarding this loss in trade number 32 which is -366.
1. Is this loss when exit is based on the condition of New Margin+(New price- initial price) >= 3X IM or just exiting on 8/25 when price has moved too much?
2. Could you have exited earlier based on New Margin+(New price- initial price) >= 3X IM or there was no opportunity to exit earlier and it had to be exited on 8/25?
Regards.

1. It had to be exited on 8/25 because it was on margin call.

2. Sure you could have exited earlier but you had no idea earlier what futures were going to do. I followed the rules of the research for this study.

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Old November 10th, 2015, 12:14 PM   #5108 (permalink)
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The migration of options markets to the electronic screen for execution has increased in recent years, with over 50% of options now traded electronically. The use of Request for Quotes (RFQ) has played a key role in enabling that transition to occur by allowing traders to electronically execute multi-leg and hedged options strategies.

This is a video from the CME that explains how RFQs work and I thought it would be an educational for some:
*CME Article Chromeless Video Player v1

We at Optimus enabled the use of RFQs for CBT, CME, NYMEX, and COMEX.

Thank you.

Matt Zimberg
Optimus Futures

There is a substantial risk of loss in futures and options trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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Old November 12th, 2015, 01:50 PM   #5109 (permalink)
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I trade very few options (at least compared to futures), but I do use strategies and RFQs mostly for verticals and horizontals to roll positions.

Today I was looking to executing both a ES horizontal and a ES vertical+horizontal spread. The 2 way on the X2050/Z2050 call horizontal was 50 points wide, and the 2 way on the X2050/Z2100 vertical+horizontal call spread was 100 points wide. When you combine them the 2 way would be 150 points wide.

After reading @mattz post yesterday I decided to combine them into one structure (+2 X2050C, -1 Z2050C, -1 Z2100C). When I issued the RFQ I wasn't surprised to get a 2 way 125 points wide, encouraging you to trade the larger product but still maintaining their pound of flesh margin. What did surprise me though was that when I entered the order in the middle I was filled instantly. Examining the fill prices I was filled at the midpoint of each individual spread. Not sure if this was just luck on my behalf or something that maybe others can expect.

This also highlights that often there is hidden liquidity in quotes, (especially in markets where the 2 way is competing market makers) and just clicking on the bid or ask is a market makers dream.


Last edited by SMCJB; November 12th, 2015 at 02:19 PM. Reason: replaced XZ ZA ZB with X2050C, Z2050C & Z2100C to reduce confusion.
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Old November 12th, 2015, 02:02 PM   #5110 (permalink)
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SMCJB View Post
. Examining the fill prices I was filled at the midpoint of each individual spread. Not sure if this was just luck on my behalf or something that maybe others can expect.

This also highlights that often there is hidden liquidity in quotes, (especially in markets where the 2 way is competing market makers) and just clicking on the bid or ask is a market makers dream.

Not luck, but you went about it the smart way. IMHO, options are over priced for buyers and under priced for sellers, so the fact you have received the mid point just shows you are flexible the market makers could be on this.
Remember, many options are a hedging tool for grain operators, funds, refineries, and they pay "Ask" because they have a larger interest at play. As a speculator, you can be a lot more flexible and patient.

Thanks,
Matt
Optimus Futures

There is a substantial risk of loss in futures and options trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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