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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,999 / 5,727
Last Reply:Yesterday (12:40 PM) Attachments:642

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Selling Options on Futures?

Old December 27th, 2015, 02:47 AM   #5161 (permalink)
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ron99 View Post
Your assumption is correct.

What contracts are in this table? It isn't the ones listed at the top of the table.
EDIT I found that they are Feb contracts not March contracts.

Your deltas to start for the spread were 4.97 for the short and 1.10 for each of the longs. That is too low a delta for the longs to give much coverage after several days. They are too far OTM.

If you use ESg6p1685 for the short with a delta of 5.97 and ESg6p1410 with a delta of 1.49 each for the longs that would give you better coverage and a better ROI.

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@ron99

Based on this does it make more sense to exit at 40%? I know it's been discussed before but not sure what your thoughts are now using this spread.

Thanks,
/rsm005/

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Old December 27th, 2015, 03:48 AM   #5162 (permalink)
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TOS can display delta upto 5 decimal places. See below.


rsm005 View Post
Ya..I'm noticing that very slight changes in delta have pretty dramatic impacts on performance. I have that posting of yours, #5021 permanently linked. I just keep running backtests using those numbers to check the results during various market phases. I used to have a spreadsheet that calculated a very accurate delta but can't find it anymore. TOS doesn't come close, their delta calculations stop at 1 decimal place...say 1.5, and OX is just as bad. I'll have to keep digging. If you have an addendum to this spreadsheet that calculates delta would you be comfortable sharing?

Thanks,
/rsm005/

Hi /rsm005/
For TOS, please click on 'Gear symbol with Setup' on top right corner. Choose, 'General' tab and 'Display'. Then choose from drop down menu for 'Decimal places for Greeks'.
Regards,
Dilip

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Old December 27th, 2015, 04:20 AM   #5163 (permalink)
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Drawdown Vs Number of trades



ron99 View Post
Attached is a spreadsheet with all of the raw data including Drawdowns.

I am now using a short with a 6.00 delta and two longs with 1.50 deltas each. Slightly different than this example.

If you exit a few times at 30-40% loss then you won't have much money left. Probably less than you started with.

Thanks, Ron for sharing your detailed worksheet. I can't express myself in words your generosity in spreading knowledge in this thread.
Based on your worksheet, I have quickly and roughly found the following. (I will look at Acc Balance later.)
% Drawdown No of trades
8 4
10 8
12 3
13 1
15 5
17 1
25 1
40 1 -> Could have exited with profit at 55% premium earlier. All other above-listed
drawdowns hit 50% premium later

They are not mutually exclusive eg one with 40% drawdown also has some of the other drawdowns.

From the above, I can conclude that it is safe to have drawdown limit of 25% as you would have hit it only twice for exiting at 50% premium. For 55% premium, you would hit it only once.
Does my analysis make any sense to you or anyone else?
By the way, you mentioned you now trade short at 6 delta. Any reason for this? Better premium for sure but how about drawdowns?
Regards,
Dilip

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Old December 27th, 2015, 10:04 AM   #5164 (permalink)
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ron99 View Post
Here's a trick I use to find options at a certain delta. It can also be used to find certain premiums or IMs too.

On the Tracker sheet put the Futures Month and Options Month on several lines
In the strike column for the first cell put in the lowest strike.
In the strike column in the next row below the one you just entered the lowest strike enter a formula that adds 10 to the row above it. So if the lowest strike is in cell D30 then the formula for cell D31 should be =D30+10
Copy this formula down in all cells below the row where you entered the lowest strike.
Highlight all of these rows in column A and then click on Track Select

Here is an example for the ESg6 contract and strikes 1300 to 1620 for the date 20151104. Delta in column P. If a line is blank then no delta or IM was calculated.

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At the risk of butting in, it may be a little easier to use the Scanner in the spreadsheet to find similar results. Granted, it isn't set up to grab the data by contract month, but by using the Min/Max DTE you can grab what ever contract(s) that fall in that range for the day you are scanning (you don't have to try to figure out that for Nov 4 that the contract with a DTE closest to 100 is ESG6).

Also, if you drop your Min Val to $10, increase your Max Delta to 50 and drop your Min ROI to 0% and you'll get the entire chain of OTM options. Do the same, but increase your Max Delta to 100 and you get the entire option chain.

I hope this helps.

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Old December 27th, 2015, 01:34 PM   #5165 (permalink)
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Futures Edge on FIO
Thanks Dudetooth! Your method gets all contracts where my method missed the strikes that ended with 25 or 75.

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Old December 27th, 2015, 01:44 PM   #5166 (permalink)
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rsm005 View Post
@ron99

Based on this does it make more sense to exit at 40%? I know it's been discussed before but not sure what your thoughts are now using this spread.

Thanks,
/rsm005/

It probably doesn't make much difference. If there is a report coming out or the trend looks to be changing then I would get out at 40% drop rather than waiting for 50%.

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Old December 27th, 2015, 02:04 PM   #5167 (permalink)
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dvbattul View Post
Thanks, Ron for sharing your detailed worksheet. I can't express myself in words your generosity in spreading knowledge in this thread.
Based on your worksheet, I have quickly and roughly found the following. (I will look at Acc Balance later.)
% Drawdown No of trades
8 4
10 8
12 3
13 1
15 5
17 1
25 1
40 1 -> Could have exited with profit at 55% premium earlier. All other above-listed
drawdowns hit 50% premium later

They are not mutually exclusive eg one with 40% drawdown also has some of the other drawdowns.

From the above, I can conclude that it is safe to have drawdown limit of 25% as you would have hit it only twice for exiting at 50% premium. For 55% premium, you would hit it only once.
Does my analysis make any sense to you or anyone else?
By the way, you mentioned you now trade short at 6 delta. Any reason for this? Better premium for sure but how about drawdowns?
Regards,
Dilip

Yes your analysis makes sense. But most of that research was done on an uptrending market. A market more like the current one that is trading with more volatility might give you a different answer.

6 delta on the short gives a better ROI. 5 delta on short is a little safer of a massive drop. (1.50 delta on longs)

For ES, to prevent blowing up on a day like 8/24/15, you want a short that is 5.00 to < 8.00. You want a net delta that is 2.00 to < 3.50. You want DTE >90 when entering the position and you need to be out by 60 DTE.

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Old December 30th, 2015, 08:20 PM   #5168 (permalink)
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Is it normal to have very low Open Interest for puts on ES at this time of year? I'm looking at positions from 90 - 120 days out and see very little out there.

Thanks
/rsm005/

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Old December 31st, 2015, 09:58 AM   #5169 (permalink)
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rsm005 View Post
Is it normal to have very low Open Interest for puts on ES at this time of year? I'm looking at positions from 90 - 120 days out and see very little out there.

Thanks
/rsm005/

The option months that don't correspond to the quarterly futures (Mar, Jun, Sep, Dec) will always have less OI. Yes volume and OI is lower at this time of year.

If you do try to trade the April options I would definitely only trade the most used ones like 1650, 1600, 1375.

Volume will pick up next year.

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Last edited by ron99; December 31st, 2015 at 11:40 AM.
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Old December 31st, 2015, 04:16 PM   #5170 (permalink)
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Clarification


Ron,

Thank you for all your excellent work.

I have been catching up on last couple of months postings, now that I have caught up, I have a follow up with the posting #5101 (page 511) where you have compared naked option selling Vs spread selling. In that posting, the loss with spread option strategy on 08/25/15 is -366 and overall loss is around -101,000 (brings ROI for the year to 47%). I am not sure how this compares to postings #5021 and #5023 (on page 503) where same spread settings (5 delta short and 2, 1.5 deltas long), gives 145 profit and did not cause margin call. With this observation, the recent posting (5101) should be okay with 08/24 and 08/25 massive drops, and should be profitable and not causing margin calls. right?

I just want to make sure I am not missing anything.

Thanks.

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