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Selling Options on Futures?
Started: by ron99 Views / Replies:608,449 / 5,866
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Selling Options on Futures?

  #5261 (permalink)
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Can't make heads or tails of what's going on in this market. For every 1 group that says buy there's another that says sell, I'm looking at you JP Morgan & Goldman Sachs. As of tonight the Chinese have confirmed the PMI was a miss, Russia's call for a meeting on oil prices was rebuffed, and the Iranians won't look to mange pumping.

Although the VIX is down, not sure what to make of that. I'm open to thoughts.

/rsm005/

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  #5262 (permalink)
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rsm005 View Post
Can't make heads or tails of what's going on in this market. For every 1 group that says buy there's another that says sell, I'm looking at you JP Morgan & Goldman Sachs. As of tonight the Chinese have confirmed the PMI was a miss, Russia's call for a meeting on oil prices was rebuffed, and the Iranians won't look to mange pumping.

Although the VIX is down, not sure what to make of that. I'm open to thoughts.

/rsm005/

If it was easy we would be billionaires!

In my opinion there is always some doom and gloom in the media. I don't think we are at the the type of doom and gloom of 2008 and I don't think we are in a recession (going by the official method of calculating a recession). I could give my opinion of where I think the markets will go in 2016 but it would just be my opinion so it wouldn't be worth much and I wouldn't want people making decisions based on my opinions.

I do know premiums are up though. I sold a bunch of puts when we were in the 1800's

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  #5263 (permalink)
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rsm005 View Post
Can't make heads or tails of what's going on in this market. For every 1 group that says buy there's another that says sell, I'm looking at you JP Morgan & Goldman Sachs. As of tonight the Chinese have confirmed the PMI was a miss, Russia's call for a meeting on oil prices was rebuffed, and the Iranians won't look to mange pumping.

Although the VIX is down, not sure what to make of that. I'm open to thoughts.

/rsm005/

When markets are like this then that is the time to either sell very lightly or not at all.

Or move to non-volatile commodities. But I don't know if there are any out there right now. Even Cocoa has been crazy lately.

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  #5264 (permalink)
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ron99 View Post
When markets are like this then that is the time to either sell very lightly or not at all.

Or move to non-volatile commodities. But I don't know if there are any out there right now. Even Cocoa has been crazy lately.

There are commodities with a relatively low volatility, eg. grains & beans. But you have to select strikes rather close to the current price level to receive acceptable premium.

In my opinion the only way is to keep lot size (very) small, and to be very careful at which level to enter.

Best regards, Myrrdin

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  #5265 (permalink)
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Hi all. Thanks for the amazing contributions and idea-sharing @ron99 , @Dudetooth ; @myrrdin, @jokertrader and many others (sorry for those who I missed!) who've made this thread possible.

I've been lurking around on this thread for a couple of months now, ever since I came across and read through the Cordier book and really love this thread and the diversified portfolio options selling thread.

I like the strategy regarding the spread and ratio-spreads selling discussed here, and it does seem like a relatively "conservative" way of selling premium. I've been selling option spreads on equity indices over the last year, so I'm still very new to the concepts. Unfortunately enough, I only tested the strategy from Mar-June, and while it worked, I ran into Aug-Oct time period and it eroded away all of my gains. I haven't been in any positions since late Nov though, given the extreme volatility and no clear bottom in sight.

I'm going through the steps illustrated by dudetooth and ron99 for running the simulations, but haven't completely done this, but was wondering if anyone's considered this (spinoff from ron's strategy of -1/+2 puts for net 3 delta shorting:
1. Sell 1 ~6 delta 90 days out.
2. Buy 2 ~1.5delta 60 days out.

OR:
1. Sell 1 ~6delta 90 days out
2. Buy 2 ~2.5delta 30 days out.
If reach a pre-set exit premium in 30 days, great, otherwise buy another 2 2.5delta 30 days out again.

I am thinking (and looking at some quick quotes) since closer expiration, a higher (2.5) delta would probably cost less than a slightly longer expiration 1.5delta.

Idea being, that given the proximity of expiration, a sudden downward move (on which we seek protection) would increase the value of our long positions more than it would increase the value of out short position, mainly because of the closer expiration on the long positions. In essense, my contention is that this would fare slightly better against drops such as those we saw in week 3/4 of Dec'15 (esp 19th-24th).

Its essentially the same strategy as ron99, rsm, jokertrader, myrrdin, Warren and so many others helped get to fruition. My contention, however, is that: Given a lot of talk about fundamentals back in Aug-Oct timeframe and paying attention to fundamentals, it does seem like while there may be a bit more volatility short-term, over a slightly longer period. If we are to trust underlying fundamentals, its difficult to justify (at current earning levels despite some missed earnings) a ES end of 2016 trading below 1900, but recent volatility spikes are what we want to protect ourselves against.

I havent fully figured the spreadsheet by dudetooth and ron's edits but will try to run a simulation over the coming few days to see if numbers agree with the hypothesis. In the meantime, I'd greatly appreciate if any of you experienced folks have a different take on expected outcome from the strategy.

Thanks again and looking forward to responses!

Cheers
Yash


Last edited by ys91; February 1st, 2016 at 06:45 PM.
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  #5266 (permalink)
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ys91 View Post

I'm going through the steps illustrated by dudetooth and ron99 for running the simulations, but haven't completely done this, but was wondering if anyone's considered this (spinoff from ron's strategy of -1/+2 puts for net 3 delta shorting:
1. Sell 1 ~6 delta 90 days out.
2. Buy 2 ~1.5delta 60 days out.

OR:
1. Sell 1 ~6delta 90 days out
2. Buy 2 ~2.5delta 30 days out.
If reach a pre-set exit premium in 30 days, great, otherwise buy another 2 2.5delta 30 days out again.

You have to be aware that the options with 30 days out do not give meaningful protection for 30 days. If prices move sidewards delta will be reduced faster than for the short options 90 days out.

I also trade ratio spreads from time to time, but I choose the long options for the same expiry month than the short options. Often I prefer to sell naked options, but to reduce number of the short options significantly.

Best regards, Myrrdin

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  #5267 (permalink)
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I would suggest start using the excel file

For backtesting, this is better than many of the tools out there..

Ron has an excellent post with instructions on using this spreadsheet (sometime near Christmas/New Year timeframe). Please download the files and start testing this and you wll get your own answers.

I am still learning playing around with the spreadsheet hence my suggestion is trying it yourself

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  #5268 (permalink)
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jokertrader View Post
For backtesting, this is better than many of the tools out there..

Ron has an excellent post with instructions on using this spreadsheet (sometime near Christmas/New Year timeframe).

Starting with this post (5145)
https://futures.io/options-futures/12309-selling-options-futures-515.html#post545480
are the explanations of how to setup and use the spreadsheet.


Please download the files and start testing this and you wll get your own answers.

I am still learning playing around with the spreadsheet hence my suggestion is trying it yourself

.

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  #5269 (permalink)
Market Wizard
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Welcome Yash.

When I find some time I will give you a detailed answer to your questions.

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  #5270 (permalink)
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User defined Futures option spreads and Exchange traded option spreads


I was told today by CQG that their platform does not allow to trade exchange traded option spreads.. so the spreads that like the CME provides on calendars, butterfly's etc

So then I thought all the future option spreads we trade are user defined especially with retail platforms like TOS, IB TWS, OEC (Gain) - correct?
Where we put in the 2 options ourselves and create a spread?

Anyone trading the exchange traded option spreads? and what platform? I know i can see them on my xtrader Pro

any comments.. was like a A ha moment for me

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