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Selling Options on Futures?
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Selling Options on Futures?

  #5381 (permalink)
Trading Apprentice
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Just finished reading all 538 pages. Thanks to @ron99 and all supporting cast for a really wonderfully gripping read. I hope to add something someday.

As an aside, @ron99 have you ever thought of starting a dairy thread? I know you said it would take many many pages to write down everything you know, but I, for one, and others I'd assume, would be interested in getting the skinny on all of your years of accumulated wisdom in the market. Just a thought.

Thanks again and happy trading everyone!

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  #5382 (permalink)
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Selling Options on Futures?


ron99 View Post



So what I am saying is that trying to predict the market, absent a strong fundamental reason or a strong seasonal tendency, is a waste of time.





probabilities, support and resistance, volume, internals, acquired skill etc etc.



Whatever one believes about the market is exactly what they will get from the market.



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Ron

It is an axiomatic fact that while you meditate you are speaking with your own spirit. In that state of mind you put certain questions to your spirit and the spirit answers: the light breaks forth and the reality is revealed.
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)

Last edited by Blash; May 24th, 2016 at 12:34 AM.
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  #5383 (permalink)
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woodward View Post
Just finished reading all 538 pages. Thanks to @ron99 and all supporting cast for a really wonderfully gripping read. I hope to add something someday.

As an aside, @ron99 have you ever thought of starting a dairy thread? I know you said it would take many many pages to write down everything you know, but I, for one, and others I'd assume, would be interested in getting the skinny on all of your years of accumulated wisdom in the market. Just a thought.

Thanks again and happy trading everyone!

Good job reading the whole thread.

I've thought about a dairy thread but as that commodity has started to be manipulated like many of the other markets, I don't recommend trading it.

This is all just rumor, but the very large (billions in sales) private company that supplies cheese to restaurants for cheeseburgers (17 of the top 20 in sales including McDonalds) has been manipulating the daily cash cheese market for barrel cheese (the kind used to make american cheese slices) to keep the prices far higher than you would expect so that they receive more for their cheese that they sell to the restaurants. They have even gone as far as threatening other companies telling them to not attempt to take cash cheese lower or they will cut them off from buying from them. They also sell cheese to the gov and that price is also set by the CME cash cheese auction.

Trying to trade something when that is going on is a money losing proposition.

The CME cash cheese market is a daily auction of cheese that only lasts from 2 to 10 minutes. Usually less than 10 semi loads (40,000 lbs each) of cheese trade a day. About 3 million pounds a month. But this sets the price for the 90-100 million pounds of cheese that is sold a month.

So with that small a volume somebody can easily manipulate the price.

Frustrating.

Reports in the last few days say that US milk production and US cheese inventories (+128 mil lbs over last year or +12%) are the highest in history, very bearish fundamentals, yet the CME cash cheese market went up the last 2 days.

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  #5384 (permalink)
Market Wizard
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I should say that the price of cheese makes up about 85% of the Class III price of milk futures. Butter and whey are the other components.

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  #5385 (permalink)
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Option Pricing

All,

I'm finding exiting a strangle to be a very annoying process, it's difficult to know exactly how much profit I'm going to pull out of a trade because of the way the long position decays. With that said, I'm wondering if it's possible to know the price of one option by simply knowing the price of another. For example

I sell to open a p1600 for $8
I buy to open a p1300 for $3

If the p1600 drops to $4 in 20 days, what will the price of the p1300 be? Is there a way to know this before entering a trade?

Thanks
/akr/

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  #5386 (permalink)
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rsm005 View Post
All,

I'm finding exiting a strangle to be a very annoying process, it's difficult to know exactly how much profit I'm going to pull out of a trade because of the way the long position decays. With that said, I'm wondering if it's possible to know the price of one option by simply knowing the price of another. For example

I sell to open a p1600 for $8
I buy to open a p1300 for $3

If the p1600 drops to $4 in 20 days, what will the price of the p1300 be? Is there a way to know this before entering a trade?

Thanks
/akr/

Not exactly, but approximately yes.

An option price is a function of the Strike Price, Underlying Price, Volatility, Time to Expiry & Interest Rate (& for Stocks the Dividend Rate).

In your example of the 1600P & 1300P, 4 of these 5 are the same for each option. The only one that differs is Volatility, and even that is very similar, and in many occurrences highly correlated.

It is actually very easy to calculate what we call the option greeks, which will give you an indication how much the option price will change due to a change in one of those 5 pricing factors.
  • Delta - Tells you how much the price will change based upon a change in the Underlying
  • Vega - Tells you how much the price will change based upon a change in the Volatility
  • Theta - Tells you how much the price will change based upon moving a day closer to expiry
  • Rho - Tells you how much the price will change based upon a change in Interest Rates. But this is normally tiny and normally ignored for anything but the largest portfolio's.
So by comparing the delta of a 1600P with the delta of a 1300P you can estimate how much each should move in relation to each other, based upon a change in the underlying price.

I have a simple spreadsheet with all the models on my laptop which I will try and remember to post latter. I also have all the functions programmed up in R, so PM me if you want them.

Option pricing can be a very complicated subject, but the simplest pricing model is a Black Scholes model, and this wikipedia article does a decent job of explaining it.

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  #5387 (permalink)
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rsm005 View Post
All,

..

I sell to open a p1600 for $8
I buy to open a p1300 for $3

If the p1600 drops to $4 in 20 days, what will the price of the p1300 be? Is there a way to know this before entering a trade?

Thanks
/akr/

To get an idea, where the price of the option will be (under the same circumstances as today), I am looking at the option chain at the same strikes, but earlier dates, f.e.

Sep 16th P 1600 is right now about 4.30-4.60 $, what will it be in about 30 days?
I will look at the Aug 19th P 1600 which is about 2.25 - 2.45 $. So the Sep 16th P 1600 will loose about 2 $

Or another example, nearer at your numbers:
Sell to open Oct 21th P 1600 for 8$
Buy to open Oct 21th P 1300 for 2.15$

Compared to
Sell to open Sep 30th P 1600 for 6 $
Buy to open Sep 30th P 1300 for 1.50 $

So the premium will be about 8-2.15= 5.85 compared to 6-1.50=4.50


Last edited by satghost; June 1st, 2016 at 04:53 AM.
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  #5388 (permalink)
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Karen The Supertrader

Bad days for Karen the Supertrader...

https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf

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  #5389 (permalink)
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kevinkdog View Post

Quite a mess. I am surprised. (Well maybe not!)

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  #5390 (permalink)
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kevinkdog View Post

Here is an article with statements from Karen.

Feds: Brentwood firm schemed to gain millions in ill-gotten fees

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