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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,237 / 5,727
Last Reply:December 2nd, 2016 (12:40 PM) Attachments:642

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Selling Options on Futures?

Old July 5th, 2016, 11:46 AM   #5481 (permalink)
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@ron99

Great thread - thanks for sharing your ideas and research!

I just have a simple question about this strategy "80% short+ 100 long." I am correct that the usage of "100" is simply a function of the price of the ES today. Could we equate this protection value to a % of the underlying for when if might trade at 1500 or 2500?

Harry

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Old July 5th, 2016, 12:09 PM   #5482 (permalink)
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GoldenRatio View Post
@ron99

Great thread - thanks for sharing your ideas and research!

I just have a simple question about this strategy "80% short+ 100 long." I am correct that the usage of "100" is simply a function of the price of the ES today. Could we equate this protection value to a % of the underlying for when if might trade at 1500 or 2500?

Harry

I am using 100 to limit possible loss. So if you increase it from 100 you are increasing possible loss. I don't want to do that.

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Old July 5th, 2016, 01:46 PM   #5483 (permalink)
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ron99 View Post
I am using 100 to limit possible loss. So if you increase it from 100 you are increasing possible loss. I don't want to do that.

I understand.

Still (to me at least) interesting to ponder how the $100 spread credits will be different (if all else being the same) if the underlying was trading at different strikes. Meaning selling a put 20% below underlying trading at 2500 (with a $100 spread for protection) will yield a different credit than selling at put 20% below underlying trading at 1500 (with a $100 spread for protection.)

This implies the underlying strike will impact ROI vs. traditional protection strike if I understand correctly?

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Old July 5th, 2016, 02:10 PM   #5484 (permalink)
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GoldenRatio View Post
I understand.

Still (to me at least) interesting to ponder how the $100 spread credits will be different (if all else being the same) if the underlying was trading at different strikes. Meaning selling a put 20% below underlying trading at 2500 (with a $100 spread for protection) will yield a different credit than selling at put 20% below underlying trading at 1500 (with a $100 spread for protection.)

This implies the underlying strike will impact ROI vs. traditional protection strike if I understand correctly?

The spreadsheet in this post https://futures.io/options-futures/12309-selling-options-futures-544.html#post580592 has a study started Jan 2013 when futures were 1450 using the -100 long.

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Old July 8th, 2016, 02:22 PM   #5485 (permalink)
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Futures Edge on FIO

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I was considering a more aggressive short options strategy where you would sell an option with a 0.25 delta and then use stop order on the futures contract set at the strike price. That way you create a covered call or covered put but only when the futures price crosses the strike price.

I have a question though about something I am not entirely sure. Is it possible to use a stop order to initiate a position on a futures contract? Thank you for your reply.

Never mind I googled to find the answer to my question. But any comments on the potential of this strategy would be welcome.


Last edited by elitecamper; July 8th, 2016 at 02:29 PM.
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Old July 8th, 2016, 02:29 PM   #5486 (permalink)
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elitecamper View Post
I was considering a more aggressive short options strategy where you would sell an option with a 0.25 delta and then use stop order on the futures contract set at the strike price. That way you create a covered call or covered put but only when the futures price crosses the strike price.

I have a question though about something I am not entirely sure. Is it possible to use a stop order to initiate a position on a futures contract? Thank you for your reply.

I'm curious to what your strategy will be if you get a futures contract and then the market immediately reverses so you are losing money on future contract.

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Old July 8th, 2016, 02:37 PM   #5487 (permalink)
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ron99 View Post
I'm curious to what your strategy will be if you get a futures contract and then the market immediately reverses so you are losing money on future contract.

Good point Ron but my strategy on the fly would be to take the premium and calculate the amount of ticks its worth and use that as another stop order for the futures contract you initiated. I guess its more work than doing the strategy with strike prices further away from the money and leaving it alone but I am just trying to find a way to make sure I don't give any premium gained back. But maybe I am making it more complicated than it needs to be. Thanks for your response.

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Old July 8th, 2016, 02:41 PM   #5488 (permalink)
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Good point Ron but my strategy on the fly would be to take the premium and calculate the amount of ticks its worth and use that as another stop order for the futures contract you initiated. I guess its more work than doing the strategy with strike prices further away from the money and leaving it alone but I am just trying to find a way to make sure I don't give any premium gained back. But maybe I am making it more complicated than it needs to be. Thanks for your response.

I previously thought about what you suggested but could never come up with a way to protect myself from futures moving below then above then below then above option strike.

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Old July 8th, 2016, 02:48 PM   #5489 (permalink)
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ron99 View Post
I previously thought about what you suggested but could never come up with a way to protect myself from futures moving below then above then below then above option strike.

Yes your right Ron. It would take a very hands on approach. Or possibly only through automation doing the two stop orders and then exit and protecting further losses. Anyhow, thank you for considering the idea. I will continue reading your thread to continue learning. Have a good day Ron.

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Old July 8th, 2016, 07:51 PM   #5490 (permalink)
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elitecamper View Post
Yes your right Ron. It would take a very hands on approach. Or possibly only through automation doing the two stop orders and then exit and protecting further losses. Anyhow, thank you for considering the idea. I will continue reading your thread to continue learning. Have a good day Ron.

This would only work in a trend breakout. During range-bound markets (most common mode) you would constantly be getting stopped in/out of positions and would end up losing money on commissions and spreads. Perhaps if you were a hft market maker where you were the bid/ask in the futs and received rebates for liquidity provision but imo that's the only way it 'might' work.

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