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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,638 / 5,734
Last Reply:10 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old August 5th, 2016, 12:57 AM   #5511 (permalink)
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rsm005 View Post
Let's talk about exits for a sec.


Based on how the discussion has been going over the past few posts I wanted to see if there has been any additional thought given to exiting a position when it moves against you. Since most of us have not moved to or are considering moving to much higher margin excesses, in my case 9x-12x and with Ron maybe 6x or more, how has that affected your exit or roll strategy?

For me I'm thinking of rolling out when the market hits 1 standard deviation or earlier...perhaps when it breaks a major technical Resistance line. Does anyone have other thoughts to add?

Thanks,
/rsm005/

* If you use 9-12x IM cushion why you need to do any additional move (like stop or roll)? For my calculation with such margin excess you can suffer any ES move from 2013.
* What is your % profit using 9-12 X IM?

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Old August 6th, 2016, 12:24 PM   #5512 (permalink)
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rsm005 View Post
Let's talk about exits for a sec.


Based on how the discussion has been going over the past few posts I wanted to see if there has been any additional thought given to exiting a position when it moves against you. Since most of us have not moved to or are considering moving to much higher margin excesses, in my case 9x-12x and with Ron maybe 6x or more, how has that affected your exit or roll strategy?

For me I'm thinking of rolling out when the market hits 1 standard deviation or earlier...perhaps when it breaks a major technical Resistance line. Does anyone have other thoughts to add?

Thanks,
/rsm005/

How far OTM is your short option?

Here is my table from earlier with projected 300-500 drops. I changed the margin factor to 10x. My short was 416 OTM.

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On 8/24/15, even if futures had dropped 500 in 7 days and you were forced to exit, your loss would only have been 37.5%. The actual drawdown on 8/24/15 would have been 12.8% but if you held on you would have made a profit on that spread.

At 53 DTE in Sep your actual max drawdown was just 13.5%.

Unfortunately, I don't know if those spreads would have been on margin call and if you would have been forced out.

Answering @uuu1965 question. If you entered the EW3X6p1700p1450(2) spread on Aug 1, 2016 using 10x, the monthly ROI if you exited at 50% drop in premium at 30 days held would have been 1.6%. That is a 21% yearly ROI.

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Old August 6th, 2016, 12:57 PM   #5513 (permalink)
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rsm005 View Post
Let's talk about exits for a sec.


Based on how the discussion has been going over the past few posts I wanted to see if there has been any additional thought given to exiting a position when it moves against you. Since most of us have not moved to or are considering moving to much higher margin excesses, in my case 9x-12x and with Ron maybe 6x or more, how has that affected your exit or roll strategy?

For me I'm thinking of rolling out when the market hits 1 standard deviation or earlier...perhaps when it breaks a major technical Resistance line. Does anyone have other thoughts to add?

Thanks,
/rsm005/

Here is a strategy to consider. On 8/17/15 ES futures were 2091. By Thu 8/20/15 they had dropped to 2017. That's a 74 drop in 3 days. If you wanted some protection if it dropped further you could buy one more long put. Let's say on 8/20/15 you bought a ESx5p1500 for 2.50 or $125.

On 8/24/15 that 1500 put settled at 22.40. Up almost $1,000. That would easily have covered your loss on your spread and made you a good profit if you exited either just the extra long or the spread too. But even if you waited another week to 8/31/15 to make sure the crash was over, the extra long was still up $375.

IM on just the ESx5p1675p1440(2) on 8/17/15 was 308. On 8/24/15 it was 990. With the extra 1500 long, IM on 8/24/15 IM would have been 518.

Now if futures had immediately risen the days after you bought the extra long your max loss on that extra position would have been $125. But I am assuming that you figured out long before expiration that the extra long wasn't needed and got out. So then your loss would have been maybe $50? Yes, it made for a small loss on your spread ($25?) plus this extra long, but if you hit big on one of these extra longs, that would make up for a lot of small losses. Plus it would have prevented a large loss.

Thinking out loud here. Any holes in my theory? Or is it just perfect hindsight theory that wouldn't work in future?

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Old August 6th, 2016, 01:02 PM   #5514 (permalink)
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I so like bouncing ideas off of other posters here. Having multiple people checking out my ideas helps find flaws in them. I have learned a lot from you and you have helped my trading immensely. Thanks.

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Old August 10th, 2016, 02:15 AM   #5515 (permalink)
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ron99 View Post
Here is a strategy to consider. On 8/17/15 ES futures were 2091. By Thu 8/20/15 they had dropped to 2017. That's a 74 drop in 3 days. If you wanted some protection if it dropped further you could buy one more long put. Let's say on 8/20/15 you bought a ESx5p1500 for 2.50 or $125.

On 8/24/15 that 1500 put settled at 22.40. Up almost $1,000. That would easily have covered your loss on your spread and made you a good profit if you exited either just the extra long or the spread too. But even if you waited another week to 8/31/15 to make sure the crash was over, the extra long was still up $375.

IM on just the ESx5p1675p1440(2) on 8/17/15 was 308. On 8/24/15 it was 990. With the extra 1500 long, IM on 8/24/15 IM would have been 518.

Now if futures had immediately risen the days after you bought the extra long your max loss on that extra position would have been $125. But I am assuming that you figured out long before expiration that the extra long wasn't needed and got out. So then your loss would have been maybe $50? Yes, it made for a small loss on your spread ($25?) plus this extra long, but if you hit big on one of these extra longs, that would make up for a lot of small losses. Plus it would have prevented a large loss.

Thinking out loud here. Any holes in my theory? Or is it just perfect hindsight theory that wouldn't work in future?


Ron,

This is what I ended up doing during the entire brexit fiasco. I bought 10 puts about 100pts out of the money expiring in 10 days. They were cheap but their value shot up almost 900% over night. I hung on to them and sold for the same money that I bought them a day or so later. Should have sold earlier but they did their job which was great. The issue is that anyone could have seen the Brexit coming and taking a precaution was just common sense but if you don't see a move coming doing something like what you're is saying makes a LOT of sense. My only question is this, why did you select 1500 as the strike, was it as simple as price or was there another factor, like delta? Why not something closer to the money that expires faster?

Thanks,
/rsm005/

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Old August 10th, 2016, 08:57 AM   #5516 (permalink)
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rsm005 View Post
Ron,

This is what I ended up doing during the entire brexit fiasco. I bought 10 puts about 100pts out of the money expiring in 10 days. They were cheap but their value shot up almost 900% over night. I hung on to them and sold for the same money that I bought them a day or so later. Should have sold earlier but they did their job which was great. The issue is that anyone could have seen the Brexit coming and taking a precaution was just common sense but if you don't see a move coming doing something like what you're is saying makes a LOT of sense. My only question is this, why did you select 1500 as the strike, was it as simple as price or was there another factor, like delta? Why not something closer to the money that expires faster?

Thanks,
/rsm005/

Yes it was price. I wanted to only spend $125 per long. That way if prices went higher I didn't loose too much money.

I suggested putting them on at that DTE for two reasons. One, was it would have less price decay if prices didn't crash than an option with less DTE. Two, was I didn't know how long I would need them. And as it turned out I did need them 30 days later. Of course you could have also put them on for a short time and then got out and then put them on again later.

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Old August 10th, 2016, 10:41 AM   #5517 (permalink)
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Hedge based on short option delta rise


ron99 View Post
Yes it was price. I wanted to only spend $125 per long. That way if prices went higher I didn't loose too much money.

I suggested putting them on at that DTE for two reasons. One, was it would have less price decay if prices didn't crash than an option with less DTE. Two, was I didn't know how long I would need them. And as it turned out I did need them 30 days later. Of course you could have also put them on for a short time and then got out and then put them on again later.

Hi Ron,
I have read about a technique on CBOE on iron condors in which based on rise is short option delta by say 10 from the day of the start, it is recommended to buy not- far- OTM same month option to reduce total position delta by half. When the short option delta returns to original value, the hedge can be sold. Perhaps, same approach can be used here.

Dilip

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Old August 11th, 2016, 12:08 PM   #5518 (permalink)
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I so like bouncing ideas off of other posters here. Having multiple people checking out my ideas helps find flaws in them. I have learned a lot from you and you have helped my trading immensely. Thanks.

My post isn`t direct to your strategy but however to the same topic: how to find the best strategy for options selling (in this case ES options).
After many studies I didn`t find any universal strategy for ES options selling (either too large cushion or too long days held ending with a loss) therefore I decide to focus to simple risk management (Money Management).

I just finish a big research for ES options selling from 20130102 till 20160810:
* Basic: put spread 1:2
* DTE: >90
* Enter: random and mechanically
* Short strike: 20% from ES price (thanks @ron99)
* Long strike: apr. 0.5 deltas x 2, just for IM reduction not for covering
* Exit: 50% premium drop
* Stop: 1/2 from profit, like @myrrdin (f.e., if a profit is calculated 100$, stop is 50$)

The last sheet of Excel is summary for 3,5 years trading.
The biggest surprise are the result of 2015: you can ending the year with profit having win/loss rate 16:18!
This research just show simple MM advantage. May be you need additional signal for enter: IV spike, ES % 1-2 days price drop etc.

Attached Files
Register to download File Type: xlsx ES ar MM1-2, 20%.xlsx (1.34 MB, 52 views)
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Old August 11th, 2016, 05:08 PM   #5519 (permalink)
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uuu1965 View Post
My post isn`t direct to your strategy but however to the same topic: how to find the best strategy for options selling (in this case ES options).
After many studies I didn`t find any universal strategy for ES options selling (either too large cushion or too long days held ending with a loss) therefore I decide to focus to simple risk management (Money Management).

I just finish a big research for ES options selling from 20130102 till 20160810:
* Basic: put spread 1:2
* DTE: >90
* Enter: random and mechanically
* Short strike: 20% from ES price (thanks @ron99)
* Long strike: apr. 0.5 deltas x 2, just for IM reduction not for covering
* Exit: 50% premium drop
* Stop: 1/2 from profit, like @myrrdin (f.e., if a profit is calculated 100$, stop is 50$)

The last sheet of Excel is summary for 3,5 years trading.
The biggest surprise are the result of 2015: you can ending the year with profit having win/loss rate 16:18!
This research just show simple MM advantage. May be you need additional signal for enter: IV spike, ES % 1-2 days price drop etc.

I know that took many hours to do.

Interesting having that low an exit point still allowed profit to be made yearly.

Did you subtract commissions and fees?

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Old August 11th, 2016, 10:34 PM   #5520 (permalink)
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ron99 View Post
I so like bouncing ideas off of other posters here. Having multiple people checking out my ideas helps find flaws in them. I have learned a lot from you and you have helped my trading immensely. Thanks.

And to you Ron. Excellent Thread, with some excellent analysis by you.

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