Selling Options on Futures? (Page 557) - Options on Futures | futures.io
futures.io futures trading
 

Go Back   futures.io

> Futures Trading, News, Charts and Platforms > Traders Hideout > Options on Futures


Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,857 / 5,727
Last Reply:11 Hours Ago (12:40 PM) Attachments:642

Welcome to futures.io.

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.


You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike
     

Reply
 642  
 
Thread Tools Search this Thread

Selling Options on Futures?

Old August 24th, 2016, 02:51 PM   #5561 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,323 since Jul 2011
Thanks: 634 given, 3,901 received
Forum Reputation: Legendary


wxsim1 View Post
I enjoyed reading this thread, one of the best out there. I would like to know what other advantages the ES options futures has over SPX. SPX options also has the 1256 taxing.

"Tax Treatment under section 1256 of the Tax Code, profit and loss on transactions in certain exchange-traded options, including SPX and SPXpm, are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the Tax Code*"

(source: S&P 500 Index Options Introduction - SPX - CBOE)

thanks

Thanks

Number one advantage of ES over SPX is volume. Most of the SPX trades are done in the pit, not electronically, because of large traders needing large volume.

Reply With Quote
     
The following 3 users say Thank You to ron99 for this post:
     

Old August 25th, 2016, 10:35 PM   #5562 (permalink)
Elite Member
vancouver BC/Canada
 
Futures Experience: Beginner
Platform: Zaner360, OX
Broker/Data: DeCaley
Favorite Futures: options
 
Posts: 213 since Jan 2015
Thanks: 13 given, 172 received

Anyone thinking of buying a few extra puts for the upcoming fed meeting tomorrow?

/rsm005/

Reply With Quote
     

Old August 26th, 2016, 01:57 AM   #5563 (permalink)
Trading Apprentice
Los Angeles California
 
Futures Experience: Advanced
Platform: TOS, tradestation
Favorite Futures: es
 
Posts: 7 since Jun 2015
Thanks: 12 given, 7 received



ron99 View Post
Using 3x my research of 1/1/2013 to current shows 3 times a drawdown >20%. Oct 2014, Aug 2015 & Jan 2016.

If you use 4x the only time it was >20% was 8/24/15. 62.4%. The Friday before it was 9.3%. So you would have had to exit Sunday night if you could at 20%. I don't know. Anybody have intraday pricing for Sunday night 8/23/15?

The problem with a stop loss is shown by what happened on May 6, 2010 flash crash. Your stop loss would have been hit but then the market rebounded and you didn't need to exit.

I do like the idea of buying an extra put if things look like they might crash. A long put bought on 8/20/15 or 8/21/15 would have prevented all losses on 8/24/15. But that doesn't cover the unexpected crash so that is why I went with 2 longs.

I was thinking of using a "mental stop loss" and exiting once it was hit on a closing basis, so the actual loss could be greater than 20%. The flash crash would not have been an issue based on the closing price, but the risk is definitely a real one to consider, even though they have since put in more robust circuit breakers to deal with the potential. I suppose a Black Monday 1987 event would be the biggest risk, which could result in losses of 50% of account value (using 3-4x IM) based on option pricing modeling at the time.

The reason this idea was intriguing to me was I truly think there was something elegant and simple in the original ES naked put selling strategy. We all understand that we were selling "risk premium" similar to an insurance company and that is why there is a market for options so far OTM. The challenge comes in how to manage the risk and avoid blowing up one's account. This can be accomplished a number of ways including buying extra long options further OTM (i.e., using a vertical or ratio spread), or by using less of one's margin buying power ( 5x,6x,7x, or more IM) and/or having a stop loss in place that limits the loss one is willing to take.

I think if sized properly and using a reasonable stop loss, this could still be a viable strategy. I don't like the idea of buying the 2x long options because of the triple commission costs involved and longer time frame required to extract the same time decay. The realistic expectation for this type of strategy with increased IM and stop loss in place would be perhaps 20-25% return per year which is a lot less than the IMx3 strategy. I calculated the original strategy as returning 50% and even over 60% some years during its run.

Of course I think it would also be best to tread carefully and step aside once a major trend change occurs to a bear market (e.g., 5+ sustained days closing below 200 day moving average and subsequent rejection of major support levels).

Reply With Quote
     
The following 4 users say Thank You to thomasthomsen for this post:
     

Old August 26th, 2016, 03:40 AM   #5564 (permalink)
Elite Member
Linz Austria
 
Futures Experience: Advanced
Platform: Zaner360, Vantage, Trade Navigator
Broker/Data: DeCarley, RJO
Favorite Futures: Commodities
 
Posts: 679 since Nov 2014
Thanks: 1,031 given, 550 received


thomasthomsen View Post
I was thinking of using a "mental stop loss" and exiting once it was hit on a closing basis, so the actual loss could be greater than 20%. The flash crash would not have been an issue based on the closing price, but the risk is definitely a real one to consider, even though they have since put in more robust circuit breakers to deal with the potential. I suppose a Black Monday 1987 event would be the biggest risk, which could result in losses of 50% of account value (using 3-4x IM) based on option pricing modeling at the time.

The reason this idea was intriguing to me was I truly think there was something elegant and simple in the original ES naked put selling strategy. We all understand that we were selling "risk premium" similar to an insurance company and that is why there is a market for options so far OTM. The challenge comes in how to manage the risk and avoid blowing up one's account. This can be accomplished a number of ways including buying extra long options further OTM (i.e., using a vertical or ratio spread), or by using less of one's margin buying power ( 5x,6x,7x, or more IM) and/or having a stop loss in place that limits the loss one is willing to take.

I think if sized properly and using a reasonable stop loss, this could still be a viable strategy. I don't like the idea of buying the 2x long options because of the triple commission costs involved and longer time frame required to extract the same time decay. The realistic expectation for this type of strategy with increased IM and stop loss in place would be perhaps 20-25% return per year which is a lot less than the IMx3 strategy. I calculated the original strategy as returning 50% and even over 60% some years during its run.

Of course I think it would also be best to tread carefully and step aside once a major trend change occurs to a bear market (e.g., 5+ sustained days closing below 200 day moving average and subsequent rejection of major support levels).

I use a strategy selling naked puts very similar to the one you describe. "Corner Stones" are:

Stop loss in the area when the position reaches a value of approx. 200 %. Can be more, can be less. I definitely get out when the stop loss is hit at the end of the day. I might decide to get out during the day. If I decide to re-enter I do this with the (smaller) original size, and not with the (larger) size when I liquidated.

I get out on a close below the 200 dma. I rarely sell further puts below the 200 dma, and only after a clear reversal.

Please find more details in the thread "Diversified option selling portfolio".

Best regards, Myrrdin

Reply With Quote
     
The following 6 users say Thank You to myrrdin for this post:
     

Old August 28th, 2016, 11:25 PM   #5565 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,323 since Jul 2011
Thanks: 634 given, 3,901 received
Forum Reputation: Legendary

Futures Edge on FIO

thomasthomsen View Post
I was thinking of using a "mental stop loss" and exiting once it was hit on a closing basis, so the actual loss could be greater than 20%. The flash crash would not have been an issue based on the closing price, but the risk is definitely a real one to consider, even though they have since put in more robust circuit breakers to deal with the potential. I suppose a Black Monday 1987 event would be the biggest risk, which could result in losses of 50% of account value (using 3-4x IM) based on option pricing modeling at the time.

The reason this idea was intriguing to me was I truly think there was something elegant and simple in the original ES naked put selling strategy. We all understand that we were selling "risk premium" similar to an insurance company and that is why there is a market for options so far OTM. The challenge comes in how to manage the risk and avoid blowing up one's account. This can be accomplished a number of ways including buying extra long options further OTM (i.e., using a vertical or ratio spread), or by using less of one's margin buying power ( 5x,6x,7x, or more IM) and/or having a stop loss in place that limits the loss one is willing to take.

I think if sized properly and using a reasonable stop loss, this could still be a viable strategy. I don't like the idea of buying the 2x long options because of the triple commission costs involved and longer time frame required to extract the same time decay. The realistic expectation for this type of strategy with increased IM and stop loss in place would be perhaps 20-25% return per year which is a lot less than the IMx3 strategy. I calculated the original strategy as returning 50% and even over 60% some years during its run.

Of course I think it would also be best to tread carefully and step aside once a major trend change occurs to a bear market (e.g., 5+ sustained days closing below 200 day moving average and subsequent rejection of major support levels).

If you were using 3x then your loss on 8/24/15 could have been 75%. Now Sunday night you might have exited at a smaller loss. I'm not sure.

The strategy using 2 longs and 6x made 21.5% MROI in 2013. 16.3% in 2014. 28.7% in 2015. And as of 6/6/16 it made 13.8% in 2016. Compounding gains this strategy made 31.4% ROI per year for 41 months.

The naked 3 delta 3x strategy made 64.4% MROI in 2013. 41.1% in 2014. -65.4% in 2015. And 25.5% as of 5/24/16 in 2016. Putting in the exit at 20% and using exactly 20% as the loss, the ROIs are 64.4% in 2013. 8.5% in 2014. 64.6% in 2015. And 14.9% in 2016 (ending 5/24/16). This is 66.3% per year for 41 months.

The whole question is can you exit at 20% on every drop.

So the success or failure of the 20% drop and exit depends on where you exited on 8/24/15.


Last edited by ron99; August 29th, 2016 at 12:29 PM.
Reply With Quote
     
The following 2 users say Thank You to ron99 for this post:
     

Old August 31st, 2016, 02:57 AM   #5566 (permalink)
Elite Member
vancouver BC/Canada
 
Futures Experience: Beginner
Platform: Zaner360, OX
Broker/Data: DeCaley
Favorite Futures: options
 
Posts: 213 since Jan 2015
Thanks: 13 given, 172 received

Ron,

I'm going to make the assumption that it won't be too difficult to run a slight variation of the metrics you just ran. If this assumption is wrong then don't worry. What would happen if you did a 1 and 1 rather than a 1 and 2 but used a 20% stop?

BTW, a key issue here is when you started trading. Say you started trading when I did, last year, then your trading career starts with a 65% draw down out of the gate pretty much ending you before you begin. Since it's impossible to know when an 8/15 type event or any event will occur a spread makes more sense. I'm just wondering if a 1 and 1 is better with the idea of buying additional puts as the market moves against you.

/rsm005/

Reply With Quote
     

Old August 31st, 2016, 10:26 AM   #5567 (permalink)
Elite Member
Miami, FL
 
Futures Experience: Advanced
Platform: NT
Favorite Futures: ES, CL
 
Posts: 116 since May 2013
Thanks: 249 given, 62 received

maybe a good idea would be to start using a put spread now (1 naked 2 otm long puts) and on the day of a LIMIT DOWN event, switch to naked puts with 6xIM. I would be interested in the type of returns when this is used.

Reply With Quote
     

Old August 31st, 2016, 10:31 AM   #5568 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,323 since Jul 2011
Thanks: 634 given, 3,901 received
Forum Reputation: Legendary


rsm005 View Post
Ron,

I'm going to make the assumption that it won't be too difficult to run a slight variation of the metrics you just ran. If this assumption is wrong then don't worry. What would happen if you did a 1 and 1 rather than a 1 and 2 but used a 20% stop?

BTW, a key issue here is when you started trading. Say you started trading when I did, last year, then your trading career starts with a 65% draw down out of the gate pretty much ending you before you begin. Since it's impossible to know when an 8/15 type event or any event will occur a spread makes more sense. I'm just wondering if a 1 and 1 is better with the idea of buying additional puts as the market moves against you.

/rsm005/

Here are 3 ES put strategies using exit at 20% drawdown. Started trading 1/1/13.

Because of the amount of work it would require, I didn't start a new position on the day the 20+% drawdown occurred. I just used the next position that I had as if the exit didn't happen at 20%. So the account sat empty a few days. This might mean that ROI might be slightly higher if I didn't do this.

They all had three 20+% drawdown events. Oct 2014, Aug 2015 & Jan 2016

Short 3 delta no longs 3X excess factor
2013 64.4% ROI
2014 8.5%
2015 64.6%
2016 11.7% (through 8/5/16)
Overall +228.1% or 63.7% per year
4,969 positions in 49 trades with an avg of 26.8 days held

Short 5 delta 2 longs at 1.5 delta each 3x excess factor Avg delta was 2.12
2013 53.4% ROI
2014 9.8%
2015 35.8%
2016 27.8% (through 7/29/16)
Overall +192.4% or 53.7% per year
10,119 positions in 45 trades with an avg of 28.8 days held

Short option 80% of futures 1 long at 100 lower strike than short 3x excess factor Avg delta was 1.88
2013 47.2% ROI
2014 10.8%
2015 39%
2016 7.5% (through 7/28/16)
Overall +143.6% or 40.1% per year
7,784 positions in 44 trades with an avg of 29.6 days held

The short 5 deltas with 2 longs has a lower IM than short 1 with 1 long, average 267 vs 318, so you have more positions on and thus make more profit on each time you trade. The naked 3 delta had an average IM of 665.

Reply With Quote
     
The following 3 users say Thank You to ron99 for this post:
     

Old August 31st, 2016, 10:33 AM   #5569 (permalink)
Market Wizard
OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,323 since Jul 2011
Thanks: 634 given, 3,901 received
Forum Reputation: Legendary


wxsim1 View Post
maybe a good idea would be to start using a put spread now (1 naked 2 otm long puts) and on the day of a LIMIT DOWN event, switch to naked puts with 6xIM. I would be interested in the type of returns when this is used.

There isn't a limit down in ES.

Reply With Quote
     

Old August 31st, 2016, 12:03 PM   #5570 (permalink)
Elite Member
Linz Austria
 
Futures Experience: Advanced
Platform: Zaner360, Vantage, Trade Navigator
Broker/Data: DeCarley, RJO
Favorite Futures: Commodities
 
Posts: 679 since Nov 2014
Thanks: 1,031 given, 550 received



ron99 View Post
Short 3 delta no longs 3X excess factor
2013 64.4% ROI
2014 8.5%
2015 64.6%
2016 11.7% (through 8/5/16)
Overall +228.1% or 63.7% per year
4,969 positions in 49 trades with an avg of 26.8 days held

I would assume that this strategy would end up in a margin call long before a 20 % move down of the ES. (I assume that 3X excess factor means that 25 % of the margin are used in the beginning.)

Do I miss anything ?

Best regards, Myrrdin

Reply With Quote
     

Reply



futures.io > Futures Trading, News, Charts and Platforms > Traders Hideout > Options on Futures > Selling Options on Futures?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

NinjaTrader 8: Features and Enhancements, Tips and Tricks

Dec 6
 

Al Brooks: Stop Losing when a Good Trade goes Bad, Correcting Mistakes

Elite only
 

Trading Technologies: Algo Design Lab hands-on

Dec 13
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Crude Oil (CL) futures inverse pairing options Big Mike Commodities Futures Trading 8 December 12th, 2013 12:00 PM
Recommend futures, options Broker? sam1197 Brokers and Data Feeds 17 March 27th, 2013 01:42 AM
Trading Futures with options as protection Gooffy2010 Commodities Futures Trading 6 October 2nd, 2012 05:55 PM
Selling Njniatrader sam1197 NinjaTrader 22 June 28th, 2012 01:40 PM
Zen-Fire Futures options tici88 Brokers and Data Feeds 1 July 30th, 2011 10:16 AM


All times are GMT -4. The time now is 12:38 AM.

Copyright © 2016 by futures.io. All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
 
no new posts

Page generated 2016-12-02 in 0.17 seconds with 20 queries on phoenix via your IP 54.146.141.60