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Selling Options on Futures?
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Selling Options on Futures?

  #571 (permalink)
Market Wizard
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opts View Post
One thing I noticed about this forum and this thread in particular is that nobody is ripping on anyone here for selling options on futures. There's no "Your and idiot for even thinking about that"...etc. That's worth a lot also

When I started this thread and almost nobody responded at first I wondered if I was a lone wolf selling options.

I am so glad that many have visited here and contributed. Thanks. I have learned a lot from you.

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  #572 (permalink)
Market Wizard
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Last week I was busy "feeding the beast" almost everyday.

When time erodes the margins and premiums, I then have cash freed up to put on new positions. It seemed like almost every day I was adding positions to keep the accounts full.

I notice the accounts do better if you stay on top of keeping the accounts full. But there are times when you want more cash when markets are crazy. Experience will tell you when. The school of hard knocks will teach you too.

With Friday's new margins being lower I need to add more positions on Monday. Plus I have a bunch of options expiring on Monday.

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  #573 (permalink)
Market Wizard
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ron99 View Post
Last week I was busy "feeding the beast" almost everyday.

When time erodes the margins and premiums, I then have cash freed up to put on new positions. It seemed like almost every day I was adding positions to keep the accounts full.

I notice the accounts do better if you stay on top of keeping the accounts full. But there are times when you want more cash when markets are crazy. Experience will tell you when. The school of hard knocks will teach you too.

With Friday's new margins being lower I need to add more positions on Monday. Plus I have a bunch of options expiring on Monday.

Regarding adding on to positions as margins decrease, do you ever find that the margins decrease, you sell more options, and then the margins pop back up, and your margin + 2X rule is violated? Do you do anything special (like exit positions) to handle that situation, and get you back to margin + 2x cushion?

Thanks

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  #574 (permalink)
Market Wizard
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Yes sometimes the margins pop back up.

Depends on why the margins went back up as to what I will do next. If I don't think it is a long term trend against me I will hang on and don't add any more positions. That is what the excess is for.

If I have positions close to expiration I will hang on.

Only if there is a fundamental change, like the drought last summer, or the silver futures margins rising from 11,745 to 21,600 in 10 trading days (2011), will I bail on positions.

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  #575 (permalink)
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Ron99, when you "add" positions to keep your account full, does that mean you may add additional positions to a contract month that you are already holding short positions or are you referring to a new market/month entirely?

For example, let's say you are already short DOTM May CL puts but then, cash is freed up from other positions due to decay, would you add on more May CL puts at around the same strike?

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  #576 (permalink)
Market Wizard
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MJ888, I will add on whatever looks good.

I look for the best bang for my buck first. Fundamentals, seasonals, ROI, DTE, other market factors like US economy, ability to get decent fills, all are used to determine my next move.

I also like to have some diversity in my accounts. At least 5 different commodities if possible. A mixture of puts and calls in different markets.

That way if there is a market moving event like the US credit rating downgrade, and all markets move down, not all of my positions are losing money.

MJ888, is that your yacht in the photo by your name?

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  #577 (permalink)
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ron99 View Post
MJ888, is that your yacht in the photo by your name?

Hahahahaha! That is my submarine! Next time you are in Hawaii, you and your family are welcomed to join us to see the sharks and Coral Reefs.

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  #578 (permalink)
Market Wizard
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Here's a lesson on why you don't want to go too far out in time selling options.

I sold SB puts on Jan 2nd when SBh3 futures were 19.69. Futures have dropped to 18.49 but the premium has dropped, so far, because I was far OTM and close in time to expiration. 16.00 Mar puts.

But the Jul 16.00 puts have gone up from 0.07 to 0.13 in the same time frame.

Time erosion gets stronger the closer you get to expiration. Thus margin and premium drop quicker. The further out in time you are the more that the option will follow the future instead of ignoring it.

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  #579 (permalink)
Market Wizard
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Bias - Long/Short

For Ron (and other far OTM option sellers) -

If you look back at past trades, do you find yourself biased towards selling puts, or selling calls?

I would imagine that for most instruments that selling puts would be more common, since it is less risky (selling calls in crude could be dangerous if a terrorist attack occurs, grains can skyrocket in droughts). For ES options, I would think selling calls might be preferable (think of a stock market crash).

I'm curious about the thoughts of the experienced experts here...

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  #580 (permalink)
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Kevin:

Oil is always going to be one of those markets that has the terrorist volatility variable waiting to be added to the current price. I would agree with you that the energies will always have a bias to the upside because of this. I am waiting for oil to drop a few dollars in price and will look to sell puts again because of the ever present terrorist threat. Time is on our side when selling options so I can wait for months if needed. I'm short March 900 wheat calls and my reasoning was that price was in the 50% retracement range even after the last bullish crop progress report in January. I sold 680 puts also. I think the tendency is to want to sell puts. The vast majority of the general public that owns stocks only want stocks to go up. This makes for a price bias on calls that makes them more expensive then puts. The futures markets are a minority but shorting a futures contract is more routine in futures than it is in stocks so why should we be 'scared' of writing call options on futures? Because we're scared that something like a terrorist threat can spike prices. In the grains it can be drought, OJ freezing weather, cotton the boll weevil..etc. But, these 'variables' usually happen with the seasonal aspects of the markets. I wait for those seasonal highs, or what I think might be the seasonal high along with what the charts are saying to let me know when it might be safe to sell calls. But, you are right. I fell more comfortable selling puts but sell calls nonetheless. It's all a waiting game for me and how I interpret charts.

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