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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,065 / 5,727
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Selling Options on Futures?

Old August 2nd, 2011, 07:06 PM   #51 (permalink)
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ron99 View Post
Only if you don't trade smartly.

You don't have to sell naked. You can sell covered options.


I would like to hear about some losing trades on selling puts during the crisis and how those went down.

Blowing up is what everyone is going to be afraid of but that is going to largely be from larger funds taking illiquid positions. I assume when things start to look bad you have no trouble getting out?

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Old August 2nd, 2011, 07:17 PM   #52 (permalink)
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For learning about options Natenburg's book is more like a novel on volatility that is really hard to put down than a boring ass trading book.

Baird's Option Market Making is also considered standard, especially by volatility quants on nuclear phynance. I like it but not as much as Natenburg.

Options as a Strategic Investment I think is the most overrated trading book ever made. It is just terrible writing.

I guess overall I view options as you want to sell overpriced theta to the herd and only buy extremely under priced vega from the herd.

I think TOS will always get high marks on reviews because of how it lays out the greeks but I'm pretty sure if most option traders understood greeks better they wouldn't trade options.

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Old August 2nd, 2011, 08:11 PM   #53 (permalink)
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I am VERY new in options, and please correct me if I am wrong, but can't you limit your downside potential via stop losses just like in futures?

That way, isn't the risk of "blowing up" theoretically identical to holding futures position?

With options, you can't count on your stops getting filled reliably in a crisis situation. Options are a much thinner market than futures and the times when you really want to be able to get out in a hurry (such as a big market crash) are the same times when your stop loss order won't be able to find liquidity to execute at the price you expect.

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Old August 2nd, 2011, 10:35 PM   #54 (permalink)
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dutchbookmaker View Post
I would like to hear about some losing trades on selling puts during the crisis and how those went down.

Blowing up is what everyone is going to be afraid of but that is going to largely be from larger funds taking illiquid positions. I assume when things start to look bad you have no trouble getting out?

I can attest to this. During the last crisis I lost a bundle on selling puts on equities. Currently I've been trying calendars with initial good IV skew. With the current "crisis" I lost all my profits on my current trades and wasted a month and a half just waiting for these to pan out, only to come up with a loss.

And that's right about stops not working on options. On TOS, there are only stops on options based on option price only. And during a giant move up or down, the option price can gap anytime. TOS sure as heck isn't going to honor an untriggered stop loss due to an overnight gap.

I'm thinking of getting out of positional options on equities completely. One needs a lot more capital to profit from IC's and calendars anyways , perhaps at least 300k starting. (And just do it simu for a few more years or so until I prove to myself it can't really be done). That's why this thread interests me. Selling options on futures may be a different kind of game than selling options on equities entirely. Can't hurt to explore other "options", pun intended, at least on demo.

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Old August 3rd, 2011, 12:43 AM   #55 (permalink)
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GoldStandard View Post
With options, you can't count on your stops getting filled reliably in a crisis situation. Options are a much thinner market than futures and the times when you really want to be able to get out in a hurry (such as a big market crash) are the same times when your stop loss order won't be able to find liquidity to execute at the price you expect.

Thank you for your answer Gold, much appreciated.

But say that really happens, couldn't you just hedge it via the underlying futures?

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Old August 3rd, 2011, 06:35 AM   #56 (permalink)
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Shirak View Post
I am VERY new in options, and please correct me if I am wrong, but can't you limit your downside potential via stop losses just like in futures?

That way, isn't the risk of "blowing up" theoretically identical to holding futures position?


GoldStandard View Post
With options, you can't count on your stops getting filled reliably in a crisis situation. Options are a much thinner market than futures and the times when you really want to be able to get out in a hurry (such as a big market crash) are the same times when your stop loss order won't be able to find liquidity to execute at the price you expect.



Shirak View Post
Thank you for your answer Gold, much appreciated.

But say that really happens, couldn't you just hedge it via the underlying futures?

You can use various combinations of options and the underlying to limit risk, and also to maximize profits, for that matter... It can get complex fairly quickly, though... But, for me at least, that's the allure of options. You get so many more options (pun intended), and they offer good mental exercise..

I see my answer eluded you in my last post, so I'll try again:

You can not use stop-losses like with futures when selling options. When you have sold an option, that means someone else owns it, and you can't take it back. You can, of course, buy another option to offset your position. If you've sold a put, you can buy a put with the same strike & expiry, and they will cancel each other out.

Also, as @GoldStandard stated, the nature of the options market does not inspire active trading like with futures. The limited liquidity and bid/offer spreads, are not enticing. Do not use market orders, unless you absolutely have to (which you shouldn't!). You are often better off using the underlying and/or other options to balance your position, rather than selling your inventory outright.


Last edited by Lornz; August 3rd, 2011 at 10:30 AM.
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Old August 3rd, 2011, 08:59 AM   #57 (permalink)
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do you guys build/scale into a position for options or you simple wait for a certain price had enter an entire position?

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Old August 3rd, 2011, 10:18 AM   #58 (permalink)
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Lornz View Post
If you sell a put, you can buy a call with the same strike & expiry, and they will cancel each other out.

That is not correct. Buying a call does not offset a short put. Both would lose money if the futures drop.

To offset a short put you would buy the same put and get out of the position.

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Old August 3rd, 2011, 10:22 AM   #59 (permalink)
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tigertrader View Post
Now that sounds idyllic! I live in Philly. I watch the crack dealers and hookers, from my desk while trading.

Got room for another desk?

LOL I don't think the wife would go for that.

Hmm but that could be a way to make money. Rent out office rooms for people who want to get away from city life. De-stress. Sort of a trading resort.

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Old August 3rd, 2011, 10:26 AM   #60 (permalink)
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Shirak View Post
I am VERY new in options, and please correct me if I am wrong, but can't you limit your downside potential via stop losses just like in futures?

That way, isn't the risk of "blowing up" theoretically identical to holding futures position?

The only futures' option with enough volume to place a stop loss, IMO, is ES.

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