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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:567,999 / 5,727
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Selling Options on Futures?

Old January 30th, 2013, 11:54 AM   #601 (permalink)
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Likewise Ron, deepest condolences to you and your family

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Old January 30th, 2013, 12:34 PM   #602 (permalink)
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Selim View Post
Hey britkid, you and Ron should start a hedge fund together and call it 99 squared, his returns are amazing, I know he is very experienced but his returns are better than any hedge fund. May I ask I believe you returned 23% last year, would you say you took a risky approach to trading or conservative. Was there anytime during the last year where you almost blew up. I will be starting next month and just want to get an insight thanks .

Ron - I am sorry to hear of your loss, my deepest sympathies to you.

Selim
I didn't start until March/April last year and did next to nothing in December so my 23% was over an eight month period. I had never sold options before and was learning on the job. Plus I had to deal with IB's high margins. This meant I was going for highish returns while still staying as far OTM as possible.

There was only one position where I was too close and was forced to close out for a loss. My positions were more aggressive than Ron's but I don't think they were risky either. I have documented several of my trades on this thread so search through and look at them for more details.

One thing I have noticed is that premiums seem lower at the moment, I put that down to lower volatility in general.

Brit

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Old January 30th, 2013, 12:46 PM   #603 (permalink)
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Britkid99


That's amazing britkid99, man can you explain something to me with your high returns you out beat almost all major hedge funds and you were at a disadvantage with the high margins, I can't wait to start, you said you were more aggressive than Ron can you give an example I like crude cause I grew up in the middle east, did you sell with higher delta?

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Old January 30th, 2013, 12:58 PM   #604 (permalink)
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Hey britkid

Who's your money on arsenal or Liverpool?

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Old January 30th, 2013, 01:15 PM   #605 (permalink)
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ron99 View Post
Guys, there is a death in my family. I'll be busy the rest of the week. I'll answer questions this weekend or next week.

My condolences Ron99

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Old January 30th, 2013, 01:20 PM   #606 (permalink)
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britkid99 View Post
There was only one position where I was too close and was forced to close out for a loss. My positions were more aggressive than Ron's but I don't think they were risky either. I have documented several of my trades on this thread so search through and look at them for more details.

One thing I have noticed is that premiums seem lower at the moment, I put that down to lower volatility in general.

Brit

You are probably correct britkid99 that premiums are lower now because there has been very little volatility the past 2 months in most markets. But this quiet period will not last, the equities markets appear to be getting tired and is stalling at current levels.

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Old January 30th, 2013, 01:33 PM   #607 (permalink)
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Selim,

Making a 25% annual return selling options on futures is not unusual at all. And it does not even have to be risky to do so. There has been years where I was fortunate enough to double my account in 8-10 months (no withdrawals, just let the account grow) simply by selling far OTM options that had a delta of 0.20 or less, which is what Cordier advises in his book.

I am not as conservative as Ron99 but he has convinced me that my success rate can be even higher if I choose strikes farther away than I have been selecting.

It all comes down to discipline and your tolerance for risk vs reward. Selling strikes closer to the money, the chances of a small move causing your premium to double or even send your strike into the money increases dramatically. Your margin requirements will also increase. The most frustrating thing that can happen selling options is that you get a margin call, be forced to exit a position at a hefty loss only to see the options expire worthless several weeks or a month later. Following Ron99's advice of having 66% of your account in cash to weather the storm is essential.


Last edited by MJ888; January 30th, 2013 at 02:35 PM.
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Old January 30th, 2013, 05:44 PM   #608 (permalink)
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Hi Ron,

First a quick explanation of why I chose this trade. My broker IB uses 1.5x margin within UK pension accounts. So for Crude I am looking at around $2000 margin per contract. Then I am looking for around 10% ROI, so $200 per contract per month.. At the time of the trade Oil was around $100 and I was looking to go 20% OTM. I am biased to the long side on oil.so sold the following using the layering technique suggested by the Liberty guys.

Date 9th April 2012
AUG12 80P for 0.52 $520
SEPT12 77.5P for 0.64 $640
SEPT12 80P for 0.87 $870
OCT12 77.5P for 0.94 $940
OCT12 80P for 1.22 $1220

Then to create a margin free strangle I sold the JUN12 120C for 0.23 or $230 on 11th April. As many as possible without pushing up margin. I chose the next month as it had only 6 weeks remaining and offered a reasonable premium. I was of course concerned about the geopolitical situation with Iran but talks were starting so I felt OK about it.

Over the 3 weeks duration of this trade so far, Crude has maintained a narrow range of $100-105. This has greatly aroded all positions and on Friday I closed out half of my AUG12 80P for 0.22 generating a profit of $300 per contract (minus commissions). This was a return of 15% in 3 weeks!

As of Friday the JUN 120C were 0.08 so up $150 per contract with 20 days to expiry. Depending on what Crude does today I may start to thin these out to reduce risk

Brit


ron99 View Post
Hi Brit,

Interesting. I would have done a few things different, but this has worked for you so far.

I would have sold lower strikes on the puts farther out in time. Maybe try to keep the premium the same as your Aug puts when you moved to Sep and Oct by moving to lower strikes. If the market goes against you the Oct would feel the most heat. Currently the delta on the Oct is twice as high as the Aug 80. 0.0348 Delta for Aug vs 0.0691 for Oct.

So if today crude dropped $3.00 then the Aug 80 would move at least 0.10 (3.00 times 0.0348) while Oct 80 would move 0.21 against you. The Oct 80s are twice as risky as the Aug 80. An Oct 72 put is the same risk as an Aug 80 today. On Apr 9th it settled at 0.58.

What percent of your account are you using for margin? Cordier mentions 50%. I have found that 66% works better. You are pushed out of positions less quickly with more excess. By being able to ride more positions out to expiration you are able to make up for the less contracts put on by having less losers. Of course if the market has a major fundamental reason for going against you, you need to get rid of the positions and not try to ride them out.

Just so everybody is clear, I'm guessing you are calculating the ROI by just using margin and not the excess you are carrying for the trade. Right?

If you are worried about the 120 calls, you could buy a call above the 120 to turn your possible unlimited loss into a limited loss. That will also reduce the margin required to put on the 120s. It also makes FCMs happier.

I sell further OTM options than you did. After a couple of blowups in 14 years of trading I learned that lesson the hard way.

Be aware that crude has crashed hard in early May the last 2 years. While what it did last year isn't always a good predictor of what it will do this year, keep that in the back of your mind and use that to determine whether to bail or not on positions.

I suspect that this Friday's monthly employment number will have a strong bearing on where crude will go later in May.

I need to get back to my own trading. Good luck.

Ron

Selim,
Here is a quote of my first trade posted here and also Ron's very informative reply.
I was going for deltas in the region o 05-10. I would now be unlikey to go above 05
I am nothing special still just a beginner BUT it is not that difficult and there is good advice and support available here.
Brit
ps: No bets from me on football (soccer) 50:50, you get better odds selling options

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Old January 30th, 2013, 06:02 PM   #609 (permalink)
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opts View Post
Wheat thoughts....

March contract: Looking bearish. Breaking the support at around the 760 level could put the next target at the 740 area. Will consider selling calls again if this follows through.

What strikes are you considering selling?

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Old January 30th, 2013, 06:22 PM   #610 (permalink)
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MJ:

May is the next contract and I was looking at the 920's....

Strong day today so just watching now. Price still floundering around the 50% retrace level so that is why I straddled a few weeks back. Sitting tight right now until there is some sort of direction.

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