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Selling Options on Futures?
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Selling Options on Futures?

  #6151 (permalink)
Trading Apprentice
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ron99 View Post
I can't debate with someone about the strategy if he is not using the strategy in his rebuttal. We don't do naked ES puts.

I don't have time to waste on people like him who don't do proper research.


Ron, lol, I never said I don't use the strategy. I do use it. In small size to add to my annual return. would I put my account 100% on this? never.

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  #6152 (permalink)
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ron99 View Post
I can't debate with someone about the strategy if he is not using the strategy in his rebuttal. We don't do naked ES puts.

I don't have time to waste on people like him who don't do proper research.

What research is there to do?? you did the research already. You stated that it won't work with a slow 20% decline or with certain months in 2008. Many stocks are up 500%-800% since 2008 and you think its unreasonable or unlikely to have a 20% down move??

So if you know that, what Im saying is that the prudent thing to do would be some small size. Anything larger and you risk a blow up. The risk is larger than you can quantify.

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  #6153 (permalink)
Market Wizard
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Adam82 View Post
Ron, lol, I never said I don't use the strategy. I do use it. In small size to add to my annual return. would I put my account 100% on this? never.

Wow your reading comprehension is horrible.

I didn't say you didn't use it yourself, I said your rebuttal used naked puts when I don't do naked puts.


Adam82 View Post
Shorting 200 contracts of let's just say /ES 2000 puts .

On a large down move , the ask price of the puts goes to 50, reasonable or not .. (remember in large down moves , you can't get your outs back quick enough and they can simply raise the prices to insane levels. ) in addition to the extra margin requirement that kicks in.


So that's it. Just one trade of the /ES puts and $500,000 blows up.


ron99 View Post
I can't debate with someone about the strategy if he is not using the strategy in his rebuttal.


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  #6154 (permalink)
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ron99 View Post
Wow your reading comprehension is horrible.

I didn't say you didn't use it yourself, I said your rebuttal used naked puts when I don't do naked puts.

you are using naked puts.

look at the PCLN example I posted earlier.

Buying puts 200 points away is called "wings" in the trading community. Nothing wrong with that, we all do it for various reasons (tail risk, reduce margin , etc.)

But for all intents and purposes you are naked short the puts. Your long puts won't protect you when the market gaps down 600 points and lands between your short and long puts.


The fact that you resort to insults speaks to the efficacy of your argument.

And I don't blame you . 100 pages and nobody has questioned the logic of just selling puts with 100% of your account?? I mean, lol, for real??? An 8 year bull run and no one thinks a 20% drop can happen??


And you are wrong about on thing you mentioned earlier. A basket of dividend stocks paying 3-4% that you sell calls on each month does indeed have risk. BUT THOSE ARE REAL UNDERLYING ASSETS. If there is a 20% drop, you can hold through it and still earn your dividends.


But if your whole account is essentially a bet 365 days per year on the market not having a precipitous fall, then you clearly don't understand risk.

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  #6155 (permalink)
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It seems like both of you guys are very knowledgeable about the subject. Instead of yelling at each other it might be more prudent to try and see the other's point of view.

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  #6156 (permalink)
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Adam82 View Post
And you are wrong about funds being too large to do this. If Ron can it with 1000 contracts, it can be done with 10,000 or 100K or 1M contracts... The point is no sane money manager would do that to their portfolio.

there is no size limitation. open a $100M fund, open a prime brokerage account with Goldman, and they will allow you to sell as many puts you want at any level. So would you sell $20M in puts each month and keep the 4 or 5x IM ?? Is that what you would do with a fund??

You make some good points in this post and the two following it, but you are also plucking numbers out of thin air. Since when did Ron trade 1k contracts? I believe the point was made that there was ample liquidity for 20 or even 100 contracts. Obviously the more you push things the more of a consideration and concern liquidity becomes.

To answer your final point, no I would not. If I were to trade this strategy, it would be a part of my portfolio and I would only have a portion of my money invested in it as I believe in diversifying and minimising risk. As with any kind of leveraged trading, I would likely trade through an LLC so as to separate any major drawdowns on the portfolio from my personal assets and other portfolios. Anyway, you do make some valid points and I don't wholly disagree with you. As I said, there's no free lunch in the markets and hence each individual needs to have their own pre-determined risk limits and risk management.

I'll leave everyone with an excellent and relevant story, involving Taleb and Niederhoffer, which can be read in full here: Blowing Up

"Taleb buys options because he is certain that, at root, he knows nothing, or, more precisely, that other people believe they know more than they do. But there were plenty of people around that table who sold options, who thought that if you were smart enough to set the price of the option properly you could win so many of those one-dollar bets on General Motors that, even if the stock ever did dip below forty-five dollars, you’d still come out far ahead. They believe that the world is a place where, at the end of the day, leaves fall more or less in a predictable pattern."

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  #6157 (permalink)
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CobblersAwls View Post
You make some good points in this post and the two following it, but you are also plucking numbers out of thin air. Since when did Ron trade 1k contracts? I believe the point was made that there was ample liquidity for 20 or even 100 contracts. Obviously the more you push things the more of a consideration and concern liquidity becomes.



To answer your final point, no I would not. If I were to trade this strategy, it would be a part of my portfolio and I would only have a portion of my money invested in it as I believe in diversifying and minimising risk. As with any kind of leveraged trading, I would likely trade through an LLC so as to separate any major drawdowns on the portfolio from my personal assets and other portfolios. Anyway, you do make some valid points and I don't wholly disagree with you. As I said, there's no free lunch in the markets and hence each individual needs to have their own pre-determined risk limits and risk management.



I'll leave everyone with an excellent and relevant story, involving Taleb and Niederhoffer, which can be read in full here: Blowing Up



"Taleb buys options because he is certain that, at root, he knows nothing, or, more precisely, that other people believe they know more than they do. But there were plenty of people around that table who sold options, who thought that if you were smart enough to set the price of the option properly you could win so many of those one-dollar bets on General Motors that, even if the stock ever did dip below forty-five dollars, you’d still come out far ahead. They believe that the world is a place where, at the end of the day, leaves fall more or less in a predictable pattern."



Ron mentioned earlier that he did a 2 by 3 ratio of 345 contracts , for a total over 1700 contracts or something like that.

Love that quote. Taleb is one smart dude. His book is essential reading for understanding risk.

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  #6158 (permalink)
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rsm005 View Post

@TFOpts

Did you do any of your tests accounting for slippage or super wide margins?

/rsm005/

No, I use the settle data from CME. Large price variations are only somewhat accounted for when you want to exit at a % of premium, e.g. exit when 200% of premium is reached, my model assumes you would actually exit at the settle price instead.

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  #6159 (permalink)
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Adam82 View Post
when the market gaps down 600 points

LOL The S&P 500 has never dropped 600 or 25% in one day in history. Through many wars, 9/11 and flash crashes.

In fact it has only dropped more than 9% in one day in history. Oct 1987 (20%).

Dow Jones biggest one day drop was in 1987 at 22.6%. 1929 only had a 13% drop

But if you want to talk about how the sky might fall go right ahead somewhere else without me. Get back to me when you can discuss the topic with reasonable thoughts.

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  #6160 (permalink)
Market Wizard
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SMCJB View Post
Okay it was RFQ's rather than specifically spreads, but the message is the same. It's in the traders best interests to use these types of functionality.
https://futures.io/options-futures/12309-selling-options-futures-511.html#post535972

Yes, I agree. One of the better platforms, oddly enough, is OAK from ADMIS for RFQs.
They have RFQs for all CME/CBOT/NYMEX/COMEX and have no routing fees.
I guess since many hedgers use ADMIS, they require these features.

Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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