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Selling Options on Futures?
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Selling Options on Futures?

  #6471 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
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datahogg View Post
Ron

I think you mentioned that you were going to do some traveling.
Have your trips been interesting and noteworthy?

HH

Interesting your timing of asking. I am leaving Monday to go to Key West Florida in my RV for a week (1,400 miles!). Then spending another 2-3 weeks in central Florida.

In Oct I spent 2 weeks in PA. Saw the Oil Museum. Saw location of first oil well in the US. Saw the longest continually operating oil well. 126 years! Saw the lumber museum. Saw some great scenery and ate some good food.

So yes it was interesting and noteworthy.

All while trading with my laptop using a mobile hotspot.

Toughest part of traveling is finding someone to care for my horses, cattle and cats back at home.

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  #6472 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
Futures Experience: Intermediate
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ron99 View Post
Interesting your timing of asking. I am leaving Monday to go to Key West Florida in my RV for a week (1,400 miles!). Then spending another 2-3 weeks in central Florida.

In Oct I spent 2 weeks in PA. Saw the Oil Museum. Saw location of first oil well in the US. Saw the longest continually operating oil well. 126 years! Saw the lumber museum. Saw some great scenery and ate some good food.

So yes it was interesting and noteworthy.

All while trading with my laptop using a mobile hotspot.

Toughest part of traveling is finding someone to care for my horses, cattle and cats back at home.


Sounds great. Be safe. If you travel through Knoxville, TN, let me know and I will buy lunch.

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  #6473 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,921 since Jul 2011
Thanks: 870 given, 5,214 received


ES margin is increasing 6.7% effective Tuesday

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  #6474 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,921 since Jul 2011
Thanks: 870 given, 5,214 received

On Jan 3 I sold EW3j8p2140(2)p1900(3) for 3.30. Jan 12 I exited at 1.80. Only 9 days held. 8.0% MROI.

I also sold new positions. EW3j8p2250(2)p2000(3) for 2.75.

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  #6475 (permalink)
Elite Member
Singapore
 
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ron99 View Post
On Jan 3 I sold EW3j8p2140(2)p1900(3) for 3.30. Jan 12 I exited at 1.80. Only 9 days held. 8.0% MROI.

I also sold new positions. EW3j8p2250(2)p2000(3) for 2.75.

How many such positions will you do for every 100K portfolio? Curious on the sizing and allocation

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  #6476 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,921 since Jul 2011
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sapiens View Post
How many such positions will you do for every 100K portfolio? Curious on the sizing and allocation

I am using IMx4. The margin on this spread is $462. 4 times 462 = $1,848. So I hold $1,848 for each spread.

Or to state it another way. I'm using 25% of the account balance for margin and 75% is cash.

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  #6477 (permalink)
Trading Apprentice
Manchester, United Kingdom
 
Futures Experience: Beginner
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Posts: 16 since Jan 2018
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Another few newbie questions sorry guys:

1. I understand selling an option puts a margin into escrow which slowly becomes available as you move towards expiry date (aslong as you stay out of the money). However, what if the price of the future sharply moves towards your strike price, but stays below to your strike price the whole time (but really close to the strike price). And the option expires worthless. Do you still receive your premium + all of the margin back in account? From my understanding as position moves against you during the option period your ‘margin’ increases. However, what if you have enough cushion in your account for extra margin. Do you still profit in the end if the contract expires worthless?

2. What exactly happens to margin if you buy back your option for a profit/or loss depending on the situation. Does it go back into your account or do you forfeit it? Also how is the buy back calculated. Including margin. E.g. on Ron99’s latest post sold after 9 days? (Profit of trade broken down - cost of trade broken down). When you buy back a sold option, are you ‘exercising’ the underlying future?

3. I’m reading Cordier. And in the ‘Entering and Exiting Your Spread Topic’. It states, ‘a spread order can be placed all at once as a spread. Thus you could place your order as Sell one september corn 5.00 call and buy one september corn 5.50 call at a 10 cent to the sell side. This means you don’t care what the absolute prices of the options are, you just want to make sure you sell the 5.00 call for at least 10 cents more than you buy the 5.50 call. (In corn this would mean difference of 500 dollars).

Okay, so i’m confused reading this chapter. Why must you make sure you sell the call for at least 10 cents more? What’s the advantage or logic behind this.

4. Also ron99 when he mention’s MROI is that 9% monthly ROI of his total account.

Thanks in advance.


Last edited by JokerTrader321; January 16th, 2018 at 10:14 PM.
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  #6478 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Favorite Futures: Options on Futures
 
Posts: 2,921 since Jul 2011
Thanks: 870 given, 5,214 received


JokerTrader321 View Post
Another few newbie questions sorry guys:

1. I understand selling an option puts a margin into escrow which slowly becomes available as you move towards expiry date (aslong as you stay out of the money). However, what if the price of the future sharply moves towards your strike price, but stays below to your strike price the whole time (but really close to the strike price). And the option expires worthless. Do you still receive your premium + all of the margin back in account? From my understanding as position moves against you during the option period your ‘margin’ increases. However, what if you have enough cushion in your account for extra margin. Do you still profit in the end if the contract expires worthless?

2. What exactly happens to margin if you buy back your option for a profit/or loss depending on the situation. Does it go back into your account or do you forfeit it? Also how is the buy back calculated. Including margin. E.g. on Ron99’s latest post sold after 9 days? (Profit of trade broken down - cost of trade broken down). When you buy back a sold option, are you ‘exercising’ the underlying future?

3. I’m reading Cordier. And in the ‘Entering and Exiting Your Spread Topic’. It states, ‘a spread order can be placed all at once as a spread. Thus you could place your order as Sell one september corn 5.00 call and buy one september corn 5.50 call at a 10 cent to the sell side. This means you don’t care what the absolute prices of the options are, you just want to make sure you sell the 5.00 call for at least 10 cents more than you buy the 5.50 call. (In corn this would mean difference of 500 dollars).

Okay, so i’m confused reading this chapter. Why must you make sure you sell the call for at least 10 cents more? What’s the advantage or logic behind this.

4. Also ron99 when he mention’s MROI is that 9% monthly ROI of his total account.

Thanks in advance.

1. Think of margin like a security deposit when someone rents. If nothing is wrong when you leave, then you get your security deposit back in full.

So yes, if your short option is OTM at expiration, you get to keep all of the premium you sold the option for minus fees. And your margin is no longer in "escrow".

2. Margin (security deposit) always returns to your account when you exit the position.

When you buy back a short option you are not exercising the option. Your gross profit/loss is the difference between the premium you sold the option for minus what you bought it back for.

3. The 10 cents is your possible profit amount. Or $500 in the case of corn. It doesn't have to be 10 cents but it can't be negative. The wider the spread the higher possible profit. But that also means more risk.

4. That ROI number is just for that position taking into account margin and excess held and net profit and days held.

That trade I sold the spread for a net premium of 3.30. I bought it back for a net premium of 1.80. So gross profit was 1.50 or $75. It cost me 30.70 in commissions and fees for the 5 contracts in the spread. Net profit was $44.30.

Margin for the spread was 466. I kept 4xIM or 4 times 466 = 1,864. Or 25% for margin and 75% for cash excess. $44.30 divided by 1,864 is 2.4% actual ROI. When factoring in the 9 days held that gives you 8.0% monthly ROI.

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  #6479 (permalink)
Trading Apprentice
Manchester, United Kingdom
 
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Favorite Futures: Future Options
 
Posts: 16 since Jan 2018
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ron99 View Post
1. Think of margin like a security deposit when someone rents. If nothing is wrong when you leave, then you get your security deposit back in full.

So yes, if your short option is OTM at expiration, you get to keep all of the premium you sold the option for minus fees. And your margin is no longer in "escrow".

2. Margin (security deposit) always returns to your account when you exit the position.

When you buy back a short option you are not exercising the option. Your gross profit/loss is the difference between the premium you sold the option for minus what you bought it back for.

3. The 10 cents is your possible profit amount. Or $500 in the case of corn. It doesn't have to be 10 cents but it can't be negative. The wider the spread the higher possible profit. But that also means more risk.

4. That ROI number is just for that position taking into account margin and excess held and net profit and days held.

That trade I sold the spread for a net premium of 3.30. I bought it back for a net premium of 1.80. So gross profit was 1.50 or $75. It cost me 30.70 in commissions and fees for the 5 contracts in the spread. Net profit was $44.30.

Margin for the spread was 466. I kept 4xIM or 4 times 466 = 1,864. Or 25% for margin and 75% for cash excess. $44.30 divided by 1,864 is 2.4% actual ROI. When factoring in the 9 days held that gives you 8.0% monthly ROI.

Thanks for the explanation, makes sense now! Edit: I never knew the premium is calculated from the option pricing.


Last edited by JokerTrader321; January 17th, 2018 at 01:19 AM.
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  #6480 (permalink)
Trading Apprentice
BARCELONA/SPAIN
 
Futures Experience: Intermediate
Platform: ninjatrader
Favorite Futures: futures
 
Posts: 27 since Sep 2013
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Strangle in ES


Hi, Ron99. It's my first post I recently discovered this new way of investing selling options and the truth is that I find it very interesting. I've been reading the post on this topic and I wanted to ask you if you consider that the strategy of strangles (selling one put and one call at a time) is a good option in the sale of futures options of the ES. The strangle is a way to sell options described by James Cordier but I think you have not talked about it as a possibility.
Have you done any strangle comparative study versus the strategy of selling 2 puts to 3 deltas and buying 3 puts to 1 delta? (i think this strategy is your favorite right now)
Perhaps it would be interesting to see how a strangle would behave in the face of market declines such as those of 2008 and 2015. Also see how much time elapses on average to get the benefit and the resulting ROI.
I appreciate your generosity for sharing your knowledge and research. Also to the rest of the group members.
regards

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