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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,198 / 5,728
Last Reply:December 6th, 2016 (05:26 PM) Attachments:642

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Selling Options on Futures?

Old February 3rd, 2013, 10:24 PM   #641 (permalink)
Market Wizard
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Selim View Post
Ron99 when you post your annual returns is it on the whole account or the money you use for margin and excess. So when you returned 111% say on a 100,000 account you made 111,000 dollars profit? And second you mentioned when you sell far otm it's very easy for your premium to double in price so you don't use the 100% rule. do you exit the trade when you use up your excess margin? can you please give me an example on crude cause I'm informed on crude thanks.

Annual returns are on whole account. Which do include trades other than selling options.

If when you put on a trade and the margin is 500 you should have 1000 cash excess. If the loss on the premium plus the increase in margin wipes out your $1000 cash excess it is time to give up on that trade.

A lot of traders want to have hard rules for exiting trades. I don't do that, but I don't recommend that. I have been trading for 15 years. You get a better feeling for exiting after many years of experience. But of course I still get it wrong, just not as often.

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Old February 3rd, 2013, 10:27 PM   #642 (permalink)
Market Wizard
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freepal View Post
Hi,

I am an Active Stocks Options Trading both Buying and Selling, very intereted to find out more about Selling Options On Futures, do you mind sharing some of your recent trades and the setup of the trades.

Also interested to find out if you have already evaluate the pro and con comparing selling options on ETF options vs Futures Options? Thanks.

Hi

The thread has many examples of trades.

I have never looked at ETF options.

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Old February 3rd, 2013, 10:30 PM   #643 (permalink)
Market Wizard
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opts View Post
MJ:

His newsletters always end with something like "Clients will be notified when to enter the trade..." or something of that nature. He might notify clients after the seasonal trend has begun or some other trading system signal.

But yes I agree. That one has a WTF stamped on it in my opinion....

I had an account there for a while. He never gave any more info than the newsletters. But of course I did see the trades in my account. He did all of the trading in my account. I had no input.

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Old February 3rd, 2013, 10:57 PM   #644 (permalink)
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MJ888 View Post
Selim,

Just a word of caution from my personal trading experience, there is a lot to learn and understand when it comes to selling options on futures. While the possibilities of very handsome returns are possible, discipline and patience is vitally important. Just because 80%-90% or more of trades will be profitable does not mean you have found the Holy Grail or some inside secret to success, because that is not what this is. Each time I took a bigger position when I was not ready to do so or moved my strikes a little closer because I got greedy, I got destroyed. Every time a stop loss was reached and I did not get out properly for a small acceptable loss because I "hoped" the position will reverse, I ended up losing 2x-3x-4x or more than I should have. No one can "teach" you any of these things. I read all about them, lots of experienced options sellers warned me about them but the best way to learn is to experience them for yourself. After you get a margin call waking you up at 7 AM or having an option go in the money and be assigned a futures contract, you will come to respect position sizing, stop losses, and selecting strikes far far far out of the money to sell.

For all the years I have been doing this, I do not even consider myself an expert. There is still a lot for me to learn. If anything, my trading experience has humbled me and each losing trade reminds me that I must leave my ego at the door when trading. I've said this before and I will say it again, it's not about being right, it's about making money.

Doubling your money is not all that far fetched if you combined Cordier's "staggering" method and trade 5-6 different markets plus Ron99's style of selecting strikes with very very low Delta's, under 0.04 or lower.
MJ888

Been there done that. Margin calls. Huge losses.

I even had one time years ago, before cell phones, that I was using dial up internet. Since I was on the internet nobody could call me. My broker was trying to call me. He drove to my house (15 miles) to come and get me and take me back to his office to liquidate my positions. I'll never forget that day. And I never want to do that ever again.

Yep the school of hard knocks still gets me too. Sometimes I try to hit a home run rather than singles. When you try to hit home runs you strike out a lot.

I haven't stopped trying to hit home runs every once in a while but I try it far less.

Even worse than you doing something wrong is when things out of your control happen. Like when the exchange jacks up margin by a huge percent (silver is one example).

Or when your broker/FCM decides your position is too risky for them and they force you to close profitable positions. I have left many places because of that. They just can't get it out of their heads the oft repeated line that "naked options are risky". Which they aren't if traded properly. But they have no problem with you doing futures where you can be wiped out in hours.

OK I will get off my soapbox now.

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Old February 3rd, 2013, 11:21 PM   #645 (permalink)
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kevinkdog View Post
Sorry in advance for the long post. Hopefully this will be useful to someone on the fence about starting to trade OTM options...

OK, last weekend I made the decision to try out the "sell deep OTM options" strategy. On Monday, I opened an account with OptionsXpress. By Friday (today), I was funded and made my first trades (below). Super quick process.

Some intial thoughts/musings:

I have never traded options before now. But, I already knew all the lingo, calculations and the basics of options. Also, I have been trading futures for over 20 years. So, I wouldn't recommend a newbie jump into this like I did.

OptionsXpress has by far the best customer service of any broker I deal with, and I currently have 3 other futures brokers and 1 forex broker. I dealt with them via e-mail and live chat, and always got quick, straightforward answers.

I found a deal where the first 50 trades (until June 30) are basically commission free. They still hit you with exchange fees, and some other 75 cent "transaction fee," but for a few months I'll be paying aorund $2.20-$2.50 per contract. After the promotion goes, assuming I am still trading this method, I'll ask for a discount like others have. When I do my initial ROI analysis, for now I still assume $15.51 commission per contract (worst case). ROI numbers below will use actual commission I am paying.

If you saw my Big Mike webinar in December, you might remember I was big on "incubation." In a nutshell, the idea is that once you find a trading strategy, you don't use real money for a couple of months, and instead you just watch it in real time. It is a great way to save trading capital when you create one of those "looks great in backtest, fails in real time" type systems.

Obviously, I violated my own rule here (cue foreboding music). I did that because 1) this is not a traditional backtested system and 2) I felt I could only evaluate it by actually using real money. So, in effect I am incubating this approach, but with a small amount of real money. Mid year, if the method (the way I implement it) seems to hold up, I plan of moving an IRA account there, and trading it more heavily.

OptionsXpress Trade Calculator is a pretty neat tool. Even though it has OE margin requirements, I am using it to evaluate spread positions I trade with another broker (who has no online margin calculator).

My initial "test" here will try to get the 3 x margin requirement around $1,000. Most times this will mean selling only 1 contract.

**********************************
So, here are the trades today (I will use the same reporting style as Ron has):

Sold 1 CLJ3 75 put for .07. Margin $327, cash excess $654. 42 DTE. $2.22 fees. ROI 5.0% per month (seems so good, I wonder if I did something wrong)

Sold 1 KCK3 200 call for .21. Margin $344, cash excess $688. 70 DTE. $2.52 fees. ROI 3.2% per month (seems so good, I wonder if I did something wrong)

I have one other open order. If it gets filled today, I will go back and edit this post.



Below is how I plan to "watch" these trades. Much slower pace with options than my normal futures, so my monitoring method may change.



Comments/questions/criticism will be VERY appreciated. Especially criticism - please feel free to challenge me on my trades and my calculations.

The trades look fine. The ROI% are correct.

Sorry to be the bearer of bad news but OX, after getting purchased by Charles Schwab, no longer allows futures or options on futures trading in IRA accounts. It did grandfather in accounts already open and doing that to stay open, so far. So yes I have IRA accounts there. But they refused to do another one for a relative.

I keep track of exchange minimum margin on futures for front month futures for each commodity I trade. Then in a 2nd spreadsheet column I keep track of OX's margin (I have a watchlist setup for that). I can then know how much the Trade Calc is higher than minimum.

For example, OX is 10% higher on KC.


Last edited by ron99; February 4th, 2013 at 02:38 PM.
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Old February 3rd, 2013, 11:28 PM   #646 (permalink)
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MJ888 View Post
Glad to see you back Ron99

Thanks to you.

And thanks to all that offered condolences.

It was my mother in law that died. I needed to be there for my wife. It was a surprise and happened quickly after the cancer diagnosis.

Great to see so many good posts from so many people.

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Old February 3rd, 2013, 11:36 PM   #647 (permalink)
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Old February 3rd, 2013, 11:44 PM   #648 (permalink)
Market Wizard
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Big Mike View Post
Sorry for your loss, Ron. I hope your wife will be OK given some time.

Mike

Thanks

She's as good as can be expected now that the funeral is over. She's actually had to help her siblings out. They are handling it worse.

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Old February 4th, 2013, 07:41 AM   #649 (permalink)
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spj77 View Post
Hi Harvard,
I checked out DDT a while ago when i was looking for who to setup with and I was told the margins there for selling naked options were 200% of the futures initial margin at the time of order placement (so something like 6,710 for 1 KC option).
Is that what/how they apply margin, or did you have to negotiate with them for SPAN minimum only and not the 200%?
Cheers
Scott

Hi Scott,

Im not sure how you got that info. but this is a excerpt of the reply I received from the principle at DDT when posing the initial questions of being option seller friendly and their application of margin for option sales.

"Thank You for contacting us.


1.) We are Option-Writer friendly just as long as you maintain a decent account balance & comply with any margin calls immediately. Historically speaking, Option Writing has been the # 1 Destroyer of Major Banks & Brokerages so it cannot be taken lightly.


2.) Exchange minimums are required for holding positions overnight. We do not inflate these figures."

I currently hold some short KC options, and I'm not sure of the exact margin for that specific position but absolutely know it is not the figures you suggested, but as a guide im short 33 options with DDT at the moment with a margin requirement of $48K, some of those sales currently have relatively high deltas approaching .25 which is bumping the margin up a bit higher than usual.

Exchange minimum margins are a must, wouldn't use that broker otherwise.

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Old February 4th, 2013, 10:23 AM   #650 (permalink)
Market Wizard
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Harvard16 View Post
1.) We are Option-Writer friendly just as long as you maintain a decent account balance & comply with any margin calls immediately. Historically speaking, Option Writing has been the # 1 Destroyer of Major Banks & Brokerages so it cannot be taken lightly.

This is exactly what I was talking about when I said some FCMs have an irrational fear of short future options.

I wouldn't trade there because they will eventually force you out of positions because of their fear of the risk. I have had that done to me several times. One time the account had 80% cash and they called me and said the position was too risky and told me I had to close it.

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