Selling Options on Futures?

January 22nd, 2018, 08:07 AM

Hi Ron,

I hope you also had a good trip/break! I was contemplating asking this question in the thread.

I understand you are doing mainly S and P Mini put option spreads. From my understanding these are credit spread's. But the sell being closer to the money than the buy (as opposed to Cordier's other way around). Is the reason to this because you want a higher Delta so quick turn around on option price decrease (get out at 50% as your plan is) ? and the put buy's are for protection? is this correct.

Also as you aren't doing fundamental's for these trade's how are you achieving such high success (the contract has unexpected dips in prices). Are you taking advantage of the overall increase in the contract?

thank you. Just looking for the psychology behind it. I know you mentioned commodities have been moving a bit randomly for your liking, is that still the case. As I understand you had a lot of success in earlier years in commodities, when that was your focus. Or is this a matter of whatever you prefer at the time.

thanks in advance.

January 22nd, 2018, 08:14 AM

tinaturner

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

The problem with calls in ES is you are not very far OTM so the chances of losing money are far greater than puts.

A 3 delta put right now for the April contract options is 2280 strike. Futures are at 2815. That is a 535 difference.

A 3 delta call right now for the April contract options is 3065 strike. Futures are at 2815. That is a 250 difference.

The June 2016 ES future had a 282.50 rise in less than 90 days. There are many more contracts with a 200+ rise in less than 90 days. Those short calls would have been in trouble many times.

Other than the Dec 2008 ES future contract when there was a 551.50 drop, since 2009 there has never been a drop in 90 days that was more than 269.

January 22nd, 2018, 08:16 AM

rsm005

Given the looming Govt Shutdown and the chances that it may not get resolved I've closed out my open position, for a profit but not much. I'm going to sit out next week and see what happens. I'd like a weekend with no heartburn

.

/rsm005/

I'm staying in. If the drop is quick the extra longs will cover it. I highly doubt the shutdown lasts very long.

January 22nd, 2018, 08:24 AM

JokerTrader321

Hi Myrrdin and Ron,

What do you guys recommend when looking for best margin's (selling options), credit ratio spread's or vertical credit spread's? which do you prefer when you are bullish/bearish on a market. And when you think the price will stay fairly steady, do you usually go for a strangle?

thanks in advance.

I don't like ratio spreads. When I had an account with Cordier he was continually losing money with them.

I do vertical spreads in many commodities.

Last year April through Nov I sold NG strangles. Selling puts in the low 2s and calls 4+. No losing trades. 70-95 DTE. Exit at 50% drop.

January 22nd, 2018, 10:19 AM

I sold the following spread today:
ESM8/EWJ8 (per spread)
+1 2360 P @ 7.0
-3 2200 P @ 3.7
for a credit of 4.1
Span of 760 (TOS)
DTE = 99

January 23rd, 2018, 08:44 PM

The dollar has gotten beaten up lately. Wondering when it might be time to get some long delta on DX? Unfortunately with ToS, there are no options on DX, but I do trade the Euro 6E often using strangles.

Also, gold seems to have a decent inverse relationship with DX right now, so looking to add some additional short delta on GC.

Thoughts?

January 26th, 2018, 10:40 AM

myrrdin

Generally deep OTM options react much stronger to a rise in volatility than other OTM or ATM options.

Best regards, Myrrdin

Yes, I'm learning that deep OTM options need more room to fluctuate if they're to be traded. @myrrdin, what range of premium do you prefer to collect?

January 26th, 2018, 11:17 AM

Calamari88

Yes, I'm learning that deep OTM options need more room to fluctuate if they're to be traded. @myrrdin, what range of premium do you prefer to collect?

I usually collect 200 - 400 USD per OTM option. This seems to me to be a good compromize, regarding probability of getting in the money, reaction to a rise in volatility, relation of margin to premium, and fees.

Best regards, Myrrdin

January 28th, 2018, 07:58 PM

ES margin is increasing effective Monday Jan 29 by 5.2%

mattz · January 29th, 2018, 12:51 AM

I suggest that those who sell options read this https://www.epsilontheory.com/wp-content/uploads/epsilon-theory-things-that-go-bump-in-the-night.pdf

"Today though � if that talismanic put-buying behavior is going away � and I think it is � then systematic volatility selling strategies won�t work as well going forward as they have in the past. That�s not a bold market call. It�s just a mechanistic fact of markets: sellers don�t get as high of a price for what they�re selling if you have fewer buyers. Volumes go down and margins are squeezed for traders, too."

I totally believe his statements considering that many (sadly) nowadays consider OTM (out of the money) options selling as safe.

Matt Z
Optimus Futures

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

Selling Options on Futures?

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Selling Options on Futures?