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Selling Options on Futures?
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Created: by ron99 Attachments:781

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Selling Options on Futures?

  #6611 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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Narnar View Post
Thanks, Ron! What is the 1.1 for?

IM is 1.1 times MM.

Only when your account balance (net liquidity) is less than MM do you go on margin call.

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  #6612 (permalink)
World'sWorstTrader
Knoxville Tennessee USA
 
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?


Narnar View Post
Thanks for confirming, Ron.

Yea, I am leaning toward naked options because of it's simplicity and the cost associated, although I got burned in the last two weeks. All my 6% gain in January was wiped out when my mental stop loss was hit two weeks ago...
I am yet to read the rest this thread (has gone through about 25% of it for the past week) but if you wouldn't mind reiterate on the reason you switch from naked options (short 2 delta) to -2/+3? (I am assuming one of the reason is the volatility expansion will affect the far OTM much much more? and thus higher chance of large drawdown and the inability to ride out the position until things calmed down).

Currently, I am using a mental stop loss of 3x premium collected (similar to what Thomasthomsen had suggested, but at higher stop loss). do you think this wouldn't work? especially during flash crash?

I am transitioning to -1/+2 pr -2/+3 once my funds are all fully transferred.


Looking forward for your reply

Listen to Ron. Never go naked. Or learn the hard way.

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  #6613 (permalink)
Market Wizard
Linz Austria
 
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osfutures View Post
Hi,

Has someone sold puts today on SB, KC or HE ? I think it was a good day to sell.

I sold a first lot of LHM P72. Intend to sell 3 more lots (1 x P72, 2 x P70) at a lower price of the underlying.

I do not hold a short option position in SB or KC.

You find more about short options in these commodities in the thread "Diversified Short Option Portfolio".

Best regards, Myrrdin

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  #6614 (permalink)
Trading Apprentice
Bucharest / Romania
 
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myrrdin View Post
I sold a first lot of LHM P72. Intend to sell 3 more lots (1 x P72, 2 x P70) at a lower price of the underlying.

I do not hold a short option position in SB or KC.

You find more about short options in these commodities in the thread "Diversified Short Option Portfolio".

Best regards, Myrrdin

I was thinking more for LHJ8 P61 with delta 0.11 price 0.35 and 57 days to expiration. Also LHM P72 it is ok but more risk for me. Delta is 0.18 and 119 Days to expiration. Of course for that you received about 400$.

You are right if underlying continues to go lower 2-3 days more will become interesting for me for some puts P70 or P69.

I sold 1 SBK8 P12.5 with delta 0.21 for 190$, 56 Days to expiration and 1 KCN8 P110 delta 0.15 for 397.5$ 109 Days to expiration.

Best regards,
Osfutures.

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  #6615 (permalink)
Market Wizard
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osfutures View Post
I was thinking more for LHJ8 P61 with delta 0.11 price 0.35 and 57 days to expiration. Also LHM P72 it is ok but more risk for me. Delta is 0.18 and 119 Days to expiration. Of course for that you received about 400$.

You are right if underlying continues to go lower 2-3 days more will become interesting for me for some puts P70 or P69.

I sold 1 SBK8 P12.5 with delta 0.21 for 190$, 56 Days to expiration and 1 KCN8 P110 delta 0.15 for 397.5$ 109 Days to expiration.

Best regards,
Osfutures.

Meat markets can get ugly when expiration gets close. Thus, I prefer to sell the June contract. You are correct saying that my LHM option has a higher delta. But the underlying moves slower. And the rate of growth of delta can be significant when expiry gets near.

Also the April contract seems to be valued fair, whereas the June contract seems to be undervalued.

Sugar is hard to evaluate for me. S&D is bearish, seasonals are bearish (trade recommendation by MRCI to sell at the end of February), and COT data is very bullish. In such situation I prefer to stand at the sidelines.

I am also long coffee via futures, covered by short calls.

Best regards, Myrrdin

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  #6616 (permalink)
World'sWorstTrader
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datahogg View Post
Listen to Ron. Never go naked. Or learn the hard way.

I didn't mean to be rude. This is just my experience.

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  #6617 (permalink)
Market Wizard
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tturner86 View Post
I dont know a lot about options trading. Are there any known options traders out there that y'all would be interested in seeing in a webinar? I am looking for ideas.

Probably not the most popular choice - too many people want "how" and not "why" - but a presentation that showed what the option greeks (Delta, Gamma, Vega, Theta, and Charm* specifically) are, and how they can be used to calculate exposure of portfolio's might help people better understand the risks of option positions they put on. When you shock a portfolio with a 5% underlying price and volatility move, everybody knows what the PnL effect is, but few know what their new risk profile looks like. Unfortunately I don't have a specific recommendation of a person. To clarify I'm not suggesting that you get somebody to do a presentation on the math and how to derive the greeks, just what they mean, and how they move.

* "Huh! Charm?" I hear people say. Charm probably isn't that important in equity options, where most options expire Friday and options use a business day calendar, but it can be far more important in commodity options, when expiry is Monday, and weekend volatility isn't just the same as a normal business day. (Charm is the change in Delta due to the change in time)

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  #6618 (permalink)
World'sWorstTrader
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Video

This video seemed interesting.

https://www.youtube.com/watch?v=cu1FXt4JEs8

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  #6619 (permalink)
Trading Apprentice
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Narnar View Post
Greatly appreciate your advise, Thomasthomsen. I am fairly new to options on futures, been more active on the options on equities, I will slowly learn the rope on other potential commodities that I can trade to diversify my risk. I used to have 2% risk at any given position, but I would have 10 different positions at any given moment in equities (Max 20% on portfolio). May I ask for your recommendation of a more normal/conservative risk on portfolio?

I hadn't thought about buying butterfly before. In 2017 when it was continually running up, have you had a time where the price blast through your break even point on the butterfly? (i.e., leaving the short call and butterfly at a lost). If there will ever be such a case, would add additional long butterfly to manage the position, or would you roll the untested put side up, or both (selling put to pay for the butterfly)?

NN

Trading commodities can be quite different than equities. You might want to take a look at Carley Garner's website (decarley trading) as she has a lot of good resources there. One of the main differences is that many commodities can actually have explosive moves to the upside due to surprise supply:demand imbalances, weather scares, etc... It can be similar to trading an individual stock around earnings announcements where a big surprise could push the price strongly in either direction.

Regarding losing trades -- yes, they are going to happen... Just remember to set your loss parameters and and don't try to overthink or overtrade a position. You want to let the percentages play out and eventually take your profits or hit your max loss threshold and take the loss. In your scenario of a bull market, my general preference would be to first roll up the untested side assuming there is enough time left before expiration. I've also used butterflies as "upside insurance" (costing perhaps 10% of the total credit I took in from the strangle) but I don't do this frequently and wouldn't keep adding more butterflies to try and salvage a losing trade.

You can't win every trade so you need to set your exit points in advance and stick to them. Selling option premium is generally considered the most profitable way to trade options; however, there is a big caveat that you have to respect the risks that you are taking and don't start trading too large. For example, if you look at the history of this thread the initial strategy was selling naked ES puts that were far out of the money with 90+DTE at what I would consider a very aggressive initial IM. This resulted in great returns for several years; however, there also would and have been some very large losses trading the original strategy. I'm a big proponent of the idea that the markets will always find a way to inflict the maximal amount of pain on the most people. This means you absolutely need to have risk management strategies in place (e.g., stop loss). If you study option prices during volatility spikes, it's actually the options that are further out of the money that see the largest increases in % terms. That's why I prefer to trade closer to the money (10-20 delta) and try to diversity among at least a few underlying products. Start small and stay grounded in your expectations.

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  #6620 (permalink)
Trading for Fun
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this is a very interesting and informative thread, thanks to all who have contributed, specially mr. ron99 who has devoted so much of his time to sharing very valuable information and answering questions from everyone.



i have just two questions:


i have been doing some research on the subject of financial options and i would like to confirm if the prices i have arrived at for options on the e6 are wrong. according my calculations, the price of one atm call with a strike price of 1.2400 on e6h18 this past friday was 1650 usd. ¿is that correct? also, with the data i have found, the cost of a put on the e6h18 with a strike price of 1.3100 was 8275 usd this past friday. ¿are options on futures contracts really that prohibitively expensive or are my calculations plain wrong?

what i did was just multiply the listed price by the value of one point for the e6 from this source:

https://www.barchart.com/futures/quotes/E6H18/options?futuresOptionsView=split&moneyness=allRows

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also, this is a thread with 660+ pages and thousands of posts, ¿what are the most important sections i should make sure to read first?


thanks again, regards.

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