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Selling Options on Futures?
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Selling Options on Futures?

  #7101 (permalink)
London, UK
 
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@Sagal,


Quoting 
Not helpful guys...I will more rarely come and intervene as there are not enough exchanges on the topics I am interested in (I am talking as well of exchange of ideas or information on commodities on the other topics of this forum; not that I found better forums but let's go back to solitary...).

I can understand your frustration at the inactivity at times on the forum, and I would like to respond more to your posts and see these threads become more active, but - with the greatest of respect - I sometimes struggle to understand your posts. For example, what was the Copper trade you did in Jan? Am I right in assuming that you had a naked put, and when copper fell, you bought a long leg, to make it into a spread, and that still lost money?

I have traded a lot of credit spreads on commodities, and I have been quite profitable on these. Eg.

https://futures.io/options-futures/36932-diversified-option-selling-portfolio-137.html#post688571

It may have been just "beginners luck", and I would like to see other traders discuss this.


@swisstrader321, I will also recommend Cordiers book (in spite of them going bankrupt). Plus, I enjoyed "Higher Probabilty Commodities Trading" by Carley Garner, although this is not specifis to options selling.

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  #7102 (permalink)
Market Wizard
Linz Austria
 
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zxcv64 View Post
@Sagal,



I can understand your frustration at the inactivity at times on the forum, and I would like to respond more to your posts and see these threads become more active, but - with the greatest of respect - I sometimes struggle to understand your posts. For example, what was the Copper trade you did in Jan? Am I right in assuming that you had a naked put, and when copper fell, you bought a long leg, to make it into a spread, and that still lost money?

I have traded a lot of credit spreads on commodities, and I have been quite profitable on these. Eg.

https://futures.io/options-futures/36932-diversified-option-selling-portfolio-137.html#post688571

It may have been just "beginners luck", and I would like to see other traders discuss this.


@swisstrader321, I will also recommend Cordiers book (in spite of them going bankrupt). Plus, I enjoyed "Higher Probabilty Commodities Trading" by Carley Garner, although this is not specifis to options selling.

I agree that Cordiers book is definitely worth reading.

Best regards, Myrrdin

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  #7103 (permalink)
Singapore
 
Trading Experience: Intermediate
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swisstrader321 View Post
Can anyone recommend a source for education on writing options on commodities beside Carley's basic books?

Thanks in advance

Apart from whats been mentioned already, I've gained value from the books 'Options on Futures'- Summa & Lubo and 'The new options advantage' - Caplan , I prefer the Summa book as the examples used are a walk through on actual trades, and there is good insight to rationals and required trade adjustments as things unfold.

Both cover more than just straight sales, with strategies like ratio writes, back spreads etc, which are all valuable strategies to know.

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  #7104 (permalink)
Strasbourg, France
 
Trading Experience: Advanced
Platform: ProRealTime
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Favorite Futures: Brent, Gold, Silver, Cocoa, Coffee C, Platinum, Cotton, Lean Hogs, Natural Gas, Copper, Soybeans
 
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zxcv64 View Post
@Sagal,



I can understand your frustration at the inactivity at times on the forum, and I would like to respond more to your posts and see these threads become more active, but - with the greatest of respect - I sometimes struggle to understand your posts. For example, what was the Copper trade you did in Jan? Am I right in assuming that you had a naked put, and when copper fell, you bought a long leg, to make it into a spread, and that still lost money?

...

Thanks for your reply.
I took the habit in French forum to only mention failure as otherwise people get angry...
Things are quite different in US forum.

For Copper I had at that time one short naked put option and two short spread put options with different expiry dates.
On 3 January (I spoke from memory) the copper lost more than 3% and some will said that I overeacted or acted too quickly (always easy after the fact) but I protected the potential losses that could spiralled down by using the underlying (in this case a short copper futures same expiration than my naked one). I had some guess that evening and I did not check more, the next morning (European time) I closed my futures position as the Copper recovered very quickly that day and the next. Result in less than 12h of trading the futures the losses on the futures for protecting my capital/stopping the losses costed me the equivalent of the premiums of one naked and one spread options.
On the other side in December, I protected similarly my 3 short naked put positions on brent (different expiry date) with the collateral and this time I was successful.
Question is for the sellers of options and particularly the naked ones: are they from time to time using the underlying for protecting/stopping the losses of their naked options or is it always out of the question or only in case they are quite confident on the direction and timing of the trade?
myrrdhin? ron99? others?
For your information it is always part of my B plan when using naked position. I am using it currently for Coffee C, Silver and Orange Juice (however for other commodities I have just get out of the trades with losses but in this case I was with spread options and not naked ones)
Thanks in advance.


Last edited by Sagal; May 5th, 2019 at 07:12 AM. Reason: Replace "collateral" with "underlying"
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  #7105 (permalink)
Hannover Germany
 
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Sagal View Post
Thanks for your reply.
I took the habit in French forum to only mention failure as otherwise people get angry...
Things are quite different in US forum.

For Copper I had at that time one short naked put option and two short spread put options with different expiry dates.
On 3 January (I spoke from memory) the copper lost more than 3% and some will said that I overeacted or acted too quickly (always easy after the fact) but I protected the potential losses that could spiralled down by using the collateral (in this case a short copper futures same expiration than my naked one). I had some guess that evening and I did not check more, the next morning (European time) I closed my futures position as the Copper recovered very quickly that day and the next. Result in less than 12h of trading the futures the losses on the futures for protecting my capital/stopping the losses costed me the equivalent of the premiums of one naked and one spread options.
On the other side in December, I protected similarly my 3 short naked put positions on brent (different expiry date) with the collateral and this time I was successful.
Question is for the sellers of options and particularly the naked ones: are they from time to time using the collateral for protecting/stopping the losses of their naked options or is it always out of the question or only in case they are quite confident on the direction and timing of the trade?
myrrdhin? ron99? others?
For your information it is always part of my B plan when using naked position. I am using it currently for Coffee C, Silver and Orange Juice (however for other commodities I have just get out of the trades with losses but in this case I was with spread options and not naked ones)
Thanks in advance.


Hi Sagal,

my fixing of a trade going against me is quite simple (if it is a non-special trade) and used by many fellow naked short option sellers as far as I know. I usually sell delta 0.10 options. Once delta is 0.20 or 100% loss on my position I do close, mostly acting on prices close to end of day. Should it have been worse (delta already more oder much more than 0.20) I still close the trade itself. Just in case there´s huge spreads or my options somehow is itm, I used futures as a hedge (much less than 0.5% of all trades). Once it worked, twice it did not due to sudden rebounds. That´s why I always go out before my delta is too high, though sometimes loss is up to 150 or even 200%, which is very rare.
MG

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  #7106 (permalink)
Strasbourg, France
 
Trading Experience: Advanced
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Broker/Data: SaxoBank, IG Market
Favorite Futures: Brent, Gold, Silver, Cocoa, Coffee C, Platinum, Cotton, Lean Hogs, Natural Gas, Copper, Soybeans
 
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Posts: 49 since Mar 2019
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Thanks I understand that most of the selling options sellers are stopping quickly the trade if the price of the underlying goes against them and take profits sooner (at the latest at 50%). Finally as they would do more or less in trading futures....
Ok I take note. As always I go on with my modified strategy, see the results by myself and eventually modify it again or exit it completely. I did not go to the selling options part for using short term strategy and reverse my actions as soon as there is some wind blowing against me but we will see...
In my previous post I changed the term "collateral" to "underlying".

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  #7107 (permalink)
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On April 11 I sold EW3n19p2275(-2)p1980(+3) for 4.55. Today I exited at 2.40. 40 days held. 1.5% MROI. 6xIM.

Undecided if I will try more of them.


Last edited by ron99; May 22nd, 2019 at 08:30 AM. Reason: Corrected wrong final price
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  #7108 (permalink)
Hanoi, Vietnam
 
Trading Experience: Beginner
Platform: Interactive Brokers
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Hi from a new member

Hello everybody,

I have found this thread since last November (after Optionseller.com got wiped out). I am currently going through the thread (Im on page 130), Im learning a lot already, and see that many people have different styles. Just thought Id post to say hi. I see that thread is now a lot less active than it used to be (at page 130), hope that nothing much has changed and everyone is still selling options.

A little background: I majored in Finance, and after grad school was in search for a strategy that can work during up and down of the economy. After a ton of reading I found options selling. I read Cordier's book and it made a lot of sense. I tried it out, got some initial success, but most of my trades back then were based on Cordier's articles. Then one day he got wiped out. I was in deep shock, cause I got into this because of him and now he is "no more". (Funny that I actually made 14% of my money during that period, I sold NG calls at strike 17 when volatility was about 100).

Everybody started hating on options selling and say that it doesnt work and eventually everybody will blow up. During that time I had my doubts so I started digging deeper but in the end, I still think selling options does work, if you know what you do. I see Ron and many people gave good reasons for that. I also realized lots of things Cordier says in the book are not actually true, or at least not true in recent years. I believe Cordier failed because he didnt follow his own rules in the book, the fundamentals were against him but he took the risk anyway, and didnt even exit when he got his chance. In the end, if public looks down on options selling, its better for options sellers because of less competition.

My progress: So far its been 9 months, and I have made about 37% selling options, using Interactive Brokers (yes I know their margins are bad). Maybe I got lucky, but also after Cordier got blown up I greatly reduced size of my positions, even stopped trading for about 2-3 months, but still returns are not bad. After he blew up, I was really strict in reminding myself that anything I made was because I was lucky, to avoid getting over confident.
I sold grains, NG, Cocoa and Coffee. I avoid ES and CL and Gold cause they are too political to my liking. I mostly do deep fundamental research, and when I started I did my research going back about 10 years (about 20 years for NG), to see a history of what happened, what can I expect, how fundamentals have changed, and if disaster happened what could have been done to avoid it (This is Ray Dalio's approach to almost anything). I dont go too far, cause fundamentals back then are not similar to present day (For example back then China wasnt importing that much stuff).

For example, Cordier used to advise to sell Corn Calls during planting in Apr/May. I did my research and I saw that there was a bad drought in 2012. I took a look to see on what dates the Corn prices started to go way up. I took a look at reports available before that date, see if something could have been read/researched to see in advance that it was dangerous to sell Calls during that time. I figured that Corn started to rally on a specific date, but some time before that a trader could have seen the "drought monitor" and see that the weather is not normal, plus check the weekly crop progress before that date to see that situation is not good at all to sell Calls, thus avoid selling Calls or close the position early. (Just looking at WASDE monthly report was NOT enough, because by the time an updated ending stock was released it way already too late). And there was a pretty wide time window to do so (like 2 weeks). I know its always easier to look back and say things, but at least learning history will give us a better picture of what can happen given certain conditions. "The further you look into the past, the further you can see into the future".

Thats just 1 example. Same can be said for wheat, and Nat Gas. After Nat Gas huge spike, I also started paying more attention to historical volatility to compliment my fundamental research. I try to not over trade, I copied all of James Cordier's articles to see what specific trades he likes to do during the year, then I check and back test if they make sense, and try to apply his trades (with my own modification) to the current year.

Im so glad that I found this thread. Huge thanks to Ron99 for starting this thread, and to all traders who contributed their knowledge and experience. I will go back to reading the thread, hope to learn more from everybody. Happy trading


Last edited by yurahoang; June 15th, 2019 at 10:52 AM.
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  #7109 (permalink)
Strasbourg, France
 
Trading Experience: Advanced
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Good to see some fresh thinking on this topic.
My impression for commodities with regards to Cordier's recommendation is that a lot has changed since he wrote his books:
- of course he went bankrupt and his clients suffered big losses.
- except for high volatility commodities it is extremely hard and not so much deep in the money anymore to use bull put or bear call spread options (a 400 USD profit is difficult to make and quite risky with the current environment. You can just check soybeans to see an amplitude in a couple of months from 950 to 810 almost back and forth). Otherwise you have to chose an expiry date of more than 6 months.
- it leaves strangle and naked put /call options (or ratio call/put spread)...with their risks...


Last edited by Sagal; Yesterday at 06:56 AM.
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  #7110 (permalink)
Hanoi, Vietnam
 
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Sagal View Post
Good to see some fresh thinking on this topic.
My impression for commodities with regards to Cordier's recommendation is that a lot has changed since he wrote his books:
- of course he went bankrupt and his clients suffered big losses.
- except for high volatility commodities it is extremely hard and not so much deep in the money anymore to use bull put or bear call spread options (a 400 USD profit is difficult to make and quite risky with the current environment. You can just check soybeans to see an amplitude in a couple of months from 950 to 810 almost back and forth). Otherwise you have to chose an expiry date of more than 6 months.
- it leaves strangle and naked put /call options (or ratio call/put spread)...with their risks...

Yes the book is outdated, especially on things about seasonalities of certain commodities, I checked year by year and its just not what he says it is. Im on page 240 now, I have seen so many traders here use 5 and 15 years charts, I dont think there is anything bad about it but using them without seeing each year independently is just not enough in my opinion.

I have only been selling naked. But hear me out: Im also very picky about the trades, I dont trade often. So far my reasoning is: I want to get really good at analyzing about 15-20 specific trades of specific commodities during specific times of the year, get really good at it, and every year wait for my opportunity during that specific period of time. (For example NG puts in Feb, KC calls in Jan/Feb, Grain Call/Puts during summer-fall...). This is clearly based on seasonality/fundamentals, and even historical volatility. If done properly, there are higher chances to sell further out of money + at higher premium, not to mention with better liquidity. I understand that there are years where seasonality and fundamentals dont work well (like Trade War), but I only need about 12-15 "big" trades to work per year to average relatively safely about 20-25% annual ROI.

My focus is to get really good at those specific trades, to make it my bread and butter. "I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times"


And of course occasionally when opportunity arises, I will throw in other trades (like when NG volatility spiked up to unreasonable levels, I take my chances). Looking at selling premium that way, I dont think selling naked sounds THAT risky. But I might be wrong, ive only traded for 9 months afterall

I see lots of traders here have astronomical returns over the past years, I dont exactly know what other's goal is, but consistent 20% per year for me is already good enough, if achieved with good Sharpe Ratio and modest volatility/std dv. Key word is consistent and safe. I believe 20% average per year for 10 years straight is a respectable return from any point of view. So I guess its important to know your goal, and your risk tolerance

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