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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,062 / 5,734
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Selling Options on Futures?

Old February 22nd, 2013, 12:17 PM   #841 (permalink)
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Crude Oil - When to Bail Calculations


ron99 View Post
If you are selling options at <$100 premium then I wouldn't use doubling of premium. Above that probably. But just going off of premium leaves you missing part of the picture. Margin can and does move independently of premium. Exchanges can raise margin. FCMs can raise margin above the exchanges.

When I use up the cash excess I set up for that trade when I put it on, that's when I dump it. If every position in your account did this you would be on margin call.

If margin is $500 then I have $1000 excess. If the loss on the premium plus the increase in margin is up to $1000 then it is time to get out.

And of course the reason the market went against you plays a large part in determining whether to dump it or not.

With the big drop in crude this week, I thought it would be interesting to calculate my possible exit point, using Ron's method shown above. This is what I get (I hope it is clear).


I am a little confused because I used freed up margin from the first sale of a crude option to sell a second option back on 2/12...

So, I will treat both the original and "add on" option together as a pair (maybe I should not).


Originally, I sold CLJ375P for net premium of $64.73. Margin was $327, so I had $654 excess.

2 weeks later, I sold CLJ365P for net premium of $4.73. Margin was $103.


So, overall I collected $69.46 in premium, and right now it is showing a $40 gain.

On margin right now, my initial position has margin of $511, and the second position has margin of $122.


Since I started with $654 excess, I figure I know have $654 + 40 (premium) –184 (increase in position1 margin) –122 (position 2 margin) = $388 in excess remaining.

So, should margin on the 2 positions, plus any premium loss, go up by combined $388, I’ll probably bail (according to your rule).


Is that how you would do it, or do you treat each position as separate, even though the 2nd one was a “add to winner” type trade?

THANKS!

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Old February 22nd, 2013, 01:12 PM   #842 (permalink)
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uuu1965 View Post
Hi all,
I have trading expierence from 2004 (equties, futures, options, currency) without any success. To risky, to unpredictable...
After reading J.Cordie book for apr. 1 year I selling only options and feel comfortable with constant growth. I use only fundamental data, in my opinion technical approach help a little...
I carefully follow this very interesting thread and now decide to transfer my assets from IB to OX broker. Mostly for margin requirement (they are incomparable). I have some question about OX:
1. Is there any additional security (in addition to username and password)?
2. What is PIN and for what?
3. Did you trade directly from web page or use xTend platform?

Thanks in advance

uuu1965

Hi uuu,

There was some information earlier in the thread that suggested OX might have stopped servicing European clients. This isn't correct, but they seem to be aiming towards US customers. They said to me:

"upon our review and at our discretion we accept unsolicited accounts from non-U.S. residents. Although our account opening process is geared toward opening accounts for persons with a U.S. domestic address, we will review and open foreign accounts depending on the country of residence and at our discretion"

The new commission pricing ($3.50/contract for options) only applies to US customers. Non-US clients go off the tier rates, starting at $12.99 for 1-40 contracts per month.

I was also told today that "SPAN margin only applies to futures trades" and not to options. The guy said this was for all acounts, not just non-US. On their "virtual trade" application I was quoted margin that was even worse than IB's. I nearly fell off my chair.

Let me know if you have better luck with them.


Chris

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Old February 22nd, 2013, 01:44 PM   #843 (permalink)
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alfredoe View Post
It is correct. I am not comparing opctions with the same strike price.

This way I sell options farther out with less risk and collect higher premium. The main thing is that when you sell closer to expiración ANY FLUCTUATION (in days like today) may do more harm to your pocket.

Could you give us examples of the options you are comparing?

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Old February 22nd, 2013, 01:49 PM   #844 (permalink)
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MGBRoadster View Post
Hi uuu,

There was some information earlier in the thread that suggested OX might have stopped servicing European clients. This isn't correct, but they seem to be aiming towards US customers. They said to me:

"upon our review and at our discretion we accept unsolicited accounts from non-U.S. residents. Although our account opening process is geared toward opening accounts for persons with a U.S. domestic address, we will review and open foreign accounts depending on the country of residence and at our discretion"

The new commission pricing ($3.50/contract for options) only applies to US customers. Non-US clients go off the tier rates, starting at $12.99 for 1-40 contracts per month.

I was also told today that "SPAN margin only applies to futures trades" and not to options. The guy said this was for all acounts, not just non-US. On their "virtual trade" application I was quoted margin that was even worse than IB's. I nearly fell off my chair.

Let me know if you have better luck with them.


Chris

What he said doesn't sound right. Earlier this week I had a OX customer service rep swear it was illegal to trade futures in IRA accounts. That was wrong and she wouldn't accept the fact that she was wrong.

Can you go to the Trade Calculator and give us an example of an option so we can compare to what I get?

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Old February 22nd, 2013, 01:55 PM   #845 (permalink)
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kevinkdog View Post
With the big drop in crude this week, I thought it would be interesting to calculate my possible exit point, using Ron's method shown above. This is what I get (I hope it is clear).


I am a little confused because I used freed up margin from the first sale of a crude option to sell a second option back on 2/12...

So, I will treat both the original and "add on" option together as a pair (maybe I should not).


Originally, I sold CLJ375P for net premium of $64.73. Margin was $327, so I had $654 excess.

2 weeks later, I sold CLJ365P for net premium of $4.73. Margin was $103.


So, overall I collected $69.46 in premium, and right now it is showing a $40 gain.

On margin right now, my initial position has margin of $511, and the second position has margin of $122.


Since I started with $654 excess, I figure I know have $654 + 40 (premium) –184 (increase in position1 margin) –122 (position 2 margin) = $388 in excess remaining.

So, should margin on the 2 positions, plus any premium loss, go up by combined $388, I’ll probably bail (according to your rule).


Is that how you would do it, or do you treat each position as separate, even though the 2nd one was a “add to winner” type trade?

THANKS!

I treat each position separate.

You should have had $206 excess for the 65 put. Or you should have had $309 unused excess before you put on that position.

You don't want 1 big loser position to wipe out the profits on all of your other trades because you held onto it too long so I treat each position separately.

If things are volatile I sometimes go to triple or quadruple excess on the real far out of the money CL puts because the very low margin and excess don't cover a moderate move.

What I do is calculate the margin on a put that is $10 higher strike when I put on the position figuring I should be able to ride at least that much of a move. If the margin + excess that I have for the $65 put doesn't cover that much of a move then I raise the excess higher. You don't want to be bailing out of 65 puts on a CL move of <10 in futures.

But in other commodities that isn't necessary. You need to look at each one.

For example today I sold Jul KC calls. The OX margin on a 300 call is 31. I add 62 excess. This total of 92 is less than the margin required (69) for a 260 call. So theoretically I could survive a 40 rise in KC. I know this isn't exact but it comes close.

Also if there is <30 DTE, I ignore the bailing out of the position rule and use excess from other positions to ride it out if it is sufficiently far enough OTM and fundamentals aren't that bad. Like now I wouldn't bail on Apr 65 puts unless there was a major fundamental change.

I know some traders like to have hard rules for exiting but I have never done that. Each situation is different.

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Old February 22nd, 2013, 03:07 PM   #846 (permalink)
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ron99 View Post
What he said doesn't sound right. Earlier this week I had a OX customer service rep swear it was illegal to trade futures in IRA accounts. That was wrong and she wouldn't accept the fact that she was wrong.

Can you go to the Trade Calculator and give us an example of an option so we can compare to what I get?

No it didn't sound right to me either, but I asked a couple of times - it was only on the chat function, so I thought I'd check again later.

I went into Virtual Trade but wasn't able to place a futures option trade (I think this may be because I was using Firefox) so I sold one AAPL MAR13 380 PUT which gave me an "Option Requirement" of USD4520

The IB IM for that option was GBP2513 (about USD3835)

I'll have a play around with it on Monday, see if I can get the future options working.

Have a good weekend.


Chris

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Old February 22nd, 2013, 03:18 PM   #847 (permalink)
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MGBRoadster View Post
No it didn't sound right to me either, but I asked a couple of times - it was only on the chat function, so I thought I'd check again later.

I went into Virtual Trade but wasn't able to place a futures option trade (I think this may be because I was using Firefox) so I sold one AAPL MAR13 380 PUT which gave me an "Option Requirement" of USD4520

The IB IM for that option was GBP2513 (about USD3835)

I'll have a play around with it on Monday, see if I can get the future options working.

Have a good weekend.


Chris

You can't do options on futures in Virtual Trade.

I don't know anything about options on stocks. I put your aapl option in trade calc and got 38,000!!!!

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Old February 23rd, 2013, 10:56 AM   #848 (permalink)
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opts View Post
When you hear 'unlimited risk' it's because prices can keep going up so selling calls, shorting a stock or future, the risk can be unlimited. However, selling puts, or going long a stock or future the risk is limited because zero is the lowest anything can go.

Lot's of scare tactics out there. If The Force is with you, you should be fine....

Opts is right, beat me to it, thanks! Yes, the trader I used to work with would often grumble that options selling had an undeserved bad rep! Brokers and traders are just doing their job when they inform you of the risks but if it was up to the National Futures Association, they'd never talk about anything but risk!! I've heard that there are even brokerages that won't let you sell options!

This will be my fifth post so I'm going to post this and then reply with a link to where the trader I used to work with is now.

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Old February 23rd, 2013, 10:59 AM   #849 (permalink)
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JMarsh View Post
This will be my fifth post so I'm going to post this and then reply with a link to where the trader I used to work with is now.

OK!! I should be able to post links now!!! The trader I used to work with shut down his brokerage and opened a new one a couple years ago. He's mostly in managed products now but I know that guy, option selling will always be his favorite, I'm sure!! His name is Matt Johnson, his brokerage now is Vista Financial in Chicago. Drop him a line if you're interested but do be aware he'd want you to open an account with his brokerage. He's a Vision GIB.

Vista Capital Management - Account/Contact

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Old February 23rd, 2013, 12:54 PM   #850 (permalink)
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Very dumb question guys so i apologize in advance.

On Friday I initiated a position in /Nasdaq futures by selling puts deep OTM with delta .02; prior to the futures market closing i was up a little. Check my account a while ago and it says im down 385 ? anybody know why that is ?

thanks

V

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