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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,890 / 5,728
Last Reply:11 Hours Ago (05:26 PM) Attachments:642

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Selling Options on Futures?

Old February 23rd, 2013, 08:11 PM   #861 (permalink)
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whatnext View Post
Have you ever been absolutely hammered selling deep OTM Ron?

If the question is whether it's possible to get hammered selling deep OTM, the answer is yes.

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Old February 23rd, 2013, 08:24 PM   #862 (permalink)
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Wasn't the question.

"Be right and sit tight." - Jesse Livermore
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Old February 23rd, 2013, 08:46 PM   #863 (permalink)
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Homerjay View Post
or in the case of a sideways market generated signal, a reverse double diagonal spread

Hi Homerjay,

Want to learn something from you. What is a reverse double diagonal spread? Can you give an example using CL May/June contracts to illustrated this. Much Thanks.

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Old February 23rd, 2013, 09:40 PM   #864 (permalink)
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Taxes on Futures Options

Been following the selling options on futures forum for several months. Very good insights and ideas.

I started selling options on futures in 2012 after many years trading equity options. After just filing taxes for 2012 one clear advantage over equity options (there are many) is the simplicity of tax filing. One simple form vs having to list each trade separately, also options on futures trades taxed at 60% long term / 40% short term rate regardless of length option was held.

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Old February 23rd, 2013, 10:12 PM   #865 (permalink)
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whatnext View Post
Have you ever been absolutely hammered selling deep OTM Ron?

Depends on your definition of absolutely hammered.

Lost a few thousand June 2010 on coffee calls. May 2011 on energy puts. Fall 2009 on GC calls. Early 2008 on calls. Late 2008 on puts(recession). Nov 2009 on NG calls (cold snap). Jan 2010 metal puts. July 2011 on CL, RB puts and GC calls (US credit rating downgrade). Sep 2011 on CL puts.

Most of these were quick reversals by the market right after I put the positions on.

But considering I am up a net well into 6 figures the last 5 years, the hammerings weren't too bad.

Absolutely hammered by futures? Absolutely!

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Old February 23rd, 2013, 10:14 PM   #866 (permalink)
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Atreides View Post
Been following the selling options on futures forum for several months. Very good insights and ideas.

I started selling options on futures in 2012 after many years trading equity options. After just filing taxes for 2012 one clear advantage over equity options (there are many) is the simplicity of tax filing. One simple form vs having to list each trade separately, also options on futures trades taxed at 60% long term / 40% short term rate regardless of length option was held.

Yep.

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Old February 23rd, 2013, 10:18 PM   #867 (permalink)
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Homerjay View Post
Just thought I'd share this as in Canada there's not much choice with option on futures selling brokers so this is a way I've found to counter the margin problem with IB.

I noticed that OX transferred their Canadian customers to Virtual Brokers. Are they a company worth looking into?

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Old February 23rd, 2013, 10:22 PM   #868 (permalink)
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Old February 23rd, 2013, 10:38 PM   #869 (permalink)
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walker View Post
Hi Homerjay,

Want to learn something from you. What is a reverse double diagonal spread? Can you give an example using CL May/June contracts to illustrated this. Much Thanks.

Sure, building it up from basics:
• Vertical spread = same type (call/put), same month, different strikes
• Calendar spread = same type, different months, same strikes
• Diagonal spread = same type, different months, different strikes
[Traditionally a diagonal spread is long the furthest out month, and short the nearest month (which people do to help pay for some of long option they’ve bought)]

• Reverse diagonal spread (because we're option selling, we want a credit spread) = long the nearest month (but furthest out in strike price) and short the furthest month (the more expensive one, but closer strike)
[In a trending market for my system's time frame, I'll sell a single side spread e.g. calls in bear trend or puts in bull trend]

• Reverse double diagonal is doing 2 reverse diagonal spreads (one above the market with calls, and one below the market with puts). It's like an iron condor but with different months (and different strikes), when my system's time frame is signaling 'sideways'. You get the benefit of double perimum on a single margin.

Real example, last Wednesday nights load of the EOD data into my system it generated the following signals to be executed on Thursday:
• Sell June 83 Put and
• Sell June 108 Call

So to create the reverse double diagonal I did the following trades which brought in about $30k in premium on about $17k of margin with IB:

• Sell 30 x June 108 Calls for 0.39 each
• Buy 30 x May 110 Calls for 0.13 each (done as a single spread)

• Sell 30 x June 83 Puts for 1.44 each
• Buy 30 x May 80 Puts for 0.60 each (done as a single spread, 3 dollar spread vs. 2 dollars on the calls was a judgment call, usually I do the same size spread on both sides but I find having a round number in the spread helps get a better relative fill)

I usually do the spreads as equal numbered initially (e.g. sell 30 calls and buy 30 calls) and then right after I'm filled pickup an extra few calls and puts on the long side for black swan protection e.g. in the end I'm short 30 x June 108 Calls, long 33 x May 110 Calls, short 30 x June 83 Puts and long 33 May x 80 Puts. The use of 30 contracts in this specific trade comes from my dynamic position sizing algorithm but it varies with my total account size.

Note most of my system's profits actually come from volatility collapse vs. time decay so I'm usually only in the trade for 3 - 5 weeks when I can take 70% - 80% of the spreads' profit and get out early freeing up margin. I still keep a healthy % of total portfolio in cash however doing my option selling this way is pretty stable and allows a lot of staying power in fast moving markets which helps boost my overall win rate to ~95%.

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Old February 23rd, 2013, 10:52 PM   #870 (permalink)
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ron99 View Post
I noticed that OX transferred their Canadian customers to Virtual Brokers. Are they a company worth looking into?

Thanks, I did look into them but remember thinking they didn't support options on futures (unlike OX), but would love to be told otherwise if anyone here has opened a new virutal brokers account doing this (and not grandfathered in an account from OX)?

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