Selling Options on Futures? - Options on Futures | futures io social day trading
futures io futures trading


Selling Options on Futures?
Updated: Views / Replies:693,967 / 6,326
Created: by ron99 Attachments:735

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 735  
 
Thread Tools Search this Thread
 

Selling Options on Futures?

  #871 (permalink)
Elite Member
Rockland county , New York
 
Futures Experience: Intermediate
Platform: NT 7
Favorite Futures: CL, 6E, SI, ZC
 
whatnext's Avatar
 
Posts: 235 since Mar 2011
Thanks: 340 given, 78 received

Thanks for the insight and glad to hear you are doing well Ron.

Vic Sperandeo's books are some of the few that helped me out and he warned that in the long run ppl selling naked OTM options have the buyer expire worthless 90%+ of the time, but the rare 10% crude (or whatever) move against them kills the profits. Scared me off.

My difficulty in general with buying options through a broker has been having a good idea the levels - but not the timeframe parameter in which it occurs - and worry over time decay.

"Be right and sit tight." - Jesse Livermore
Reply With Quote
 
  #872 (permalink)
Trading Apprentice
Chicago, IL/USA
 
Futures Experience: Advanced
Platform: RJOVantage
Favorite Futures: futures
 
JMarsh's Avatar
 
Posts: 15 since Feb 2013
Thanks: 1 given, 6 received


vmaiya73 View Post
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

What was the contract and the strike price? If the option was "deep OTM" you have a long time to wait for time decay to kick in.

Reply With Quote
 
  #873 (permalink)
Trading Apprentice
Chicago, IL/USA
 
Futures Experience: Advanced
Platform: RJOVantage
Favorite Futures: futures
 
JMarsh's Avatar
 
Posts: 15 since Feb 2013
Thanks: 1 given, 6 received



whatnext View Post
Thanks for the insight and glad to hear you are doing well Ron.

Vic Sperandeo's books are some of the few that helped me out and he warned that in the long run ppl selling naked OTM options have the buyer expire worthless 90%+ of the time, but the rare 10% crude (or whatever) move against them kills the profits. Scared me off.

My difficulty in general with buying options through a broker has been having a good idea the levels - but not the timeframe parameter in which it occurs - and worry over time decay.

Dr. John Summa (OptionsNerd.com) debunked the "90% expire worthless" myth years ago. The CBOE, which certainly can quote contract statistics, clears things up with a brief note here:

Advisors - Knowledge Center Article

Statistics aside, selling options on futures is an exciting and unique strategy that remains the obsession of a select few!!

Reply With Quote
 
  #874 (permalink)
Trading for Fun
Sunnyvale, CA
 
Futures Experience: Advanced
Platform: TTTrader
Favorite Futures: CL
 
Posts: 160 since Dec 2012
Thanks: 8 given, 94 received


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.

the issue is not how low the stock will go, the issue is how low your account will go before you get a margin call.

Selling a Put is a fixed-reward/unknown-risk trade. The loss can be many times the reward. You can sell a put for $1000, and that put can move several thousand dollars against you.

Don't sell options that you don't intend to be exercised on. If buying stock at price X is part of your trading strategy, then it's okay to sell a Put a strike price X.

Reply With Quote
 
  #875 (permalink)
Freemason
Chicago, IL
 
Futures Experience: None
Platform: oil super computer
Favorite Futures: multiple
 
Posts: 193 since Jun 2011
Thanks: 595 given, 192 received


JMarsh View Post
Dr. John Summa (OptionsNerd.com) debunked the "90% expire worthless" myth years ago. The CBOE, which certainly can quote contract statistics, clears things up with a brief note here:

Advisors - Knowledge Center Article

Statistics aside, selling options on futures is an exciting and unique strategy that remains the obsession of a select few!!

And a quote from the article


Quoting 
Note that 90% of options go unexercised, which is very different than expiring worthless

From the sellers point of view I don't see how unexercised and worthless are all that different. For most traders though the margin will force you out before you even have to worry about having the contract put to you.


Last edited by mongoose; February 24th, 2013 at 12:40 PM.
Reply With Quote
 
  #876 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,362 since Jul 2012
Thanks: 1,110 given, 4,291 received
Forum Reputation: Legendary


mongoose View Post
And a quote from the article



From the sellers point of view I don't see how unexercised and worthless are all that different.

I think unexercised means "closed out before expiration." Those options could be profitable or not when the are closed out. They just were never exercised, but they would have some value at the time of closing - otherwise why close them out?

Reply With Quote
 
  #877 (permalink)
Trading for Fun
Houston, Texas
 
Futures Experience: Advanced
Platform: Interactive Brokers, OptionsXpress
Broker/Data: Options Express
Favorite Futures: Options on Futures
 
MJ888's Avatar
 
Posts: 165 since Sep 2012
Thanks: 37 given, 123 received


Homerjay View Post
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%.

Welcome. Thanks for sharing. I used your method and plugged in various strike combinations with CL and W, when I have time I will try it on KC, SB, GC and a few others. So far I really like the potential results, especially if I can collect 2x to 3x more premium than the required margin.

Here are some of my observations and questions:

1) At first I was concerned about the extra commissions but I quickly realized that the potential profit will more than cover the costs. Plus being able to stay in a position to weather the volatile times is always a good thing. Keeping margins low and manageable is also very important to me.

2) I know you mention that you usually only stay in a trade for 3-5 weeks and exit with a nice profit. And I can understand why too cause if the front month long options expire you would be left with a short naked position or have on a strangle which will require 2x-3x or even more margin. So my question is have you stayed in a trade until expiration and how do you deal with the margin increases? Especially on IB too where margins are much higher than most places.

3) A 95% win rate is obviously awesome but how do you deal with the 5% of losers? What is your stop loss plan? I realize that your positions provides a 2-3 point hedge but a position of 30 CL's is $60,000 to $90,000 in potential losses. I am certain you will not allow any trade to get to that point so where and when would you take a loss?

Thanks!

Reply With Quote
 
  #878 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,700 since Jul 2011
Thanks: 781 given, 4,720 received
Forum Reputation: Legendary


JMarsh View Post
Dr. John Summa (OptionsNerd.com) debunked the "90% expire worthless" myth years ago. The CBOE, which certainly can quote contract statistics, clears things up with a brief note here:

Advisors - Knowledge Center Article

Statistics aside, selling options on futures is an exciting and unique strategy that remains the obsession of a select few!!

I believe that study was done on stock options.

Here is a John Summa study done on CME data on options on futures.
Do Option Sellers Have a Trading Edge?

Quoting 
Based on data obtained from the CME, I analyzed five major CME option markets - the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 - and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.

93.9% of S&P 500 put options expired OTM over 3 years.

Here's the full Summa study
http://app.topica.com/banners/forms/900067555/900031275/SELLERSVSBUYERSWHOWINS.doc

Since this data is from 1997-1999, that is why grains, metals and energies aren't included. They weren't owned by CME then. I believe.


Last edited by ron99; February 24th, 2013 at 05:38 PM.
Reply With Quote
The following 2 users say Thank You to ron99 for this post:
 
  #879 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,700 since Jul 2011
Thanks: 781 given, 4,720 received
Forum Reputation: Legendary


JMarsh View Post
What was the contract and the strike price? If the option was "deep OTM" you have a long time to wait for time decay to kick in.

He answered contract and strike price earlier.

His position is 21 DTE. Time decay has already kicked in strongly.

Reply With Quote
 
  #880 (permalink)
Trading Apprentice
Toronto, Ontario
 
Futures Experience: Advanced
Platform: IB
Favorite Futures: Options on Futures
 
Posts: 8 since Feb 2013
Thanks: 5 given, 24 received



MJ888 View Post
Welcome. Thanks for sharing. I used your method and plugged in various strike combinations with CL and W, when I have time I will try it on KC, SB, GC and a few others. So far I really like the potential results, especially if I can collect 2x to 3x more premium than the required margin.

Here are some of my observations and questions:

1) At first I was concerned about the extra commissions but I quickly realized that the potential profit will more than cover the costs. Plus being able to stay in a position to weather the volatile times is always a good thing. Keeping margins low and manageable is also very important to me.

2) I know you mention that you usually only stay in a trade for 3-5 weeks and exit with a nice profit. And I can understand why too cause if the front month long options expire you would be left with a short naked position or have on a strangle which will require 2x-3x or even more margin. So my question is have you stayed in a trade until expiration and how do you deal with the margin increases? Especially on IB too where margins are much higher than most places.

3) A 95% win rate is obviously awesome but how do you deal with the 5% of losers? What is your stop loss plan? I realize that your positions provides a 2-3 point hedge but a position of 30 CL's is $60,000 to $90,000 in potential losses. I am certain you will not allow any trade to get to that point so where and when would you take a loss?

Thanks!

Actually had to drop KC & SB from my system as had trouble getting reasonable fills at the strikes my system indicated, but it works great for markets like ES, GC, CL, W.

1) Yes the commissions are more than for naked options, but it's certainly worth it from an ROI perspective. I do often end up keeping the long legs until expiration as by the time I'm taking profits on the short legs the longs are worth very little, so keeping them saves on closing commission and gives me a portfolio that's actually black swan friendly (which is nice when selling options!)

2) No ever stayed until expiration as once I'm past 70% profit on the spread I bring in the shorts (and sometimes due to weekends/long weekends/luck I'm actually closer to 80% profit by the time I get my order in and filled). Margin increases haven't been too much of a problem because I hold a lot of cash and peel off some contracts if a margin increase takes me too far from my ideal position size. However with spreads any margin increases have a much smaller impact than with naked options.

3) I'm really risk averse and it's taken me over 12 years to get to my current level of profitability, so to me not making money = risk of losing money so if by 3 weeks into a trade I'm not reasonably profitable I close it out early (a time stop if you like on losses, breakeven or minor profits) so my losses are relatively small given the size of trades I do. Yes I'm probably giving up some trades that would ultimately be profitable but this rule works for me. Also with the double diagonal spreads one side will always be very profitable if one side is approaching a loss. My system is specifically looking to enter on a volatility spike so usually turmoil gets me in and a quieter day really allows the shorts to decay rapidly. The $ risk looks big but are position sized appropriately to my account size (Van Tharp has an excellent and very detailed book on position sizing, doesn’t cover option selling specifically but the principles are solid and can be made to work).

Reply With Quote
The following 3 users say Thank You to Homerjay for this post:

Reply



futures io > > > > Selling Options on Futures?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

Alternative Views on Traditional Tools w/Rhonda Jones

Elite only

FuturesTrader71: TBA

Elite only

Al Brooks: TBA

Elite only

Jigsaw Trading: TBA

Oct 19

RandBots: TBA

Oct 24
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Crude Oil (CL) futures inverse pairing options Big Mike Commodities Futures Trading 8 December 12th, 2013 11:00 AM
Recommend futures, options Broker? sam1197 Reviews of Brokers and Data Feeds 17 March 27th, 2013 12:42 AM
Trading Futures with options as protection Gooffy2010 Commodities Futures Trading 6 October 2nd, 2012 04:55 PM
Selling Njniatrader sam1197 NinjaTrader 22 June 28th, 2012 12:40 PM
Zen-Fire Futures options tici88 Reviews of Brokers and Data Feeds 1 July 30th, 2011 09:16 AM


All times are GMT -4. The time now is 05:18 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-09-21 in 0.09 seconds with 19 queries on phoenix via your IP 54.80.140.5