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Selling Options on Futures?
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Selling Options on Futures?

  #891 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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mwtzzz View Post
Huge returns ALWAYS means huge risks.

No it doesn't. You need to read the whole thread before you make that generalized statement.

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  #892 (permalink)
Market Wizard
Cleveland, OH
 
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mwtzzz View Post
Just be sure you are protecting yourself against limit-move type of events so that you don't give those profit back to the market.

When was the last one? How many in the last 5 years?

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  #893 (permalink)
Market Wizard
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mwtzzz View Post
As the most simplistic visualization, you need to have 3.65 times as many best case wins as worst case losses in order to breakeven (102,690 / 30,510). If you experience a worst case loss once a year, you need to have at least 4x as many best case wins in order to come out with a small profit.

Who stays in a trade until it hits the worst case scenario?

Your theories don't match real life trading.

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  #894 (permalink)
Trading for Fun
Houston, Texas
 
Futures Experience: Advanced
Platform: Interactive Brokers, OptionsXpress
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Favorite Futures: Options on Futures
 
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mwtzzz,

The CL trade you are referring to is not my trade so I cannot provide any statistics for it. However, in my discussion with Homerjay, I did present a question to him asking about how he would manage the position should it go against him. I did mention that if his CL spread was not exited properly, his max loss would be $60,000 to $90,000. In the real world of trading, no trader will stay in that trade until max loss, unless they want to commit financial suicide. Even then, margin increases will force him out long before it even approaches the so called worse case scenario.

Most of the long time option sellers in this thread are very risk adverse. I highly doubt any of us will stay in a trade beyond our exit rules. Call it experience or gut feeling. There are times when I am in a trade, I just feel uneasy. That is when I know it's time to cover and run for the hills. Of course, I have been wrong and left profits on the table but I accept that because there are millions of opportunities every second of the trading day.

With my style of option selling, I hardly ever hold until expiration because I sell at a higher delta with a higher premium. Ron99 on the other hand sells at extreme low delta's and small premiums and it appears he always holds until expiration. Both ways are profitable. Both ways have pros and cons. Homerjay uses a spreading strategy that is also profitable but it requires buying of options to provide a hedge and helps in keeping margin low and stable. I have traded thru several so called Black Swan events including, 9/11, 2008, Japan earthquake/tsunami and all the other smaller scale crisis. Yes, I took losses from time to time but at the end of the year, I was profitable.

I have been profitable selling options 9 out of the last 10 years. The one year that I was not, I was about at break even, loss resulted from commissions. And it was not due to market conditions. It was due to my break down in focus and discipline.


Last edited by MJ888; February 25th, 2013 at 12:31 PM.
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  #895 (permalink)
Trading for Fun
Sunnyvale, CA
 
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MJ888: thanks for your written reply. It sounds like you have thought things through and are risk-averse (which is very important).

It's difficult sometimes to get a gauge on where people are coming from, unless details are provided. I just want to make sure people have the necessary caution when trading. Many of the recent posts in this thread simply say "selling premium is a GREAT idea!" which by itself can be dangerous to new traders who might not understand the implications.

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  #896 (permalink)
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whatnext View Post
Wasn't the question.

Unless, you're a journalist, I'm assuming you're trying to determine how likely it is to get hammered selling OTM? If that's the case, then asking one person if they've ever been hammered is not going to be meaningful. you need to ask 100 options traders.

Wow, I sense some hostility in this thread. All I'm trying to do is be helpful (and realistic), especially for the sake of people new to options. But I'm greeted with fairly ready hostility ... perhaps I should not bother with this thread

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  #897 (permalink)
Market Wizard
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May CL 70 puts are bid 773 times at 0.08. 51 DTE. Delta .0159. Monthly ROI 5%+. Settled at 0.08 Friday.

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  #898 (permalink)
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No hostility on my part I hope. Selling premium is indeed very effective and I totally agree that it's power must be respected.

Most on this thread have been selling options for a long time and I highly respect their input. In the few short months that I have been here, I have learned a lot.

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  #899 (permalink)
Trading for Fun
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I have simulated the CL reverse diagonal spread trade on IB that Homerjay and I discussed earlier. My position size is only 1/3 of his since I have my sim account set to realistic levels. The results should be the same, just on a smaller scale. I will post updates as needed.

Sold 10 June CL 83 puts @ 1.18 +$11,800
Bought 10 May CL 80 puts @ 0.42 -$4,200

Sold 10 June CL 108 calls @ 0.30 +$3,000
Bought 10 May CL 110 calls @ 0.09 -$900

Commissions @ IB = ($23.20 x 4) = -$92.80

Total Premium Collected = +$9,607.20

Initial Margin Required is $7,206
Maintenance Margin is $5,765

Note that I did not buy additional calls or puts.

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  #900 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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Favorite Futures: Options on Futures
 
Posts: 2,677 since Jul 2011
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MJ888 View Post
I have simulated the CL reverse diagonal spread trade on IB that Homerjay and I discussed earlier. My position size is only 1/3 of his since I have my sim account set to realistic levels. The results should be the same, just on a smaller scale. I will post updates as needed.

Sold 10 June CL 83 puts @ 1.18 +$11,800
Bought 10 May CL 80 puts @ 0.42 -$4,200

Sold 10 June CL 108 calls @ 0.30 +$3,000
Bought 10 May CL 110 calls @ 0.09 -$900

Commissions @ IB = ($23.20 x 4) = -$92.80

Total Premium Collected = +$9,607.20

Initial Margin Required is $7,206
Maintenance Margin is $5,765

Note that I did not buy additional calls or puts.

Here's a chart of those options this year.
Interesting that IB is only 13.7% higher than SPAN margin for that trade.

I'm on the fence about this type of trade. A .1600 delta on those June puts makes me think you will get bounced out a few times on those each year.

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