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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:570,021 / 5,734
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Selling Options on Futures?

Old February 25th, 2013, 03:47 PM   #901 (permalink)
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Here's a similar trade during the May drop in CL in 2012.

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Old February 25th, 2013, 03:49 PM   #902 (permalink)
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I agree about the puts myself. If I was to do this trade for real I would instead use the May 75 and June 78 puts. I even took a look at the May 70 and June 73 puts. The premium collected would be lower so will the margin and with the lower strikes I would be able to weather more of a sell off.

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Old February 25th, 2013, 04:00 PM   #903 (permalink)
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MJ888 View Post
I agree about the puts myself. If I was to do this trade for real I would instead use the May 75 and June 78 puts. I even took a look at the May 70 and June 73 puts. The premium collected would be lower so will the margin and with the lower strikes I would be able to weather more of a sell off.

Doing the May 70 June 73 with May 125 calls and June 122 calls will still get you a 9.3% monthly ROI if ridden to expiration.

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Old February 25th, 2013, 05:55 PM   #904 (permalink)
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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

The question wasn't directed at you. So when you answered it, it was pointed out that the question wasn't directed at you.

I've read your posts, and I agree that futures.io (formerly BMT) is likely not for you. Your posts come across with a lot of arrogance which does not work well in a community that works to help each other.

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Old February 25th, 2013, 05:57 PM   #905 (permalink)
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ron99 View Post
Doing the May 70 June 73 with May 125 calls and June 122 calls will still get you a 9.3% monthly ROI if ridden to expiration.

Very interesting. What if you converted this trade to a calendar spread (same strike, different expiration)? Doing a May / June 70 put with May / June 120 Call would get you:

- Buy 10 May 70 puts @ 0.09 = -900
- Sell 10 June 70 puts @ 0.24 = 2400

- Buy 10 May 120 calls @ 0.03 = -300
- Sell 10 June 120 calls @ 0.08 = 800

Total premium received : $2000 with a $2630 margin (at IB)

Would using the same strikes reduce the risk compared to the reverse diagonal spread and lower your margin (and perhaps even get filled faster at regular strike prices)? Any pros or cons on this kind of trade?

Thanks

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Old February 25th, 2013, 06:06 PM   #906 (permalink)
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I have toyed around with many different combinations as far as the strikes are concerned. Almost all of them gave me decent profit vs margin used. So it really is a matter of how much risk you want to take on.

Don't forget that Homerjay does not stay in the short options until expiration. He said he usually exits the shorts in 3-5 weeks or if he has collected 70% of the spread. If the trade is ridden to expiration, the trade becomes a strangle after the May options expire and margin will increase by 2x-3x maybe even more.

Here is another thing that I noticed, CL futures is down about $1.00 as I write this, the margin on the simulated spread did not increase by that much. In IB I am showing IM $7,566 and MM $6,053


Last edited by MJ888; February 25th, 2013 at 06:12 PM.
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Old February 25th, 2013, 06:32 PM   #907 (permalink)
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CJ77 View Post
Very interesting. What if you converted this trade to a calendar spread (same strike, different expiration)? Doing a May / June 70 put with May / June 120 Call would get you:

- Buy 10 May 70 puts @ 0.09 = -900
- Sell 10 June 70 puts @ 0.24 = 2400

- Buy 10 May 120 calls @ 0.03 = -300
- Sell 10 June 120 calls @ 0.08 = 800

Total premium received : $2000 with a $2630 margin (at IB)

Would using the same strikes reduce the risk compared to the reverse diagonal spread and lower your margin (and perhaps even get filled faster at regular strike prices)? Any pros or cons on this kind of trade?

Thanks

SPAN margin 2150. Monthly ROI 9.8%.

You lose the protection of the long options at about 40 DTE of the short options. Don't know if that is a big worry.

Without the long positions, then it's a strangle and the premium is 3000 and the margin is 4130 and ROI 8.4%.

As a covered spread, long June 65 put short 70 put. Short 120 call long 125 call. The margin is 1890 premium 1300 ROI 7.2%.

These ROI are assuming 5.00 per contract costs and double excess.

The one thing to remember is that you won't be able to put on both sides all the time. Like last summer and the drought you wouldn't want to have the call side on in grains.

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Old February 25th, 2013, 06:34 PM   #908 (permalink)
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MJ888 View Post
I have toyed around with many different combinations as far as the strikes are concerned. Almost all of them gave me decent profit vs margin used. So it really is a matter of how much risk you want to take on.

Don't forget that Homerjay does not stay in the short options until expiration. He said he usually exits the shorts in 3-5 weeks or if he has collected 70% of the spread. If the trade is ridden to expiration, the trade becomes a strangle after the May options expire and margin will increase by 2x-3x maybe even more.

Here is another thing that I noticed, CL futures is down about $1.00 as I write this, the margin on the simulated spread did not increase by that much. In IB I am showing IM $7,566 and MM $6,053

At most places they don't change the margin required during the day. I don't know about IB.

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Old February 25th, 2013, 06:44 PM   #909 (permalink)
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MJ888 View Post
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.

That's great results.

How has what you trade changed over the years?

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Old February 25th, 2013, 07:08 PM   #910 (permalink)
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At IB, margin calculations change constantly whenever the markets are open. I noticed that margin does not change during the day and the true amount of margin required is not updated until around midnight at OX.

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