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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:569,610 / 5,734
Last Reply:8 Hours Ago (01:01 AM) Attachments:642

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Selling Options on Futures?

Old March 6th, 2013, 04:54 PM   #971 (permalink)
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eudamonia View Post
I just got done reading this thread from page 1. What a wealth of information, thanks everyone that contributed and especially Ron for starting this.

I've been trading seasonal futures for years in outrights and never thought to get into looking at options until this year. My main bread and butter trade is taking long positions in July corn during March and covering during May to expiration. This year everything looks good technically but the fundamentals are mixed. Will we get a continuing drought or no?

So I have started looking at options for possible ways to profit on this trade even if things go sideways for the next few months in Corn. Currently we are at about 687 July 13 Corn. I'm thinking to wait for a push down to 650-660 and then sell July 13 puts OTM at around 600-610 depending on what I can get a reasonable delta for.

Also, I've noticed a seasonal tendency for volatility to pick up dramatically in mid-May to early July (currently we are at like 5 year lows for Corn volatility). Ron I think you mentioned that this doesn't affect your trades (except in terms of margin hikes). How would you (or would you) factor this into this type of trade?

Volatility would naturally pick up during planting time in the US. Too cool? Too much rain? Not enough rain? Perfect amount of rain? The market will swing on every raindrop.

Since the market is swinging wildly I would just wait for a down day to sell the puts. The market will be worried about getting the crop in with the very low carryover stocks.

But once the crop is about done being planted, corn futures (new crop Dec) could drop a lot in the spring if planting goes well. If that is the case then I would be leaning towards selling grain calls late May or June while keeping an eye on the weather.

For my low risk accounts I probably won't touch grains for the next 4 months. Too volatile.

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Old March 6th, 2013, 04:57 PM   #972 (permalink)
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rsb619 View Post
As far as seasonals go, would now be a good time to sell puts for CL and then starting in May should a drop off begin to make itself apparent, sell calls?

Yes. Just be sure to watch CL to see if it starts dropping mid to late April. People anticipating the May drop.

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Old March 6th, 2013, 05:04 PM   #973 (permalink)
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Time for a fearless (or dumb) prediction.

With everybody calling for a retracement to the stock market, I think it keeps going up thru March, flattens off in April with a dip around the 15th, and then crashes in May for no reason.

When the S&P makes a new all-time high somewhere in that time frame, people will get nervous and start pulling out their profits, which will start the snowball rolling. This despite almost every report being more bullish than every analysts' prediction.

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Old March 6th, 2013, 05:15 PM   #974 (permalink)
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ron99 View Post
Volatility would naturally pick up during planting time in the US. Too cool? Too much rain? Not enough rain? Perfect amount of rain? The market will swing on every raindrop.

Since the market is swinging wildly I would just wait for a down day to sell the puts. The market will be worried about getting the crop in with the very low carryover stocks.

But once the crop is about done being planted, corn futures (new crop Dec) could drop a lot in the spring if planting goes well. If that is the case then I would be leaning towards selling grain calls late May or June while keeping an eye on the weather.

For my low risk accounts I probably won't touch grains for the next 4 months. Too volatile.

Ok so if I understand what you are saying, you basically like taking the new crop trade for next year better than trading the current crop, due to volatility picking up in the next few months and then likely peaking in late May or June. Makes sense. Thanks.

Any thoughts on the following seasonal plays for the next few month or so?

Currently sell OTM puts on June 13 Crude (seasonals on track w/ current price action, fundamentals mixed to bullish, volatility modestly high atm).

In late March/early April sell OTM puts on June 13 Coffee (seasonals on track w/ current price action, fundamentals mixed to bullish, volatility modestly high atm).

Anything else you are currently tracking?

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Old March 6th, 2013, 06:01 PM   #975 (permalink)
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I saw that there was a bid for the April GC 2000 calls @ .10 with 19 days to go. The first thing that popped into my head was "Ron"...Is he scraping these things up? Then I saw the volume of 1 contract...couldn't be him.

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Old March 6th, 2013, 10:02 PM   #976 (permalink)
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opts View Post
rs:

Aside from just the seasonal tendencies I have a few other things to consider before entering. Charts are on other variable to consider. Crude is in a downtrend but may but is at a critical level around 90 right now. If this area breaks then 86 looks to be the next target. This means that you might be able to sell puts a little lower than (psychologically safer?) than what you could have initially. I always let the trend, stalls, or pullbacks dictate my entry. Crude is at a fundamentally and technical juncture right now. Chavez passed away yesterday but the US has become less reliant on foreign oil due to US production on the rise and more fuel efficient vehicles. I have crude on the watch list but I am waiting to see what price does over the next few weeks. If this is the 'bottom' and oil moves back up from this point I'll sell puts later. They might be a few strikes higher but I am still waiting on the chart to tell me what might be happening.

Yea Opts, I myself have more experience as a technical trader than fundamental. From what I can see for CL, it broke the previous resistance of the 89-90 range and proceeded to move up before coming back down to the 90 range where it is currently stalling. Also the lower wicks produced by the past couple of candles shows that people are buying at this range. Of course this buying could dry up and the downtrend could continue which is why I am waiting for a decisive move before entering.

I don't know much about fundamentals for commodities but I am trying to learn how to analyze them as I believe they are just as important as techinals in this type of trading.

How exactly do you use stalls and pullbacks for your entry? Is it something like you wait for an uptrend to be established. Then wait for a pullback and once you feel like the trend is continuing sell puts?

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Old March 6th, 2013, 10:18 PM   #977 (permalink)
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britkid99 View Post
Homerjay, as a fellow IB user, I am very interested in what you are doing for margin optimisation.
I wonder if you could clarify how you monitor volatility. I presume your system is not using TWS alone....

I actually use an indicator I created that uses the underlying commodities price behaviour to indentify volatility spikes as an entry filter, I have a few variations for different markets that I've developed over time but for most markets it gives additional weighting to downside movement vs. upside based on observations with actual options pricing behaviour in that market.

Given how far OTM I usually am I find the benefits of using volatility measured on the underlying price (simplicity in calc and no need for additional EOD data download/input into mechanical system other than OHLC) outweighs any accuracy gains that would come from using actual implied volatility values to filter entry signals (as I'm looking for a relative vol increase, not a specific number, in order to trigger a favourable entry point).

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Old March 6th, 2013, 11:41 PM   #978 (permalink)
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Old March 7th, 2013, 06:50 PM   #979 (permalink)
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rsb619 View Post
Yea Opts, I myself have more experience as a technical trader than fundamental. From what I can see for CL, it broke the previous resistance of the 89-90 range and proceeded to move up before coming back down to the 90 range where it is currently stalling. Also the lower wicks produced by the past couple of candles shows that people are buying at this range. Of course this buying could dry up and the downtrend could continue which is why I am waiting for a decisive move before entering.

I don't know much about fundamentals for commodities but I am trying to learn how to analyze them as I believe they are just as important as techinals in this type of trading.

How exactly do you use stalls and pullbacks for your entry? Is it something like you wait for an uptrend to be established. Then wait for a pullback and once you feel like the trend is continuing sell puts?

Yes. Once the trend is established it's the same mechanism as you would re-enter a long or short position if you were trading regular contracts. Looking at Wheat: once a downtrend has been determined it's a matter of waiting for a pullback in price, then wait for the continuation back down. The highlighted circle is the pullback and the arrows would be where I would look for calls to sell. This is where the technicals and fundamentals have to be monitored....grains in particular. A trend can only last for so long because of the seasonal tendencies that occur year in and year out. If a pullback in a given trend is underway, downtrend, and the trend has been true for some time you have to ask yourself "Has the seasonal bottom begun and has the trend run it's course?" If your answer is yes, the last thing you would want to do is continue to sell calls, especially if you write calls several months out. When selling options you have to have some sort of crystal ball...

Not sure if you have this link...very good seasonal charts:

Wheat Futures (CBOT) W - Seasonal Charts


You said:

"Also the lower wicks produced by the past couple of candles shows that people are buying at this range." = Good stuff

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Old March 7th, 2013, 07:00 PM   #980 (permalink)
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ron99 View Post
Let us know if you had any luck.

I don't think I did a good enough of a job being a pain. They insisted that the overnight position fee has to be applied to anything held overnight and they only way that they will allow the fee to be waived is if you are working with an IB or if you agree to higher commissions ($3.5-$5/side) ... OEC, or at least the new OEC, stands firm on this.

From what I have been able to gather, Gain has replaced the entire back-office staff of OEC with their own people, which hasn't been for the best in all cases. I wasn't too keen on my dealings with their new brokers, but I thought maybe it was just me, so I had a friend call to get info and he got the same story. I don't think that they were trying to take advantage of me, but something seems wrong if a company will penalize you for working directly with them.

For now, I still want to keep an account at OEC, but I decided not to bother threatening to leave and just went and found an IB. I'll get the same commissions, I won't have to worry about the overnight fees, and I don't have to negotiate to get what I consider a fair deal.

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