Selling Options on Futures?

April 17th, 2013, 10:41 PM

Thanks for the informative post Ron!

I am still holding my CLM 70 puts but am considering rolling them to the 65s or even 60s if the drop continues. Also the OPEC stated that they wish to sustain the current prices and may consider cutting supplies if the oil complex continues to trade below 100, which it just breached this week. Iran is considering having an emergency meeting should prices continue to fall but at the moment the rest of the OPEC doesn't seem too concerned.

My main concern is that the US equities market is due for a pullback and should it be a major and abrupt one like last couple of years in May, it could spell bad news for oil. However, the concerns regarding unemployment and EU are not as bad this year as last year. Last year during the same time, it seemed like every week their were bailout talks for a new country whether in regard to Greece, Spain or some other country in the Eurozone.

April 17th, 2013, 11:10 PM

rsb619

Thanks for the informative post Ron!

I am still holding my CLM 70 puts but am considering rolling them to the 65s or even 60s if the drop continues. Also the OPEC stated that they wish to sustain the current prices and may consider cutting supplies if the oil complex continues to trade below 100, which it just breached this week. Iran is considering having an emergency meeting should prices continue to fall but at the moment the rest of the OPEC doesn't seem too concerned.

My main concern is that the US equities market is due for a pullback and should it be a major and abrupt one like last couple of years in May, it could spell bad news for oil. However, the concerns regarding unemployment and EU are not as bad this year as last year. Last year during the same time, it seemed like every week their were bailout talks for a new country whether in regard to Greece, Spain or some other country in the Eurozone.

I had a few Jun 65p on. I traded out of them on Monday and Tuesday at .04. They are now trading at .09. There might be a point where I resell them but not in the near future.

I just saw a GC 1150 option go from 0.10 to 6.10 in two days. I am not going to tempt fate during these volatile times and get in front of the train of dropping prices and hold onto or sell puts right now.

The last of my puts expire the 25th. Then I won't have any on.

End of May or sometime in June I probably will be selling a boatload of puts.

April 18th, 2013, 08:59 AM

I took your advice Ron and got out of my CL puts but boy was it a bumpy ride. I initially had 5 puts which I sold for 0.4 and at one time was looking at a cumulative loss of around 1000-1500 on them. I wanted to curtail my loses a bit so I decided to sell 5 more puts at 0.15 which brought my average to around 0.09. I then immediately put in an order to buy back the 10 puts for 0.12 which just now got filled bringing in a loss of around 300 rather than the 1500 I was staring at earlier.

Overall it has been quite a learning experience and I feel like I lucked out a bit on the situation, something I do not plan on doing again. I should have simply gotten out of my 5 puts when they settled at 0.08 two days ago and would not have had to deal with all of this but in a way I am grateful for this stressful learning experience. It also goes to show you the advantages of going small and having enough excess capital as you can do some maneuvering to defend your positions should need arise.

Thanks again for being a great teacher Ron. I look forward to making less stupid mistakes in the futures as I feel the aging process won't be too kind to me if I continue to make such mistakes

April 18th, 2013, 10:12 AM

FYI

Quoting

Crude oil production in North Dakota, the No. 2 U.S. oil-producing state, hit an all-time high in February but will really accelerate in May after bad weather and road restrictions end, the state's Department of Mineral Resources said.

Another reason for CL to drop in May.

April 18th, 2013, 10:19 AM

Quoting

The meltdown in oil prices accelerated yesterday. Heading into the weekend, through the first 10 sessions of April, spot Brent crude oil for June delivery closed lower in 7 sessions, with an average loss of 1.40/b and a total loss of 6.75/b or - 10.9%.

Furthermore, since peaking on March 08th at a record, 1,582,998 contracts, open interest on ICE Brent futures has declined, on average, by 0.2% per session. Since the start of this month, trading volume has been robust, 771,181 contracts per session, which is 28�% above the prior 50-day average.

The combination of prices decreasing on increasing volume and open interest is generally regarded as a triple signal as new selling pressure is coming into the market.
...
So how much lower can Brent go?

Yesterday, spot oil on the ICE closed below the $100 threshold for the first time since last July. From a technical view, there is not much support below here (on the continuous contract) until the 97.91 Fibonacci 24% retracement.

In other words, the market is capable of falling further.

https://www.cmegroup.com/education/market-commentary/energy/2013/04/mid-session-_3710.html?source=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EnergyMarketCommentary+%28Energy+Market+Commentary%29

April 18th, 2013, 12:47 PM

Quoting

Natural gas futures surged nearly 3 percent on bullish supplies data Thursday to reach an intraday high of $4.335 per million BTUs, the highest price for a front-month contract since July 2011.

The U.S. Energy Department reported natural gas supplies rose by 31 billion cubic feet last week, the first increase in storage so far this year. Still, the supply increase fell short of analysts' expectations and was also lower than the five-year average.

Hence the price jump we are seeing this morning on Nat Gas while the rest of the oil complex is falling.

Quoting

However, Tim Evans energy specialist of CityFutures group said he was skeptical about whether this price surge would last.

"Although the data revives the upside potential for prices in the near term, we still consider the rally as more fragile than it might appear as it is still weather dependent," he added.

During the next 10 days, below normal temperatures are forecast for the central U.S., according to Tradition Energy, while the eastern third of the U.S. is expected to see mostly normal temperatures in the coming weeks.

Seems like the shoulder season weather is a bit cooler than anticipated.

From a technical perspective we are seeing very spikey price movements up to the 4.4 (May 13) area and down to the 4.1 area over the last week. Based on what I'm currently seeing there is good reason to believe we'll remain range bound in this area for the next couple weeks. Should we see a grinding up move above the 4.4 area that sticks I'll be re-evaluating my position.

April 18th, 2013, 01:01 PM

Tim Evans is very good and his points are based on facts and not emotion. But the problem is that few specs listen to him.

The constant gain in NG OI makes me believe that NG is this years spec special and I'm starting to wonder if they will take this farther that it should go.

April 18th, 2013, 01:22 PM

You could be right about that. Right now I don't see anything that leads me to believe things are being pushed too far. This type of chop is actually on par for the seasonals and is less dangerous than a tight consolidation. Particularly since today's spike is news driven I'm not terribly concerned in the short run. That being said there are easier trades to be in.

Of course it helps that I rolled out to July and am a lot further from the heat. When I rolled up last week I got to about 13 positions which was too rich for my blood but I'm down to less than half that now. May consider scaling out another half once we bounce from this latest news spike.

April 18th, 2013, 04:29 PM

I get so tired of so-called analysts saying woe is NG because NG inventory is under the 5 year average. The 5 year average they are using isn't a "normal" 5 year average. If they would only do a little research instead of only looking at headlines.

Current 5 year average for years 2008-2012 is 1778.
Current inventory 1704.

5 year average for this week before last year's abnormal skyhigh inventory? 1593.

So 2013 NG inventory is 111 above a normal 5 year average. So NG doesn't need to be skyrocketing in price.

OK I'll get off my soapbox now.

April 18th, 2013, 05:30 PM

ron99

I get so tired of so-called analysts saying woe is NG because NG inventory is under the 5 year average. The 5 year average they are using isn't a "normal" 5 year average. If they would only do a little research instead of only looking at headlines.

Current 5 year average for years 2008-2012 is 1778.
Current inventory 1704.

5 year average for this week before last year's abnormal skyhigh inventory? 1593.

So 2013 NG inventory is 111 above a normal 5 year average. So NG doesn't need to be skyrocketing in price.

OK I'll get off my soapbox now.

You know where the word analyst comes from right

On the other hand you can't fight stupid. Possible options (pun intended) that I'm considering:

1) Scenario 1 - we bounce off the 4.4 area today back into the range (likely scenario). My July 6 calls currently trading at 0.010 will probably fall to 0.006 and I'll trade out of half of them for a bit better than break-even. Just seems like it would be easier to re-allocate some of my margin on this trade elsewhere.

2) Scenario 2 - we drive up directly out of the 4.4 area and test the next level of resistance in the 5 area (low probability but possible scenario). This is a massive multi-month resistance area and will likely create a pause for the market on at least the first test. Should that be the case I will likely sell some more calls at 6. As we bounce from this area (usually this gets at least a bounce back to the 4.5-4.6 range) I will buy back those calls as well as the remaining calls and may buy some puts at that point to counteract the loss of premium.

Thoughts?

Selling Options on Futures?

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Selling Options on Futures?