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Selling Options on Futures?


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Selling Options on Futures?

  #5751 (permalink)
 kulu 
Buckeye Nation
 
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ron99 View Post
Be very careful trading an IRA. Remember if you lose the money or go negative there is a limit on how much money you can put into the IRA.

The ES spreads were all short puts with long puts below the shorts. The other commodities were mixed put or call spreads.

That book is a good start. Carley Garner has some books too. A couple of threads here would be the next place to go.

Besides your thread, what she the thread discusses selling options?

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  #5752 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
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kulu View Post
Besides your thread, what she the thread discusses selling options?


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  #5753 (permalink)
foxtrot444
Philadelphia Pennsylvania
 
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Ron,
Could you explain the purpose of the 2 long puts at 1.5 delta?
Is it to provide more protection, or does it somehow reduce the margin required?
If protection, are you able to provide an example of this? Using SPX options I am unable to see how 2 long puts provides any significant protection in the case of a big market drop - it seems so minor that it wouldn't be worth the extra put - and would be more beneficial to simply buy 1 and collect more $$.

Going back to your last reply to me regarding commissions: trading options on futures has higher commission costs but lower margin requirements, whereas regular SPX options has lower commissions but much higher margin requirements. Overall your ROI is higher than what I calculate using regular SPX options with the same strategy!

thanks.

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  #5754 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
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foxtrot444 View Post
Ron,
Could you explain the purpose of the 2 long puts at 1.5 delta?
Is it to provide more protection, or does it somehow reduce the margin required?
If protection, are you able to provide an example of this?

Both. The longs give you protection from crashes of the ES futures market. They also lower margin.

ES futures were 2091 on 20150817. They were 1862 on 20150824. That's a 229 drop in 7 calendar days.

IM on 8/17/15 for a naked short ESx5p1740 was 540. For a ESx5p1740p1570(2) spread was 210. Possible ROI if you exited at 30 days held and a 50% drop in net premium was 1.7% for the naked put with 9x IM for cash excess and 2.4% for the spread with 6x IM for cash excess.

The table below shows the naked 1740 and a spread. They are both using 6x IM. On 20150824 the naked put is showing a $2,641.12 loss or a 47% drawdown and is using 93.8% of account balance for margin. Extremely close to being on margin call.

The spread on 20150824 is actually showing a $131.64 profit because the 2 longs made more money than the short lost.

The tables use the margin on 20150817 but use the premium for 20150818 as if you entered the position on 20150818. On that day you were using the IM from 20150817.


I have also attached a spreadsheet with various other strategies on 20150817.

Attached Files
Elite Membership required to download: 81715.xlsx
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  #5755 (permalink)
Forex37
Zurich
 
Posts: 49 since Feb 2011
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Hi Ron, thanks for all yor work. Am I correct that you only trade the Delta 1xS5 2xL1,5 IM6 with quaterly options and DTE 90+? Which to select if you replace one next week?

Thanks

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  #5756 (permalink)
foxtrot444
Philadelphia Pennsylvania
 
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ron99 View Post
Both. The longs give you protection from crashes of the ES futures market. They also lower margin.

ES futures were 2091 on 20150817. They were 1862 on 20150824. That's a 229 drop in 7 calendar days.

IM on 8/17/15 for a naked short ESx5p1740 was 540. For a ESx5p1740p1570(2) spread was 210. Possible ROI if you exited at 30 days held and a 50% drop in net premium was 1.7% for the naked put with 9x IM for cash excess and 2.4% for the spread with 6x IM for cash excess.

The table below shows the naked 1740 and a spread. They are both using 6x IM. On 20150824 the naked put is showing a $2,641.12 loss or a 47% drawdown and is using 93.8% of account balance for margin. Extremely close to being on margin call.



.

I owe you an apology. I didn't word my question right.
What I was trying to ask is why do you do buy 2 puts instead of just 1 (not asking about naked). Does 2 vs 1 change your margin requirement? Do 2 long puts really provide that much more protection vs 1 long put?

thanks.

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  #5757 (permalink)
 ron99 
Cleveland, OH
 
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Forex37 View Post
Hi Ron, thanks for all yor work. Am I correct that you only trade the Delta 1xS5 2xL1,5 IM6 with quaterly options and DTE 90+? Which to select if you replace one next week?

Thanks

I also trade the EW3 options.

If I were adding new positions today I would add EW3J7p1830 short and EW3J7p1600 longs. 108 DTE IM is $272

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  #5758 (permalink)
 ron99 
Cleveland, OH
 
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foxtrot444 View Post
I owe you an apology. I didn't word my question right.
What I was trying to ask is why do you do buy 2 puts instead of just 1 (not asking about naked). Does 2 vs 1 change your margin requirement? Do 2 long puts really provide that much more protection vs 1 long put?

thanks.

The spreadsheet in the previous posts has some examples of spreads with only one long. They do not offer enough protection during a flash crash.

The IM for a spread with one long is $290. For a spread with 2 longs it is $254. The same short contract and about the same delta.

In this example both spreads are about 2.00 net delta, the short is the same contract. Only difference is one or two longs. The spread with one long had a drawdown of 35.4% or a loss of $617.24 on 20150824. With 2 longs there wasn't a drawdown on 20150824. It was a profit of $131.64.


On 20150929 the drawdowns were similar and the 2 long spread used a little less account balance for IM.

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  #5759 (permalink)
 
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 SMCJB 
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Writing Puts, Or Just Pretending To.
Writing Puts, Or Just Pretending To. ? Throwing Good Money After Bad

Interesting blog post on the "CBOE’s put-write index" and put writing, and its performance vs the outright market (S&P500)

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  #5760 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
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After reading the above article I decided to make a chart comparing the 4 years of my backtest for my ES put spread strategy vs the change in the ES futures price.

On Jan 3, 2013 ES futures was 1450. On Dec 22, 2016 (date last spread position was closed) it was 2255. That's a 55.5% increase.

My strategy in the same time frame was up 127.1%


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