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Selling Options on Futures?


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Selling Options on Futures?

  #5811 (permalink)
uwevoelker
Hamburg, Germany
 
Posts: 15 since May 2014
Thanks Given: 14
Thanks Received: 4

As already mentioned, TDA/TOS is not possible for me.

I have an IB account and I do trade complex positions there. But as Ron already mentioned, the margin is too high for his trading style. Also, IB does auto-liquidate.

@ron99, regarding the fees: For the 2:1 spread the fees have a very high influence on ROI. Lets take your excellent Excel backtest file as an example. The lowest entry price on 11/22/13 is for 1,30. The take profit is roughly a month later for 0,65. For this 0,65*50=$32.50 profit you had to pay $18.36 as round turn. So this leaves a net profit of $14.14. So the fees are more than your profit! (And my round turn costs are even more - $25.86).

The lowest fees I could find (Zumo $0.50 + $0.56 exchange fees) are $6.36 (round turn for 3 contracts), which would give a net profit of $26.14 - which is 85% more profit.

While I agree, that for the "3 Delta" short put the fees are not that important (minimum margin is far more important), the same is not true for the "5Delta2Longs" ratio spread.

Please do not see it as critique to your approach. Thanks a lot for your openness and the excellent backtest you shared.


Thanks to other contributors for mentioning TT and CQT as platforms where these spreads are possible. I will try out CQT. (TT seems with $400+ per month a bit expensive.) If you know futures brokers that execute spread orders I would like to hear about them.

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  #5812 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785


T 40 View Post
If you have an IB account, try them out. If you open the "OptionTrader" window and pull up ES you can build the spread there and it will send the order to the exchange as a native spread. I attached a screenshot using the last trade I could find that Ron mentions putting on ESk7p1825p1580(2). Margin for this is around $1000 per spread. Pretty high.

One way I am looking at to reduce the margin and stick with IB is using a diagonal spread selling one option around 100 days out and buying 2 around 70 days out. By doing this I am able to trade strikes that are around 120 points apart to get a premium of $2.00 to $3.00. The IB margin for this spread is around $500. This can also be sent as a native spread order through IB's TWS.

I have traded both of the same month and diagonal spreads with IB over the past few weeks and the quoted bid ask spread is about 0.30 to 0.50 wide in both. If you submit an order to sell around the midpoint a new bid will usually come in closer to your order.

Do the diagonal with the longs only 70 DTE does not work because the longs will not give you as much protection when prices crash.

Looks at what happens on 20150929 in these examples. Using the lower DTE longs means a margin call and a 58.3% draw down but when using the same month for longs as the short, the amount of account used for IM is only 52.3%.



SPAN Margin for that spread is $260. So IB is 385% higher. So you save a few dollars on commissions but lose far more dollars because you have on less spreads.

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  #5813 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785



uwevoelker View Post
As already mentioned, TDA/TOS is not possible for me.

I have an IB account and I do trade complex positions there. But as Ron already mentioned, the margin is too high for his trading style. Also, IB does auto-liquidate.

@ron99, regarding the fees: For the 2:1 spread the fees have a very high influence on ROI. Lets take your excellent Excel backtest file as an example. The lowest entry price on 11/22/13 is for 1,30. The take profit is roughly a month later for 0,65. For this 0,65*50=$32.50 profit you had to pay $18.36 as round turn. So this leaves a net profit of $14.14. So the fees are more than your profit! (And my round turn costs are even more - $25.86).

The lowest fees I could find (Zumo $0.50 + $0.56 exchange fees) are $6.36 (round turn for 3 contracts), which would give a net profit of $26.14 - which is 85% more profit.

While I agree, that for the "3 Delta" short put the fees are not that important (minimum margin is far more important), the same is not true for the "5Delta2Longs" ratio spread.

Please do not see it as critique to your approach.

I didn't take it that way.

Thanks a lot for your openness and the excellent backtest you shared.

Thanks to other contributors for mentioning TT and CQT as platforms where these spreads are possible. I will try out CQT. (TT seems with $400+ per month a bit expensive.) If you know futures brokers that execute spread orders I would like to hear about them.

I'm thinking there has to be a catch to the Zumo one dollar RT commissions.

I read these couple of comments. Not sure how trustworthy they are.
Zumo Trading Futures Brokerage Review 2017

Have you contacted them? I just did and was told $3.00 per round turn. My first question, not on the screen, was can I sell options.


He never answered if they charge a brokerage fee. Some places do.

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  #5814 (permalink)
 T 40 
Chicago, IL
 
Platform: TT
Trading: Energy / Grains
Posts: 3 since Jan 2014
Thanks Given: 5
Thanks Received: 2


ron99 View Post
Do the diagonal with the longs only 70 DTE does not work because the longs will not give you as much protection when prices crash.

Looks at what happens on 20150929 in these examples. Using the lower DTE longs means a margin call and a 58.3% draw down but when using the same month for longs as the short, the amount of account used for IM is only 52.3%.



SPAN Margin for that spread is $260. So IB is 385% higher. So you save a few dollars on commissions but lose far more dollars because you have on less spreads.

Thanks for taking the time to post this. I have a couple questions.

Look at 20150821 to 20150824, is that a data error or do the prices really diverge? I can't imagine these two very similar spreads going in opposite directions during a crash.

Also, during the slower drift down from 20150916 to 20150929, the prices of the two spreads seem to be very close each date. However, the IM when the trade is put on for the diagonal is 226 vs 564 for the vertical. Would this explain the larger drawdown and margin call for the diagonal?

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  #5815 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785


T 40 View Post
Thanks for taking the time to post this. I have a couple questions.

Look at 20150821 to 20150824, is that a data error or do the prices really diverge? I can't imagine these two very similar spreads going in opposite directions during a crash.

Also, during the slower drift down from 20150916 to 20150929, the prices of the two spreads seem to be very close each date. However, the IM when the trade is put on for the diagonal is 226 vs 564 for the vertical. Would this explain the larger drawdown and margin call for the diagonal?

The diagonal table data is correct. But the other table was wrong. But the correct table looks better than what I had posted previously.



The strike of the longs for the diagonal are 1680. For my spread they are 1570. So when there was a quick crash in price the 1680s made more money than the 1570s because they are closer to the futures price.

The larger drawdown and margin call is because the longs are closer to expiration so they are giving less coverage and have lower premiums because of the low DTE on them. That also means a higher margin requirement.

On 20150915 the diagonal longs were down to 31 DTE and the strike was 290 OTM.

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  #5816 (permalink)
CafeGrande
St Paul, MN, USA
 
Posts: 200 since Jan 2014
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ron99 View Post
I'm thinking there has to be a catch to the Zumo one dollar RT commissions.

For people considering Zumo, Generic Trade (59 cts commission per side, according to website) et al, the FCM is Ironbeam. If you're opening an account with a lot of money - whatever a lot is to you - you should check Ironbeam out on the CFTC site.

https://www.cftc.gov/idc/groups/public/@financialdataforfcms/documents/file/fcmdata1216.pdf

They're not very big and they don't have a lot of excess capital. Maybe that means nothing and maybe CFTC/NFA enforcement has improved since MF Global and Peregrine. Personally, I'd spread my money around a bit.

BTW, if you're not in a hurry, you might wait until March and see what Sosnoff has up his sleeve at TastyWorks. I think I read that they're doing equity options now and adding futures/FOPs in early Spring. I've never been a customer but a lot of people like the T.O.S. software he helped develop and with the split from TD Ameritrade, the commissions are supposed t be cheaper at the new brokerage.

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  #5817 (permalink)
uwevoelker
Hamburg, Germany
 
Posts: 15 since May 2014
Thanks Given: 14
Thanks Received: 4

Do you like to see a large number in "excess net capital"? Or is the percentage to "adjusted net capital" more important?

Either way, Zumo does not offer the trade execution I'm looking for (option spreads). I found another software that can trade spreads (at least according to its manual): OEC Trader. It is available at Futures Online and Cannon Trading.

From the web sites I figured the round turn at Cannon Trading would be $4,76 and for Futures Online $3,70. But I still have to contact both brokers and confirm these quotes (and check whether they support spreads). Both clear via GAIN.

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  #5818 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785


uwevoelker View Post
Do you like to see a large number in "excess net capital"? Or is the percentage to "adjusted net capital" more important?

Either way, Zumo does not offer the trade execution I'm looking for (option spreads). I found another software that can trade spreads (at least according to its manual): OEC Trader. It is available at Futures Online and Cannon Trading.

From the web sites I figured the round turn at Cannon Trading would be $4,76 and for Futures Online $3,70. But I still have to contact both brokers and confirm these quotes (and check whether they support spreads). Both clear via GAIN.

OEC Trader and Zaner360 are the same product. Gain bought Open E Cry.

Gain owns Futures Online.
Quoting 
GLOBAL ASSET ADVISORS LLC DOES BUSINESS AS FUTURESONLINE (FOL) AND IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG), A FUTURES COMMISSION MERCHANT & RETAIL FOREIGN EXCHANGE DEALER. GCG IS WHOLLY OWNED BY GAIN CAPITAL HOLDINGS INC, WHEREAS FOL IS MAJORITY OWNED BY GAIN CAPITAL HOLDINGS INC.


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  #5819 (permalink)
CafeGrande
St Paul, MN, USA
 
Posts: 200 since Jan 2014
Thanks Given: 131
Thanks Received: 207


uwevoelker View Post
Do you like to see a large number in "excess net capital"? Or is the percentage to "adjusted net capital" more important?

I would look at both, esp. for the smaller firms. About two years ago, Velocity was quickly wound down/assets transferred. They were quite small, somewhere in the neighborhood of a million or two in excess capital. You could probably track the history by looking at the monthly archives of the CFTC. With the small private firms, unless you know they have deep pocketed backers willing to add capital if necessary, it doesn't take that many super-stretched customers in a volatile market (Swiss Franc) to bring a firm down.

I think Gain is fine. I have a small account there. The firm is publicly traded so I can keep an eye on it and they recently picked up Daniels Trading and Top Third Marketing, the latter an ag advisory firm (and it's likely now an in-house introducing broker). Gain stock is volatile, perhaps because of their retail FX business. The Swiss Franc situation hurt in early 2013; more recently it looks like FXCM's woes may have helped them.

From memory here are the publicly traded FCMs that are not part of a huge bank, and do accept retail accounts either directly or through introducing brokers.

1. Interactive Brokers
2. Charles Schwab/OptionsXpress
3. Gain Capital
4. Archer Daniels Midland/ADMIS
5. Gain Capital
6. International FC Stone (not sure if they accept retail).
7. E-Trade (via OptionsHouse/TradeMonster acquisition; I think Aperture is the FCM)
8. TD Ameritrade/Think or Swim

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  #5820 (permalink)
Flintsone99
Springfield USA
 
Posts: 18 since Jan 2017
Thanks Given: 5
Thanks Received: 19



CafeGrande View Post
I would look at both, esp. for the smaller firms. About two years ago, Velocity was quickly wound down/assets transferred. They were quite small, somewhere in the neighborhood of a million or two in excess capital. You could probably track the history by looking at the monthly archives of the CFTC. With the small private firms, unless you know they have deep pocketed backers willing to add capital if necessary, it doesn't take that many super-stretched customers in a volatile market (Swiss Franc) to bring a firm down.

I think Gain is fine. I have a small account there. The firm is publicly traded so I can keep an eye on it and they recently picked up Daniels Trading and Top Third Marketing, the latter an ag advisory firm (and it's likely now an in-house introducing broker). Gain stock is volatile, perhaps because of their retail FX business. The Swiss Franc situation hurt in early 2013; more recently it looks like FXCM's woes may have helped them.

From memory here are the publicly traded FCMs that are not part of a huge bank, and do accept retail accounts either directly or through introducing brokers.

1. Interactive Brokers
2. Charles Schwab/OptionsXpress
3. Gain Capital
4. Archer Daniels Midland/ADMIS
5. Gain Capital
6. International FC Stone (not sure if they accept retail).
7. E-Trade (via OptionsHouse/TradeMonster acquisition; I think Aperture is the FCM)
8. TD Ameritrade/Think or Swim

Anyone here have experience with
https://stage5trading.com/

I am looking for a broker that isn't IB.....

they were mentioned in this thread at the end in the last post but no follow up

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