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Selling Options on Futures?


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Selling Options on Futures?

  #6031 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
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TFOpts View Post
It would be great if someone could validate my work.

I ran the #2 strategy for 12/01/15 that my strategy had +97% of account balance used for margin. Strategy #2 had a peak of 79.4% of acct balance for margin.

What is your X scale on the chart? Is it the date the spread was opened and the max % for that spread or something else?

Another variable I would love to see backtested is exit point. Is there a number different than 50% drop in net premium that would give you a higher ROI?

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  #6032 (permalink)
TFOpts
Los Angeles, CA
 
Posts: 64 since May 2017
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ron99 View Post
TFOpts, interesting. The peaks other than Aug 2015 & Dec 2016 were higher for #2. I'm estimating that is because the longs are further OTM.

I figured there might be higher ROI strategies than mine but I didn't know of a way to test many easily.

Do you have EW3 in these studies?

It will be interesting to see other strategy's results.

Ron,

How do I get EW3 out of XLSPAN, do I use EW3 as the product code? I'm getting some output and it appears to be correct but I just want to validate.

Thanks in advance.

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  #6033 (permalink)
TFOpts
Los Angeles, CA
 
Posts: 64 since May 2017
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ron99 View Post
I ran the #2 strategy for 12/01/15 that my strategy had +97% of account balance used for margin. Strategy #2 had a peak of 79.4% of acct balance for margin.

What is your X scale on the chart? Is it the date the spread was opened and the max % for that spread or something else?

Another variable I would love to see backtested is exit point. Is there a number different than 50% drop in net premium that would give you a higher ROI?

You got it right. X is the date the spread was open, Y is the max % of account balance the margin reaches for that spread.

I back-tested the exit point and 50% is pretty close to optimal, but that was before tweaks to the tool. I'll rerun a few other exit points and get back to you.

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  #6034 (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


TFOpts View Post
Ron,

How do I get EW3 out of XLSPAN, do I use EW3 as the product code? I'm getting some output and it appears to be correct but I just want to validate.

Thanks in advance.

Correct. The Parameters sheet has accepted symbols.

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  #6035 (permalink)
TFOpts
Los Angeles, CA
 
Posts: 64 since May 2017
Thanks Given: 49
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@ron99,

The results of the exit point are informative; see below.


A couple things to note:
  1. 50% or maybe 60% appears to be optimal
  2. Strategy #2 at 4x IM is more risky. Waiting until premium is 30% or 40% of initial could have you hit a margin call
  3. The small losses on the higher exit points are due to fees exceeding the return

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  #6036 (permalink)
 bill20 
Santa Barbara, CA USA
 
Experience: Intermediate
Platform: TOS
Trading: Futures Options
Posts: 22 since Oct 2016
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ron99 View Post
I ran the #2 strategy for 12/01/15 that my strategy had +97% of account balance used for margin. Strategy #2 had a peak of 79.4% of acct balance for margin.



What is your X scale on the chart? Is it the date the spread was opened and the max % for that spread or something else?



Another variable I would love to see backtested is exit point. Is there a number different than 50% drop in net premium that would give you a higher ROI?



Has anyone researched longer term strategies (200 days plus)? This would allow us to initiate the trade much further from the underlying price, sell options with higher IV (given typical contango), sell more total contracts, take in a much larger net credit, have lower gamma risk, and less transactional costs.

If not a primary strategy, would this be a reasonable secondary strategy to the 90-100 day strategy?


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  #6037 (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


bill20 View Post
Has anyone researched longer term strategies (200 days plus)? This would allow us to initiate the trade much further from the underlying price, sell options with higher IV (given typical contango), sell more total contracts, take in a much larger net credit, have lower gamma risk, and less transactional costs.

If not a primary strategy, would this be a reasonable secondary strategy to the 90-100 day strategy?

You are going to sell less contracts not more because higher DTE options with the same delta have higher IM requirements.

Also price erosion is slower so ROI is lower. These are naked options.



Results at 50% drop in premium using 6xIM

ESm6p1665 14 Days Held 4.7% ROI
ESu6p1480 26 Days Held 3.8% ROI
ESz6p1375 62 Days Held 1.9% ROI
ESh7p1300 106 Days Held 1.2% ROI

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  #6038 (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

@TFOpts would it be possible for us to build the system you have for backtesting?

Also, how did you download all of the option data?

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  #6039 (permalink)
 bill20 
Santa Barbara, CA USA
 
Experience: Intermediate
Platform: TOS
Trading: Futures Options
Posts: 22 since Oct 2016
Thanks Given: 13
Thanks Received: 9


ron99 View Post
You are going to sell less contracts not more because higher DTE options with the same delta have higher IM requirements.



Also price erosion is slower so ROI is lower. These are naked options.







Results at 50% drop in premium using 6xIM



ESm6p1665 14 Days Held 4.7% ROI

ESu6p1480 26 Days Held 3.8% ROI

ESz6p1375 62 Days Held 1.9% ROI

ESh7p1300 106 Days Held 1.2% ROI



When I model these trades on TOS, I find that higher DTE trades at the same delta have substantially lower initial margin requirements as they are further out of the money for the same delta as trades with lesser DTE. Unless I am missing something, this would mean that you could trade larger size for the same margin, which should theoretically increase ROI?


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  #6040 (permalink)
TFOpts
Los Angeles, CA
 
Posts: 64 since May 2017
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ron99 View Post
@TFOpts would it be possible for us to build the system you have for backtesting?

Also, how did you download all of the option data?

Ron,

What I put together is kind of clunky but it works. Here are the steps I took:
  1. Have a macro download all the data from XLS-SPAN. I do this by looping through each date in the "Scan" tab for ES with broad parameters (all delta and DTE < 200). The macro then copies and pastes the results for each day to a separate tab.
  2. The output from #1 is saved in separate csv files, one for each year of data.
  3. In Access upload each CSV file with annual data into a single table. The table from this step will be huge and you may run into issues with memory in Access; to get around this, export table with all the data to a CSV file.
  4. In another Access database link to your newly created CSV file with all years of data and build queries to filter out the options you don't want. The queries I have do the following: Add Option ID and unique ID for each entry, filter out Calls, filter out options that never have a delta between 0.25 and 10.
  5. In Excel create pivot tables that link to your filtered data in Access and backtest based on the output of these pivot tables. I have a simple macro looping through each date and running a predetermined strategy in this step.

If I have time next week I will include the EW3 data in the database as well. If there's a way for me to share very large files, I can upload the filtered data from step #4 so others can use it.

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