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Selling Options on Futures?
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Selling Options on Futures?

  #1 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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Favorite Futures: Options on Futures
 
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Selling Options on Futures?

I have been selling options on futures for years. But it is rare to find others doing it. I was wondering if there are others here doing it.

I have been doing it for 5 years. Learned it from James Cordier's book.

I have sold energy, grain, softs and metal options. Far out of the money. Usually less than 90 days from expiration.

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  #2 (permalink)
Quick Summary
Quick Summary Post

A summary does not do justice to the depth and breath of topics covered, therefore it is advised to read through and understand the many different ways people are approaching selling options, that way your understanding will be infinitely improved compared to merely reading a summary.

Link to ron99 webinar
https://futures.io/options-cfd-trading/29825-webinar-trading-options-futures-w-ron99.html#post373906

But here are key points
- It's not whether your strike goes ITM it's whether you can ride out the loss of premium and the increase in margin. So you need to pick a strike that will allow you to do that and not pick a strike that you don't think futures will reach. They aren't the same.
- SELL options 90-120 DTE (days to expiration)
- Delta <= .0500 for short option Delta .0150 for 2 long options
- When your (CURRENT MM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (6 * OPENING IM), you exit your trade
- 5/6 of account in cash for increased margin requirements / ride out positions if move towards strike over time
-When I put a position on I have 5 times the Initial Margin required for cash excess.

For example, if I sell an option for $100 and the margin required is $500, I will have $2500 excess.

(CURRENT IM =2000 + (CURRENT PREMIUM$=1010 - OPENING PREMIUM$=100)) > (6 * OPENING IM=500)

(2000 + (1010 - 100)) > (6 * 500)

3010 > 3000 so exit point hit.

- Always place limit order, never market order
- do not trade between major strikes ie CL $80.50 Low OI (Open Interest)
- Be mindful of seasonal tendencies
- Avoid volatile commodities

other incidentals rules Ron observes; post 196 https://futures.io/commodities-futures-trading/12309-selling-options-futures-20.html#post255970

Things to know
Number one, compare margin requirements between brokers and the exchange minimum. Some FCMs (Brokers) charge extra. Some don't charge any extra. That will severely cut ROI.

Number two, a big one. Margin calls, check if your broker will automatically trade you out of the position (auto-liquidation) with a market order (IB). You do not want that to happen. Huge unnecessary losses could result.

Very interesting videos of a VERY successful option seller (Karen the Super Trader). 25-30% ROI per annum.
Part 1. 24 minutes http://www.youtube.com/watch?v=cXy9HoWX0es
Part 2. 51 minutes http://www.youtube.com/watch?v=BquDGE9KxZQ
Part 3. 64 minutes http://www.youtube.com/watch?v=8yt51STpZ5I
Part 4. 22 Minutes http://www.youtube.com/watch?v=586eEoOL_i4
Summary is that she sells stock index options in the SPX at 56 DTE.

Here is an excellent, excellent website for an economic calendar.
http://www.bloomberg.com/markets/economic-calendar/

Here is a website for some of the agricultural reports.
USDA NASS Reports

This page is where you can sign up to receive emails about the margin change notices for the CME, CBOT, NYMEX and COMEX. http://www.cmegroup.com/tools-information/communications/sub-center.html

You can sign up for ICE margin change notices to be emailed to you here.
https://www.theice.com/Subscription.shtml

Futures and options charts http://futures.tradingcharts.com/ Prices / Quotes & Commodity Charts where you can check futures (10 minute delayed) and options prices together with volume traded and open interest up to previous day close.

Prior day volume and OI are available on the CME daily bulletins. http://www.cmegroup.com/tools-information/build-a-report.html?report=dailybulletin

ICE contracts go to Category=End of Day Report, Report=ICE Futures US Options, then pick product.
https://www.theice.com/marketdata/reports/ReportCenter.shtml

You can get free option deltas at the above reports but that is only the prior day's delta. But that is probably good enough for most option trading.

Read the Dow Jones news on OX to get a feel for current thoughts on commodities, check Hightower occasionally. Do Google searches (news) for quotes by these knowledgeable analysts. John Kemp. Tim Evans. Oliver Jakob.

Monthly ROI% = (Premium - fees) / (Margin * 6) / DTE * 30
Or Monthly ROI% = 365/DTE/12*(Premium - fees)/(Margin * 6)

A summary of the first 204 pages of the thread in a Word doc by Iridium. https://futures.io/attachments/122805d1378659415

Here is an excellent excel based SPAN margin calculator by Dudetooth.
https://futures.io/options-cfd-trading/29125-pc-span.html

Table with biggest drops and increases for ES 2007-Mar 2015.
https://futures.io/options-cfd-trading/12309-selling-options-futures-412.html#post490353

1st post about my ES strategy. Read from there on back to see my research on it. https://futures.io/options-cfd-trading/12309-selling-options-futures-411.html#post490235

Here are great charts showing world planting and harvesting of all crops by month from USDA.
http://www.usda.gov/oce/weather/CropCalendars/index.htm


Last edited by ron99; May 18th, 2017 at 07:02 PM. Reason: Revised to current strategy on 5/18/2017
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  #3 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,700 since Jul 2011
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I guess I am on a deserted island. Anybody know a place that discusses selling options on futures?

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  #4 (permalink)
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@ron99, I know there are stocks options traders here, but maybe not a lot of futures options traders. I tried myself, but found that a more scary and less liquid than stocks options.
But if you start to talk about how you trade them, you may find people interested in it .

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  #5 (permalink)
Membership Revoked
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I sometimes buy futures options....

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  #6 (permalink)
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ron99 View Post
I have been selling options on futures for years. But it is rare to find others doing it. I was wondering if there are others here doing it.

I have been doing it for 5 years. Learned it from James Cordier's book.

I have sold energy, grain, softs and metal options. Far out of the money. Usually less than 90 days from expiration.

I trade options very actively. How have you performed?

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  #7 (permalink)
Elite Member
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I've been reading the book. There's a new edition out which sells heavily discounted on book resellers. Don't know
if that's a good sign or not. But the book is a nice read. I'd already been shorting puts on stocks for a while, so not much new to me except
it seems some fundamentals is involved in predicting commodities price range according to the book. Or should I just stick to TA.

Ron, I was trying to do some demo futures option trades, but ThinkOrSwim usually says "not traded". Are there only certain times one can buy or short options on futures?

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  #8 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,700 since Jul 2011
Thanks: 781 given, 4,721 received
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Arpeggi View Post
I trade options very actively. How have you performed?

I was up 48% in 2010. I am up 78% in 2011. Probably 60% of my gain is buying options and 40% is selling options.

Selling options is a safer and more consistent gain. Buying options for me is riskier, but there is potential for more gain.

None of my option trading is day trading. When I sell options I usually keep them to expiration.

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  #9 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,700 since Jul 2011
Thanks: 781 given, 4,721 received
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Cloudy View Post
I've been reading the book. There's a new edition out which sells heavily discounted on book resellers. Don't know
if that's a good sign or not. But the book is a nice read. I'd already been shorting puts on stocks for a while, so not much new to me except
it seems some fundamentals is involved in predicting commodities price range according to the book. Or should I just stick to TA.

Ron, I was trying to do some demo futures option trades, but ThinkOrSwim usually says "not traded". Are there only certain times one can buy or short options on futures?

The book is probably discounted because there aren't many option on futures sellers. But it did get a second edition printing.

TA is used very little for option selling. I never use it.

Options are traded certain times of the day. It varies by commodity. For example the Sugar pit closes at 1:30pm ET. Oil and Gold trade electronically until 5:15pm ET and reopen at 6pm ET. But there is very little trading volume during night time in the US. Most options have moved to electronic trading. But there is pit trading still for all options. Check to see whether TOS is sending the orders to the pit or electronically.

Admittedly, the volume on options is not that great. You just have to keep trying. Certain strike prices have more volume than others. Usually the round numbers. For example in Gold, the $50 increment like 1350 or 1400 trade more than the strikes in between like 1360 or 1365. Check the open interest of the strikes to see where the trading is happening.

Also certain commodities have more volume than others. Obviously corn, oil and gold have a lot of volume. While copper has zero option volume. Medium volume for options is Sugar, Coffee, Silver, Soybeans, Wheat, Nat Gas. Unleaded Gas (RBOB), Heating Oil, Cocoa, and Cotton are on the low side of volume.

Never, ever place a market order on options on commodities. Always limit orders.

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  #10 (permalink)
Elite Member
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Thanks for the info about which commodities have more option volume Ron. Yes, I was talking about the 2nd edition book. I ordered a discounted copy of it too.

Very nice profit stats on your trading. I wish I could say similar on my trading options on equities for the last three years..(mostly selling puts)

I'll continue to read the book and check with TOS about times commodities options are available to sell or buy.

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