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Selling Far OTM Options on Futures
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Selling Far OTM Options on Futures

  #21 (permalink)
Elite Member
Dallas, TX
 
Futures Experience: Advanced
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Funny Trading Stories

I have to tell a funny on myself as it relates to writing DOTM options. I occasionally see a dumb bid on an option I'm interested in and will oftentimes hit it. I've picked up some nice trades doing this. Sometimes the bid is above the previous settlement, even when the underlying is moving in a direction that should make the option cheaper than the previous settlement.

I was looking at HOX4 3.6 Calls and saw that the prev close (8/19) was $.05, but some idiot was bidding $.07. I thought, HEY!, I might want to add to my position if this guy is going to pay above settlement.

Fortunately, that thought sat on my brain for only about 5 seconds before I realized that the $.07 bid was MY BID!! I briefly forgot that I was trying to close out my trade and that the market was substantially below my bid!

Doh!

I didn't enter any trade, but I realize that that would have been a really dumb thing to do; do a trade with myself!


Last edited by mu2pilot; August 21st, 2014 at 05:05 PM. Reason: They are HOX4 calls, not HOV4.
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  #22 (permalink)
Market Wizard
Cleveland, OH
 
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mu2pilot View Post
I have to tell a funny on myself as it relates to writing DOTM options. I occasionally see a dumb bid on an option I'm interested in and will oftentimes hit it. I've picked up some nice trades doing this. Sometimes the bid is above the previous settlement, even when the underlying is moving in a direction that should make the option cheaper than the previous settlement.

I was looking at HOX4 3.6 Calls and saw that the prev close (8/19) was $.05, but some idiot was bidding $.07. I thought, HEY!, I might want to add to my position if this guy is going to pay above settlement.

Fortunately, that thought sat on my brain for only about 5 seconds before I realized that the $.07 bid was MY BID!! I briefly forgot that I was trying to close out my trade and that the market was substantially below my bid!

Doh!

I didn't enter any trade, but I realize that that would have been a really dumb thing to do; do a trade with myself!

You needed one of these.


I know i have done some dumb things over the years. Worst is when you want to place a sell order and instead you place a buy order and you get filled.

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  #23 (permalink)
Elite Member
Charlotte NC
 
Futures Experience: Advanced
Platform: Charts:Ninja Trader w/IB, execution:TOS
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Seasonal charts


Ron,
Would you please check this chart against yours to see if they are close. Work in progress.

thinkorswim Sharing


Thank you,

Adrian

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  #24 (permalink)
Market Wizard
Cleveland, OH
 
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meyer99 View Post
Ron,
Would you please check this chart against yours to see if they are close. Work in progress.

thinkorswim Sharing


Thank you,

Adrian

What contract is it? OK I figured it out it is Oct CL.

Here's mine.
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I use settlement prices. It looks like TOS uses last traded price on that day. I put the same price for the previous last traded day for weekends and holidays so different years chart correctly over each other.

I added an average line (white). I do leave abnormal outlier years out of the average. Like LC and LH this year. Or CL 2008.


Last edited by ron99; August 21st, 2014 at 05:28 PM.
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  #25 (permalink)
Elite Member
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Thanks for these two threads, ron99, which I have in fact been loosely following since the outset. I did however miss your excellent & very professionally presented webinar from last December (just watched)... although I'd love you to make Part II !

About 10 years ago, I briefly traded an unusal strategy that sold YM option straddles on a monthly cycle, whilst trading the underlying into the strike areas such that any option loss was always fully covered. I stopped because of time constraints & I've often thought if there was just one strategy I should have stuck with, it was that one.

So I'm going to dip my toe in the water, starting with CL options only... and maybe trading CL futures as well to protect positions (maybe it's not necessary with this approach, but I'll literally start with one lots). Have to find my old MRCI Encyclopedia as a reference, but I think it only goes to 2005, so perhaps no longer of use.

Do you see any CL option trades on the horizon at present, please (I've noted your comment about typically looking 25 strikes out for Calls, 20 for Puts) ?

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  #26 (permalink)
Market Wizard
Cleveland, OH
 
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jtrade View Post
Thanks for these two threads, ron99, which I have in fact been loosely following since the outset. I did however miss your excellent & very professionally presented webinar from last December (just watched)... although I'd love you to make Part II !

About 10 years ago, I briefly traded an unusal strategy that sold YM option straddles on a monthly cycle, whilst trading the underlying into the strike areas such that any option loss was always fully covered. I stopped because of time constraints & I've often thought if there was just one strategy I should have stuck with, it was that one.

So I'm going to dip my toe in the water, starting with CL options only... and maybe trading CL futures as well to protect positions (maybe it's not necessary with this approach, but I'll literally start with one lots). Have to find my old MRCI Encyclopedia as a reference, but I think it only goes to 2005, so perhaps no longer of use.

Do you see any CL option trades on the horizon at present, please (I've noted your comment about typically looking 25 strikes out for Calls, 20 for Puts) ?

You're welcome.

Doing strangles should work.

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  #27 (permalink)
Elite Member
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Free option writing .xls

In gathering together various futures option writing tools I remembered I had copy of this, which does at least have some interesting commentary (although the authors are/were writing less FOTM options).

It's the "Free Option writing strategy and analysis spreadsheet" on this page :

URC Trading

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  #28 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Trade Alert.

Sell Oct Milk (DA) 20.50 puts for 0.03 ($60). IM is $229. 56 DTE. About 4.0% Monthly ROI depending on your commissions and fees.

Bid 133 times.

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  #29 (permalink)
Trading Apprentice
San Diego, CA
 
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ron99 View Post
What contract is it? OK I figured it out it is Oct CL.

Here's mine.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


I use settlement prices. It looks like TOS uses last traded price on that day. I put the same price for the previous last traded day for weekends and holidays so different years chart correctly over each other.

I added an average line (white). I do leave abnormal outlier years out of the average. Like LC and LH this year. Or CL 2008.

Hi Ron. Thanks for the thread. This looks like excel. Where did you get your data for the chart? I've got 1.5 years of data from the SPAN ftp site, but thats it. Would like to add more to backtest (good results so far).

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  #30 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
Broker/Data: QST, DeCarley Trading, Gain
Favorite Futures: Options on Futures
 
Posts: 2,730 since Jul 2011
Thanks: 794 given, 4,779 received



dbh21 View Post
Hi Ron. Thanks for the thread. This looks like excel. Where did you get your data for the chart? I've got 1.5 years of data from the SPAN ftp site, but thats it. Would like to add more to backtest (good results so far).

I got the data from my trading platform, QST.

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