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Selling Far OTM Options on Futures
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Created: by ron99 Attachments:4

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Selling Far OTM Options on Futures

  #31 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
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Normally ES rises the week of the Sep future contract expiration (this Friday). The next two weeks after that are usually down some.

So I wouldn't be selling any ES puts this week.

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  #32 (permalink)
Trading for Fun
Lancashire UK
 
Futures Experience: Intermediate
Platform: Tradestation, Interactive Brokers, OX
Favorite Futures: ES Z CL EURJPY
 
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ron99 View Post
Normally ES rises the week of the Sep future contract expiration (this Friday). The next two weeks after that are usually down some.

So I wouldn't be selling any ES puts this week.

Nice crystal ball gazing Ron. Based on the Friday close I make that +27 points up and +43 points down

Do you see the same tendency in December, March and June?

I usually look for an up day on the first trading day of each month, which is inside your Down window. Have you noticed this?


Thanks,

Chris

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  #33 (permalink)
Market Wizard
Cleveland, OH
 
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MGBRoadster View Post
Nice crystal ball gazing Ron. Based on the Friday close I make that +27 points up and +43 points down

Do you see the same tendency in December, March and June?

I usually look for an up day on the first trading day of each month, which is inside your Down window. Have you noticed this?


Thanks,

Chris

Actually for Dec & Mar it is higher to the end of the month. But June is the same as Sep. The June decrease is larger than it is in Sep. But this year there was no decrease in June.

I used to buy calls for the increase in price on first trading day of the month. But that quit working this year. ES this year is -79.00 on the first trading day of the month.

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  #34 (permalink)
Trading for Fun
Lancashire UK
 
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ron99 View Post
Actually for Dec & Mar it is higher to the end of the month. But June is the same as Sep. The June decrease is larger than it is in Sep. But this year there was no decrease in June.

I used to buy calls for the increase in price on first trading day of the month. But that quit working this year. ES this year is -79.00 on the first trading day of the month.

Thanks for that, I'll dust off the backtesting code.

I buy outright futures on the first of the month, -24.25 so far this year, but I suppose it depends on stop placement. Most of that loss was March, as far as I remember that was due to the Russian intervention in Crimea.

Sorry to sidetrack your selling options thread

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  #35 (permalink)
Trading Apprentice
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Selling Premium and Adjustments

Hi guys, I do a lot of studying and hands on trading many spreads just because at this time I want to be covered.

Couple of thoughts. If you are selling those way OTM options you are basically in a direction less trade and your profiting on time decay. With that being the case, one of the keys to your trading success is going to be your adjustments. When the price is no where close to your strike, then things are good. However, when price gets close you have to make a decision or that small gain can blow up to a big loss.

So here are some ideas. 1) Be prepared to make adjustments and add that to your plan. This could be to roll to the next month buying you more time. Additionally, keeping some money on the side to get into a bigger position when you roll, to offset the one month loss. 2) Review your delta position and either buy some calls or puts depending on direction to reduce your delta exposure as price gets close. If the markets are moving fast this might be preferred over rolling.

Why do I say this? Because with a nice adjustment strategy it does not matter what the market is doing, remember you are selling time, and you can trade month after month. However, many people do not have an adjustment strategy and that is where OTM or premium selling can break down.

Just some thoughts


Last edited by spreadhead; October 9th, 2014 at 09:05 AM.
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  #36 (permalink)
Market Wizard
Cleveland, OH
 
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ron99 View Post
Normally ES rises the week of the Sep future contract expiration (this Friday). The next two weeks after that are usually down some.

So I wouldn't be selling any ES puts this week.

The other thing that is interesting about this trend is that it usually reverses at 9:30 am ET on Friday of futures expiration day. That is the time that Sep futures quit trading. The Dec contract usually starts dropping at 9:30 am ET.

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  #37 (permalink)
Elite Member
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Hi can you help. FB is at 74$. There are contracts that expire in 4 days. So I sell 10- 70 puts and 10- 78 calls for like 0.08 each. TOS says I would get 62$ for each. Margin is $11,000! So if the market doesn't get to 74 or 78 I make $120? What if market gets to 69 and the 70 put gets exercised? That means a buy order opens for me at 70? So that means I would be down 1,000$? Is there a way around this loss? I think you said once that you would close the position when market gets to 70?

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  #38 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Posts: 2,727 since Jul 2011
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pbylina View Post
Hi can you help. FB is at 74$. There are contracts that expire in 4 days. So I sell 10- 70 puts and 10- 78 calls for like 0.08 each. TOS says I would get 62$ for each. Margin is $11,000! So if the market doesn't get to 74 or 78 I make $120? What if market gets to 69 and the 70 put gets exercised? That means a buy order opens for me at 70? So that means I would be down 1,000$? Is there a way around this loss? I think you said once that you would close the position when market gets to 70?

I have never traded options on stocks. Try another more appropriate thread.

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  #39 (permalink)
Elite Member
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Sorry. I have an example with ES. Market is at about 2015 and the 1900 put is going for 11.00. So it says the premium I would get is 550$. Now, do I get the $550 right away or do I have to wait for it to expire? If someone exercises, do I still get the $550?

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  #40 (permalink)
Market Wizard
Cleveland, OH
 
Futures Experience: Advanced
Platform: QST
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Favorite Futures: Options on Futures
 
Posts: 2,727 since Jul 2011
Thanks: 794 given, 4,777 received



pbylina View Post
Sorry. I have an example with ES. Market is at about 2015 and the 1900 put is going for 11.00. So it says the premium I would get is 550$. Now, do I get the $550 right away or do I have to wait for it to expire? If someone exercises, do I still get the $550?

You get the $550 right away BUT subtracted from that $550 is the current value of the option. So if the current price is 10.00 you have 550-500=50.

If someone exercises then you do get the 550 but you also get a short ES future at 1900.

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