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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

  #51 (permalink)
Market Wizard
Cleveland, OH
 
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ACstudio View Post
Because unless it's cheaper to let them expire worthless then I look to put the buying power to use now rather than wait until Monday....but I would have done that some time ago if it was profitable and my Gamma risk was spiking.

.10 isn't worth me waiting for. Buying it back now frees up the capital so I can put something else on today before the market closes. Like I said .....unless buying power is not an issue.

If you are trading so tight that the tiny margin for options expiring today is preventing you from putting on new positions today then you are trading at considerable risk.

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  #52 (permalink)
Trading Apprentice
Nashville TN/USA
 
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ron99 View Post
If you are trading so tight that the tiny margin for options expiring today is preventing you from putting on new positions today then you are trading at considerable risk.

I can't imagine that the buying power reduction is "tiny". If I were to sell the SPY 205 put right now for .01 it would be over 3k in buying power reduction. If I owned it why in the world would I tie up that capital for one minute when I can put it to better use? So maybe a better question would be.....if you didn't own it right now would you sell it right now to collect the .10....because by holding it that is basically what you are doing.

Your theta decay for the weekend on 3k worth something with 30 days to expiration will be more than enough to make up for the few pennies you are leaving on the table with 0 days to expiration.

In my opinion not taking advantage of efficient use of capital is trading at considerable risk.

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  #53 (permalink)
Market Wizard
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ACstudio View Post
I can't imagine that the buying power reduction is "tiny". If I were to sell the SPY 205 put right now for .01 it would be over 3k in buying power reduction. If I owned it why in the world would I tie up that capital for one minute when I can put it to better use? So maybe a better question would be.....if you didn't own it right now would you sell it right now to collect the .10....because by holding it that is basically what you are doing.

Your theta decay for the weekend on 3k worth something with 30 days to expiration will be more than enough to make up for the few pennies you are leaving on the table with 0 days to expiration.

In my opinion not taking advantage of efficient use of capital is trading at considerable risk.

Dude, this thread is selling options on FUTURES. The margin for an ES option that is well OTM is $51.

Please delete your off subject responses from this thread. And i will do the same for my responses to you.

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  #54 (permalink)
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ron99 View Post
What commodity + contract?

ES

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  #55 (permalink)
Market Wizard
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pbylina View Post
ES

So yes you could have just let it expire and you would get all of the $3 you sold it for. As long as it is OTM you can let it expire.

Now I have found that exiting these options early, like when the premium drops by more than 50% and there are still many DTE, your monthly ROI will be higher than if you ride it to expiration.

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  #56 (permalink)
Trading for Fun
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Ron, how far do you usually go out to sell you options ? I usually start at 45 days but wondering if i should start at 60 days or later ?

thanks for the help

V

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  #57 (permalink)
Market Wizard
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vmaiya73 View Post
Ron, how far do you usually go out to sell you options ? I usually start at 45 days but wondering if i should start at 60 days or later ?

thanks for the help

V

I usually sell options with between 2 and 6 months to go, preferably 3 - 4 months. Main criterium is fundamentals (eg. seasonals).

Best regards, Myrrdin

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  #58 (permalink)
Market Wizard
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vmaiya73 View Post
Ron, how far do you usually go out to sell you options ? I usually start at 45 days but wondering if i should start at 60 days or later ?

thanks for the help

V

I have found that if you sell higher DTE and further OTM that futures movement against you have less effect. The delta is less for options of the same price that are further out in time.

I have been selling at 90-120 DTE and then getting out when the premium has dropped by at least 50%. That gives you a higher ROI than if you ride to expiration.

For example, on CL a CLg5 p47.50 settled at 0.21 on 12/10 and the delta is 0.0483 and IM is 898 and 34 DTE.

But a CLj4 p40.00 settled at 0.21 on 12/10 and the delta is 0.0322 and IM is 358 and 96 DTE. Far less IM and lower strike and delta.

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  #59 (permalink)
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mdsvtr's Avatar
 
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Hi Ron

I was reading through the newer revised " Selling Options on Futures " thread , and wanted to please ask you to explain the following sentence...
" Be careful about selling low premium calls because one bad week could wipe out a couple of years profit doing them "

I am new to the whole premise of selling OTM credits on the futures, and want to make sure that I avoid wiping out a chunk of my account by selling low premium Calls

I just purchased the Book " Selling Options on Futures "3rd edition
so hope to finish it by Christmas

Thanks so much Ron for your time and your help,
I always appreciate it - Michael

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  #60 (permalink)
Membership Temporarily Revoked
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mdsvtr's Avatar
 
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Options Premium question


from the CL example you just mentioned above....
" I have been selling at 90-120 DTE and then getting out when the premium has dropped by at least 50% "

Does this mean that you will exit the trade and Buy-Back the position, when/if at any point during the trade, you can buy to close out the trade and still keep 50% as profit, of the initial credit received when you first put on the trade ?


Thanks as always Ron, I and others on here really appreciate you sharing and starting the thread - Michael

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