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

  #81 (permalink)
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Ron,
with this ES selling Put strategy.... will you sell these, even if your bias of the ES is Bearish vs Bullish ?
Since sell Puts is an overall Bullish strategy ?

And do you sell these around the 80 - 90 days till expiration " Mark " , because to get a decent premium ( due to selling so far OTM and with the low Deltas of .02 )
to get these jucier premiums, you have to sell the further out till expiration strikes ?


Thank you again for the replies,
Learning a lot from this thread and demoing , selling these types of trades

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  #82 (permalink)
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ron99 View Post
One trade that has been working well for me is selling ES puts that are 80+ DTE and not higher than a delta of 2.00. I then trade out of the position when the premium drops to < 0.80. You can usually ride out a 150-200 move down in ES futures with the excess of my formula.

Monthly ROI averages about 3-4%. Or 40-60% per year.

This is my variation of Karen the Supertrader's strategy. I think this works better. It's simple. It's easy to do because of the volume available in ES puts. It's safer because you are further OTM than Karen is at 56 DTE. Also you are at a lower delta than her.

I have done 497 trades, 16,138 contracts, selling ES puts. Only one loser of 50 contracts in Sep 2011. None since.

Like all trades, watch the fundamentals and if a major drop might be happening because of a US gov shutdown or major problems in EU, China or elsewhere or something else (recession), tread lightly with these puts.

Ron thanks for the info. Just some more details please: Which contract / exchange would work with a $ 25k account? I assume you trade European style?

I trade the same methodology already with DAX (odax) and Eurostoxx50 options. Those are unavailable for US citizens, but many others might have a look at them (contract sizes are about $60k for the first and $40k for the latter).

So which instrument should I use for my first trades with SP500 options? If MM requests more than $25k, what would be reasonable?

Thanks


Last edited by Forex37; February 13th, 2015 at 02:31 PM. Reason: Addition
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  #83 (permalink)
Market Wizard
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mdsvtr View Post
Ron,
with this ES selling Put strategy.... will you sell these, even if your bias of the ES is Bearish vs Bullish ?
Since sell Puts is an overall Bullish strategy ?

And do you sell these around the 80 - 90 days till expiration " Mark " , because to get a decent premium ( due to selling so far OTM and with the low Deltas of .02 )
to get these jucier premiums, you have to sell the further out till expiration strikes ?

I sell these no matter my bias. These are so far OTM that most of the time it won't matter.

What is "Mark"?

I sell that far DTE because you are further OTM for the same premium.

Also, and this is important, the time erosion of the premium is faster on these far OTM options than doing the same strikes with less DTE.

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  #84 (permalink)
Market Wizard
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Forex37 View Post
Ron thanks for the info. Just some more details please: Which contract / exchange would work with a $ 25k account? I assume you trade European style?

I trade the same methodology already with DAX (odax) and Eurostoxx50 options. Those are unavailable for US citizens, but many others might have a look at them (contract sizes are about $60k for the first and $40k for the latter).

So which instrument should I use for my first trades with SP500 options? If MM requests more than $25k, what would be reasonable?

Thanks

I trade American style. These are options on futures not options on stocks. ES only trades at CME. Normally my initial margin is around $500 each for ES puts.

What is MM?


Last edited by ron99; February 13th, 2015 at 04:25 PM.
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  #85 (permalink)
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What is "Mark"?

I was just trying to put emphasis on the 80 - 90 days till expiration


I sell that far DTE because you are further OTM for the same premium.

That is definitely a huge benefit, in that.... with selling Naked , you can close out the position when the trade goes in your favor at almost any point for a profit, But for a credit spread.... to get the most Profit by buying to close before expiration... you have to hold that credit spread a lot closer to its expiration

VS

a naked trade... you can close that trade out for 80 - 90 % of max credit received, with only say 10 days of time passing vs you would have to wait say, 30 days of time passing with the credit spread, in order to make the same 80 - 90% of credit received profit ?


Also, and this is important, the time erosion of the premium is faster on these far OTM options than doing the same strikes with less DTE.


This is Fantastic news
Thanks for sharing, I had no idea that this was the case

Ron, do you mind explaining how/ why this is so ?



Normally my initial margin is around $500 each for ES puts


Is this initial margin of $500 based on how Far OTM the strike we sell is
OR
is this $500 for initial margin, based on account size / your brokers Margin requirements?

And lastly please...

for Seasonal trading analysis, I looked at the 2 companies you recommended to purchase the reports from.....
I also looked at TorS, and found that they have a Chart Mode setting called " Seasonality "

You can pull up 20 years of historical data , calculating from a Daily timeframe
I pulled it up on ZC , and see that ZC peaks at the 470 - 480 price range from the months of April - June ( roughly )

So with this kind of information, would we look to sell Calls at 490 500 strikes ?
Is this how we use Seasonals and place trades knowing this kind of information ?



Thanks again, Really appreciate it

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  #86 (permalink)
Market Wizard
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mdsvtr View Post
What is "Mark"?

I was just trying to put emphasis on the 80 - 90 days till expiration


I sell that far DTE because you are further OTM for the same premium.

That is definitely a huge benefit, in that.... with selling Naked , you can close out the position when the trade goes in your favor at almost any point for a profit, But for a credit spread.... to get the most Profit by buying to close before expiration... you have to hold that credit spread a lot closer to its expiration

VS

a naked trade... you can close that trade out for 80 - 90 % of max credit received, with only say 10 days of time passing vs you would have to wait say, 30 days of time passing with the credit spread, in order to make the same 80 - 90% of credit received profit ?

It's going to take a lot more than 10 days to get 80-90% of credit received.

Do some paper trades and watch what happens.


Also, and this is important, the time erosion of the premium is faster on these far OTM options than doing the same strikes with less DTE.

This is Fantastic news
Thanks for sharing, I had no idea that this was the case

Ron, do you mind explaining how/ why this is so ?

the strikes are further OTM so they are less risky and thus less premium for them as they get closer to expiration. That happens sooner than a higher strike.

Normally my initial margin is around $500 each for ES puts

Is this initial margin of $500 based on how Far OTM the strike we sell is
OR
is this $500 for initial margin, based on account size / your brokers Margin requirements?

Margin is set by the exchange. SPAN margin. Most brokers are at the SPAN minimum.

And lastly please...

for Seasonal trading analysis, I looked at the 2 companies you recommended to purchase the reports from.....
I also looked at TorS, and found that they have a Chart Mode setting called " Seasonality "

You can pull up 20 years of historical data , calculating from a Daily timeframe
I pulled it up on ZC , and see that ZC peaks at the 470 - 480 price range from the months of April - June ( roughly )

So with this kind of information, would we look to sell Calls at 490 500 strikes ?
Is this how we use Seasonals and place trades knowing this kind of information ?

Heck no. First of all you have to look at each contract separately. For example, July corn performs differently than Dec corn during the same calendar month.

Seasonals are far down the list of tools to use. They work sometimes if the fundamentals are right. And even then they may not work because of outside influences. Be careful using them.

Secondly you shouldn't sell calls that close.

I going to be brutally honest here. Based on the questions you ask, I am going to suggest you do a lot more research and do a lot of paper trading before you start trading live. You are no where near to being ready yet.

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  #87 (permalink)
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Broker Recommendation

I have had Interactive Brokers for years. I think it is time to move on. Could you guys recommend me a broker for option selling?

A couple of weeks ago, on one morning IB suddenly almost doubled my margin and liquidated my position, incurring loss. I asked IB customer service, and they said they just increased the margin due to some internal policy change (not due to market condition or my portfolio). I received no prior warning of any kind, and I was well above margin until IB just decided one morning.

I think it's time to switch. Any recommendation on broker is really appreciated. Margin lower than IB would be great. I looked around and people seem to use Thinkorswim? Are there any more recommendations?


Last edited by luck; February 17th, 2015 at 02:19 PM. Reason: adding more words
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  #88 (permalink)
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luck View Post
I have had Interactive Brokers for years. I think it is time to move on. Could you guys recommend me a broker for option selling?

A couple of weeks ago, on one morning IB suddenly almost doubled my margin and liquidated my position, incurring loss. I asked IB customer service, and they said they just increased the margin due to some internal policy change (not due to market condition or my portfolio). I received no prior warning of any kind, and I was well above margin until IB just decided one morning.

I think it's time to switch. Any recommendation on broker is really appreciated. Margin lower than IB would be great. I looked around and people seem to use Thinkorswim? Are there any more recommendations?


I do a lot of option selling, and left IB for similar reasons some time ago.

I trade with DeCarley and RJO, and am satisfied with both of them. DeCarley offers the best service I ever received from a broker, and RJO offers good service and excellent free (for customers) information on fundamentals.

I prefer two brokers to reduce third party risk. Was customer of Man Financial some years ago, and fortunately moved to RJO before they went bancrupt.

Best regards, Myrrdin

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  #89 (permalink)
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luck View Post
I have had Interactive Brokers for years. I think it is time to move on. Could you guys recommend me a broker for option selling?

A couple of weeks ago, on one morning IB suddenly almost doubled my margin and liquidated my position, incurring loss. I asked IB customer service, and they said they just increased the margin due to some internal policy change (not due to market condition or my portfolio). I received no prior warning of any kind, and I was well above margin until IB just decided one morning.

I think it's time to switch. Any recommendation on broker is really appreciated. Margin lower than IB would be great. I looked around and people seem to use Thinkorswim? Are there any more recommendations?

TOS does not trade all options. Check to see if they trade what you want to trade.

I use DeCarley/Gain. Best broker service ever.

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  #90 (permalink)
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myrrdin View Post
I do a lot of option selling, and left IB for similar reasons some time ago.

I trade with DeCarley and RJO, and am satisfied with both of them. DeCarley offers the best service I ever received from a broker, and RJO offers good service and excellent free (for customers) information on fundamentals.

I prefer two brokers to reduce third party risk. Was customer of Man Financial some years ago, and fortunately moved to RJO before they went bancrupt.

Best regards, Myrrdin


Hi Myrrdin,

I too was a customer of MAN...., What are the coditions with RJO (can you tell us?)? Is this RJO US or RJO UK via their KYTE setup?

Thanks

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