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Diversified Option Selling Portfolio
Started: by myrrdin Views / Replies:28,693 / 618
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Diversified Option Selling Portfolio

  #471 (permalink)
Market Wizard
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Weekly cattle slaughter is estimated to be up 3.21 pct from a week ago and up 7.38 pct from a year ago.

Weekly hog slaughter is estimated to be dn 1.22 pct from a week ago and up 7.36 pct from a year ago.

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  #472 (permalink)
Market Wizard
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ys91 View Post
Cattle limit down today. Looking at the report, I'm not sure I see the reason for a massive downward move like this. Anyone has any insights to understanding this much of bearishness?

No, I have no idea. According to my opinion this move is not driven by fundamentals.

On the one hand, I am convinced we will see 110 before the December contract expires. On the other hand, such moves can go further than your account allows.

Currently I still hold my positions.

Best regards, Myrrdin

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  #473 (permalink)
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Good article on Hog situation


Quoting 
The huge supplies are coming at a time of tepid export demand. China, which more than doubled U.S. pork purchases in the first half of the year, has now put the brakes on buying. Devaluation of the peso also threatens shipments to Mexico, the destination for 40 percent of U.S. hams.


Quoting 
Pork output surged 10 percent in August to 2.15 billion pounds, according to U.S. Department of Agriculture data released Sept. 22. The trend is likely to continue as weekly figures show that the number of slaughtered animals has consistently climbed in September from a year earlier. Hog supplies typically peak in the fourth quarter, which means even more animals are coming. U.S. production of the meat this year is forecast to be the largest ever.

“We could have not just a record, but an obscene record supply,” Rich Nelson, chief strategist at Allendale Inc. in McHenry, Illinois, said by telephone.

As of Sept. 1, the U.S. hog herd rose 2.4 percent from a year earlier to 70.85 million head, according to a USDA report released Sept. 30. That’s the highest ever for the month in data that goes back to 1866. Analysts in a Bloomberg survey expected a gain of 1.2 percent.


Quoting 
While exports in some weeks during April and May exceeded 5,000 metric tons, they sank below 1,000 tons in mid-September, USDA data show.

Too Many Fat Pigs Are Making Hogs Biggest Commodities Loser - Bloomberg

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  #474 (permalink)
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Selling puts on Live cattle?


myrrdin View Post
No, I have no idea. According to my opinion this move is not driven by fundamentals.

On the one hand, I am convinced we will see 110 before the December contract expires. On the other hand, such moves can go further than your account allows.

Currently I still hold my positions.

Best regards, Myrrdin

Hi wondering why we dont sells puts deep OTM like 5 delta etc like we do with ES? is it because the premium received is JUST NOT worth the risk since there could be large continued moves as compared to ES
or it more a liquidity issue? or both of the above?

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  #475 (permalink)
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jokertrader View Post
Hi wondering why we dont sells puts deep OTM like 5 delta etc like we do with ES? is it because the premium received is JUST NOT worth the risk since there could be large continued moves as compared to ES
or it more a liquidity issue? or both of the above?

Because most options other than ES are closer to ATM than ES with the same STD.

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A 5 delta Feb LC put is 80 which is 20 OTM. LC can easily move 20 in 30 days. Did it last year.

A 5 delta ES put is 1815 which is 345 OTM. ES has never moved 345 in 30 days other than once in history in 2008 when it dropped 380.

In the last 5 weeks LCz has moved 15. A 95 put which was 20 OTM from the 115 futures on 8/9/16 was 0.375 on 8/9/16. It is now at 2.425.

Not saying you shouldn't do it but you have less room for error. More risk.

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  #476 (permalink)
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Thanks much a pic is worth a thousand words

This makes it clear on 2 aspects
a) why pick puts vs calls especially for ES (even for GC)

b) risk/reward based on historical movement

Thank you

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  #477 (permalink)
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In this case Ron, how do you assess whether market's priced in the oncoming placement of the hogs into processing for Q4. I mean, if this increase is priced in, we should be close to or at the bottom, but if only a partial pricing in of this supply there still might be a chance of further downward pressure on hogs.

I guess what I'm really asking, probably wrongly, is how to find/assess whether market is pricing in the full hogs supply build-in until Q4 or not.

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  #478 (permalink)
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jokertrader View Post
Hi wondering why we dont sells puts deep OTM like 5 delta etc like we do with ES? is it because the premium received is JUST NOT worth the risk since there could be large continued moves as compared to ES
or it more a liquidity issue? or both of the above?


There are three reasons, which are connected to each other. I will explain the first two reasons for the ES puts. I currently hold the 2100 strikes.


During periods of low volatility I prefer selling puts with higher delta, as they seem to suffer less, if a sudden rise of volatility occurs. Vega per premium for FOTM options is significantly higher. Examples for the ESZ puts:

2100 (delta = 34 %): vega per premium = 0.00196
1900 (delta = 9.2 %): vega per premium = 0.00335
1700 (delta = 2.4 %): vega per premium = 0.00435

Margin per premium for FOTM options is significantly higher. Examples for the ESZ puts:

2100 (delta = 34 %): margin per premium = 1.9
1900 (delta = 9.2 %): margin per premium = 3.2
1700 (delta = 2.4 %): margin per premium = 4.5

Obviously there is an inverse correlation between vega per premium and margin per premium, which does make sense.

In dramatic situations it can be dangerous to hold a large number of FOTM options - their value might explode. The risk for a significantly smaller number of closer to the money options is smaller. This is of special importance for some commodities. In case of a severe desease among hogs or cattle, severe weather issues among grains or coffee or an attack of terrorists on the oil industry there can be major moves of the underlaying. This is bad news for every trader being on the wrong side. But it is even worse if you are short a large number of options with a small delta. Such events can happen during the weekend ...

Of course there is no free lunch, there are disadvantages selling options with a high delta. Most notably you have to use tighter stops to avoid getting into the money. And it often takes longer to achieve the target value for an exit in case the market moves sideways.

Best regards, Myrrdin

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  #479 (permalink)
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ys91 View Post
In this case Ron, how do you assess whether market's priced in the oncoming placement of the hogs into processing for Q4. I mean, if this increase is priced in, we should be close to or at the bottom, but if only a partial pricing in of this supply there still might be a chance of further downward pressure on hogs.

I guess what I'm really asking, probably wrongly, is how to find/assess whether market is pricing in the full hogs supply build-in until Q4 or not.

That is a question that nobody knows the answer. It will depend on what inventories are after the holidays and the amount of hogs going to market in Q1.

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  #480 (permalink)
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Rolled the SF C10.4 into the SF C10, taking a loss of approx. 15 - 20 % for the SF C10.4 . Will exit on a close above 10.

Yield estimates continue to come in significantly above average and at record highs. USDA already reported very large demand figures. South American production looks much better than last year.

Best regards, Myrrdin

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