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Selling Options on Futures?


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Selling Options on Futures?

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  #21 (permalink)
 ron99 
Cleveland, OH
 
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RM99 View Post
What if the price of Oct dips below 73 before the expiration (but then rallies to above 73 before expiration) does the buyer have the option of placing you into a long during that point?

Yes. The buyer of the option is exercising the option.

I haven't had an option exercised since 2002. I sold 4000+ options last year for myself.

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  #22 (permalink)
 RM99 
Austin, TX
 
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I'm very green when it comes to options, so bear with me.

In the "covered" scenario, you enter a position (long or short) in the underlying month and sell a call/put in that same month? Would that be correct?

That way, if the price of crude went up (above strike) and the option was called, you lose money on the option, but make money on your long position.

Reverse for a short position (if the price dips below strike, and is exercised, you lose money on the option, but make money on the short contract position)

Is that accurate?

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  #23 (permalink)
 sam1197 
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ron99 View Post
I like to look at my option selling like this. I am selling flood insurance. But I am not selling insurance to people next to the river. I am only selling to people near to the top of the hill. Those that have very little chance of flooding.

The percent of the options that I sold that expired worthless the last couple of years is over 90%.

Hi Ron:

Thanks for starting this thread. I sell options in volume on futures. I have some excellent months but one bad month can wipe out the good ones and more. You say u sell OTM far, well, may be I am bit greedy since I sell them not too far and expiring in 30 days, so the delta is high and can explode with the High volatility on Ags, FX, silver...

If you sell far out of the money, how do u end up with high ROI? Controlling risk and adjusting positions on days where euro ranging 200 pips can be difficult. Add to that they are traded 3 sessions and each session has its trend, I end up with hundreds of dollars on commissions on some days.

Well, would like to know more how you control risk, do u use tools like OV?

Hope all is well in OH.


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  #24 (permalink)
 ron99 
Cleveland, OH
 
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Another point is that I am usually in at least 5 or more commodities. I also try to sell calls in some commodities and sell puts in others. If all of the markets were to move in the same direction then you aren't losing money on every position.

In flat market I will sell both puts and calls in the same commodity, a strangle. Profits on those are much better because margin is less for a strangle than if you held the positions separately. Sometimes it allows you to put one side of the strangle on for very little or free.

Right now if you have on a Sep 1800 Gold call, you can add a 1350 put for $57 of additional margin. Whereas a 1350 put by itself is 385 margin.

You must also watch seasonal tendencies of markets. Gold tends to increase in the fall, so I usually don't sell gold calls for the fall. Oil usually goes up in the spring.

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  #25 (permalink)
 ron99 
Cleveland, OH
 
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RM99 View Post
I'm very green when it comes to options, so bear with me.

In the "covered" scenario, you enter a position (long or short) in the underlying month and sell a call/put in that same month? Would that be correct?

That way, if the price of crude went up (above strike) and the option was called, you lose money on the option, but make money on your long position.

Reverse for a short position (if the price dips below strike, and is exercised, you lose money on the option, but make money on the short contract position)

Is that accurate?

If you sold a Oct 73 oil put and then bought a lower strike like 70 put , that is a covered put. The 73 yesterday settled at .18 and the 70 at .11. So .07 or $70 is the max profit minus fees. Your maximum risk is 73-70 or 3,000 minus $70 = $2930 vs almost unlimited on the 73 naked.

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  #26 (permalink)
 ron99 
Cleveland, OH
 
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Hi Sam,

sam1197 View Post
I have some excellent months but one bad month can wipe out the good ones and more.

Been there done that. But a lot less lately than when I started.


sam1197 View Post
You say u sell OTM far, well, may be I am bit greedy since I sell them not too far and expiring in 30 days, so the delta is high and can explode with the High volatility on Ags, FX, silver...

If you sell far out of the money, how do u end up with high ROI? Controlling risk and adjusting positions on days where euro ranging 200 pips can be difficult. Add to that they are traded 3 sessions and each session has its trend, I end up with hundreds of dollars on commissions on some days.

Well, would like to know more how you control risk, do u use tools like OV?

Hope all is well in OH.


You get the high ROI because the margin on the far OTM options is much lower than closer to ITM options. And after you put them on the closer they get to expiration the margin drops further so you can add more positions.

I mostly put on positions and leave them on. I never daily adjust them. That is what the excess cash is for.

One risk control I use is to stay away from commodities that are currently volatile. Like grains right now. But I will sell options in grains in the northern winter. But mostly it is staying far OTM.

What is OV?

Send some cool Canadian air down here. We're baking.

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  #27 (permalink)
 RM99 
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ron99 View Post
If you sold a Oct 73 oil put and then bought a lower strike like 70 put , that is a covered put. The 73 yesterday settled at .18 and the 70 at .11. So .07 or $70 is the max profit minus fees. Your maximum risk is 73-70 or 3,000 minus $70 = $2930 vs almost unlimited on the 73 naked.

So your maximum upside for a covered transaction is on the order of $60 and the maximum downside is on the order of $2930?

That means you'd have to have an expectancy of better than 98%?

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  #28 (permalink)
 ron99 
Cleveland, OH
 
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RM99 View Post
So your maximum upside for a covered transaction is on the order of $60 and the maximum downside is on the order of $2930?

That means you'd have to have an expectancy of better than 98%?

Since I never hit the maximum downside then it would be a lower number than that. I trade out of a long position before I would let it go to maximum loss.

How many times in history has oil dropped more than $27 in 48 days? And if it is doing that, then you get out long before it drops that much.

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  #29 (permalink)
 furytrader 
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I have never sold options on futures myself, but there's a professional trader named Max Ansbacher who used to sell options on the S&P in a managed account / hedge fund type of vehicle.I'm not sure if he's still managing money. If I recall correctly, he would sell OTM puts and calls, taking a directional bias based on his analysis of the market. He would usually sell them with 5-6 weeks left to go, right before the time decay really starts kicks in. He would ride them all the way down to expiration. I know he's written books about this many years ago (20-30 years ago).

The returns I remember from his program were steady but he got nailed a couple of times for bigger losses (in the area of 10% to 20% in a single month). Like I said I don't know whether he's still managing money or whether he got blown out but he had been selling options for many, many years.

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  #30 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
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Trading: Options on Futures
 
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The margin for a 1000 Sep ES put is $624. Yesterday's settlement was 1.90 or $95. That's a ROI of 4.8%.

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