NexusFi: Find Your Edge


Home Menu

 





Selling Options on Futures?


Discussion in Options

Updated
      Top Posters
    1. looks_one ron99 with 2,221 posts (4,489 thanks)
    2. looks_two SMCJB with 346 posts (733 thanks)
    3. looks_3 kevinkdog with 341 posts (400 thanks)
    4. looks_4 myrrdin with 288 posts (408 thanks)
      Best Posters
    1. looks_one SMCJB with 2.1 thanks per post
    2. looks_two ron99 with 2 thanks per post
    3. looks_3 myrrdin with 1.4 thanks per post
    4. looks_4 kevinkdog with 1.2 thanks per post
    1. trending_up 1,950,287 views
    2. thumb_up 9,259 thanks given
    3. group 458 followers
    1. forum 7,370 posts
    2. attach_file 794 attachments




 
Search this Thread

Selling Options on Futures?

  #7011 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785


tinaturner View Post
Hello Ron
What do you think about opening an ES-2 + 3 position to these levels of the S & P?
I do not want to guess the floor of the index, but given the depth of the fall, we could risk taking into account that the margin of fall from now on could be assumed by the strategy without reaching a margin call. And if on the other hand, the S & P starts to rise we could get a profit in a short time. What you think?
Thank you

I'm not doing any ES put spreads right now. But if you are I would suggest moving from 6xIM to higher.

I just watched ES futures drop 50 in 2 hours and then rise 35 in 1 hour. Thursday's moves were even more extreme.

Started this thread Reply With Quote
Thanked by:

Can you help answer these questions
from other members on NexusFi?
Better Renko Gaps
The Elite Circle
NexusFi Journal Challenge - April 2024
Feedback and Announcements
Ninja Mobile Trader VPS (ninjamobiletrader.com)
Trading Reviews and Vendors
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
Deepmoney LLM
Elite Quantitative GenAI/LLM
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
59 thanks
Funded Trader platforms
37 thanks
GFIs1 1 DAX trade per day journal
22 thanks
NexusFi site changelog and issues/problem reporting
22 thanks
The Program
20 thanks
  #7012 (permalink)
tinaturner
BARCELONA/SPAIN
 
Posts: 33 since Sep 2013
Thanks Given: 2
Thanks Received: 2


ron99 View Post
I'm not doing any ES put spreads right now. But if you are I would suggest moving from 6xIM to higher.

I just watched ES futures drop 50 in 2 hours and then rise 35 in 1 hour. Thursday's moves were even more extreme.

Thanks Ron for your comments.
I would like to ask you another question too. When you decide to stop operating put spreads because the market is dangerous, what parameters do you set? Is there any way to objectify that danger? I think for example in the VIX> x.
The same for when it comes time to start again with the put spreads. There is some numerical parameter that you use to adopt such a decision

Thanks again.

Reply With Quote
  #7013 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785



tinaturner View Post
Thanks Ron for your comments.
I would like to ask you another question too. When you decide to stop operating put spreads because the market is dangerous, what parameters do you set? Is there any way to objectify that danger? I think for example in the VIX> x.
The same for when it comes time to start again with the put spreads. There is some numerical parameter that you use to adopt such a decision

Thanks again.

I use my gut feeling along with many fundamentals.

Started this thread Reply With Quote
Thanked by:
  #7014 (permalink)
 myrrdin 
Linz Austria
 
Experience: Advanced
Platform: TWS
Broker: Interactive Brokers
Trading: Commodities
Posts: 1,938 since Nov 2014
Thanks Given: 3,686
Thanks Received: 2,651


tinaturner View Post
Thanks Ron for your comments.
I would like to ask you another question too. When you decide to stop operating put spreads because the market is dangerous, what parameters do you set? Is there any way to objectify that danger? I think for example in the VIX> x.
The same for when it comes time to start again with the put spreads. There is some numerical parameter that you use to adopt such a decision

Thanks again.

I do it in a similar way as Ron.

I stop put selling when either there is a very important event (eg. election) ahead or when fundamental data forecasts severe problems ahead.

Additionally, I am very careful when the S&P index moves below its 200 dma.

I am afraid there is no easy way, eg. "If VIX is above x stop put selling".

Best regards, Myrrdin

Reply With Quote
Thanked by:
  #7015 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785

ES futures have dropped 387 from Dec 3 to Dec 21. I wanted to see how the ES strategy would have worked with that huge drop in 18 days.

It worked better than I thought it would. It is only using 48.1% of account to cover maintenance margin. Far less than the 100% than would be required to put the account on margin call.

Yes the account is losing a lot of money. -$1,223.20. But you are still in it with the possibility of riding it out until it is profitable.


Started this thread Reply With Quote
  #7016 (permalink)
 ron99 
Cleveland, OH
 
Experience: Advanced
Platform: QST
Broker: QST, DeCarley Trading, Gain
Trading: Options on Futures
Posts: 3,081 since Jul 2011
Thanks Given: 980
Thanks Received: 5,785

Here is how the ES strategy would have performed if you entered on the worst day, Oct 3, 2018.

From Oct 3 to Dec 3 it would have peaked at 64.8% of account used to cover maintenance margin. On Dec 3 the net premium of the position was at 51% or 49% drop. $81.80 profit.

If I had held it through all of that for 61 days, I believe I would have taken my profit on the position on Dec 3.

Now if you didn't you would have hit margin call on Dec 19.

When the strategy is below 40 DTE the longs are too close to expiring and too far OTM to do any good. I suggest never keeping the strategy below 40 DTE.


Started this thread Reply With Quote
  #7017 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
Legendary Market Wizard
 
Experience: Advanced
Platform: TT and Stellar
Broker: Advantage Futures
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,041 since Dec 2013
Thanks Given: 4,375
Thanks Received: 10,192

After today's drop I believe the SPX is now 20% below its fall highs. Was having a discussion about this with some friends, so decided to post here just for info. Not 100% relevant, but probably interesting to all you ES put sellers out there.


Reply With Quote
Thanked by:
  #7018 (permalink)
Ozquant
Brisbane Queensland Australia
 
Posts: 220 since Aug 2017
Thanks Given: 167
Thanks Received: 380


SMCJB View Post
After today's drop I believe the SPX is now 20% below its fall highs. Was having a discussion about this with some friends, so decided to post here just for info. Not 100% relevant, but probably interesting to all you ES put sellers out there.


Awesome info and totally relevant , just thought id add to it with recent exhaustive moves since 09 and the snap back after in a more visual sense . These deep corrections are commonly followed by 10% rise inside a month 'once' the swing low is in .



Reply With Quote
Thanked by:
  #7019 (permalink)
Calamari88
Henderson, NV, USA
 
Posts: 63 since Feb 2015
Thanks Given: 91
Thanks Received: 33


Harvard16 View Post
I would say it is not as attractive as it was, like many I started selling commodity options on the backside of 2000's commodity boom when the air was coming out of the market but there were still fat premiums to be had DOTM on a diverse range of markets, and it seemed relatively easy to grow an account. Since then premiums have become much skinnier taking with it, much edge.

A few things I experienced have made me less enthusiastic on selling options.

The first being much like the boiling frog experiment from our school days, where a frog will just stay in the water as it gradually heats up until it dies. Where an option position will be 30% under water, no problem, 50% under water, get used to that level, no problem, 75% underwater, little bit warm but still FOTM and not at risk parameters, then all of a sudden with the exponential nature of options, Bang 200%, 300% underwater in short order. Without the ability to place hard stops as in futures knowing exactly the risk when it goes wrong can be difficult to quantify and manage when things get wild.

The other is as an option seller the pressure to constantly be looking for more premium to sell as existing premiums decay in an account which can often lead to substandard trades. Much like watching a campfire burning down there is a need to go out and look for fresh firewood, but instead of going out in the daylight when you can see, go out at all hours, in the dark in haste not sure if you picking up sticks of wood or sticks of dynamite to throw on that fire. Being very selective is key and it is easy to get sloppy especially when going well and it seems easy.

The failure of optionsellers has been a sobering shock particularly as I have seen a friend who is a client caught up in this and it’s devastating, out of respect I will say little but understand their diversified ‘submarine’ method of risk management was not really seen of late. I agree with Pariah, people are in shock at present but legal action is no doubt coming.

I'm glad you made these points about the earlier years of option selling because I have noticed the same things and wasn't sure if I was imagining it. I've been selling deep out of the money options since 2010 and back then it was much easier to find them with higher premiums. The last part of my selection process is to filter using a probability calculator to find options with a low probability of the market getting anywhere near the strike by expiration. In the beginning of my trading I was often able to find DOTM options averaging $30-$150 with a low probability calculator rating with very little DTE, typically <42 days. Nowadays to find the equivalent premium and probability calculator rating I have to go out 4-12 months. This makes the trades take much longer and the drawdowns have become bigger. My annual return has been shrinking as a result.

Reply With Quote
  #7020 (permalink)
 datahogg 
Knoxville Tennessee USA
 
Experience: Intermediate
Platform: TOS
Trading: ES, NQ, CL, /6E futures options.
Posts: 346 since Oct 2012
Thanks Given: 135
Thanks Received: 154


When selling out of the money ES put options, an amount of $ is received for their sale.
Is there an average percentage of the sold $ that are used to buy long further out of the
money puts for protection?

Thanks in advance.

Reply With Quote




Last Updated on July 28, 2023


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts