Writing futures options uncovered...

optsonly

Junior member
15 1
I've looked for a dedicated thread here but have yet to find one. I've been in the markets for about 15 years and would like to simply throw some ideas back and forth with a few folks....
 

rathcoole_exile

Veteren member
3,924 767
my focus is trading ES Futures.

But i originally used to trade Options exclusively.

Now I trade Options as an adjunct to my main trading.

the way I use them is by on Daily signals of Ichimoku Kinko Hyo

I use ichomokutrader dot com for screening stocks that trigger a signal

Whenever there is a Strong Bull signal, I will look to Write a Naked Put on it,
although sometimes I'll Buy a Call instead

Conversely, if there's a Strong Bear signal, I will usually look to Buy a Put
although I will sometimes Write a Naked Call instead.

I don't take every trade that comes along, and I usually stick to my stable of personal top 20 or so stocks that I'm familiar with for years such as HPQ, DAl, PETM, CAT, SLB etc
 

optsonly

Junior member
15 1
This is my third year writing uncovered options and have been doing well. I started my trading endeavor a long time ago and learned the hard way trading futures. Got a better handle on things with FOREX but that took many hours out of my regular schedule which left me very little time to enjoy life. I loved that market but the time involved was too great. Writing options on futures give me that time back. I don't make as many trades per year but my returns have been good.

I'm currently short the 55 Dec Crude puts which should get bought back any day now. Watching Wheat, Coffee, and Sugar to sell options there as well....
 

Dunstan

Junior member
10 1
Hi optsonly,

In my thread (Follow the Smart Money / COT Analysis) during one of my recent posts, I have mentioned that Wheat is an interesting market these days, since the stress level that can be measured by the Commitments of Traders report, is extremely high.

For this reason I am excited to see that you are going to be watching this market and possibly selling options on it.

As I have stated in the other thread, I believe that option writing combined with COT analysis may be a good combo.

What kind of options would you be considering selling in Wheat? (strike? month? and I guess we are talking about Puts here:) )I have checked the liquidity in DEC2012 Puts at CME, but found that it is too low in OTM options and thus it would be pretty difficult to sell there.

Please don’t misunderstand me, I would not want you to reveal your exact choice of options, rather I’m interested in the parameters that you are using to define the “best choice”. As I have mentioned in my thread, although I find this strategy very interesting and I believe that it could profitable too, I don’t see how it can work in practice, due to the liquidity issue.

All the best,
Dunstan
 

optsonly

Junior member
15 1
I look to make around $300 per individual option or option pair and $400 per each short strangle = selling a put and a call.

I'm currently watching December corn, wheat, and coffee.

From a seasonal point of view, wheat and corn usually put the highs in for the market around this time of year. Wheat had a big day today and corn was looking for something to do. When the price of grains reaches such a high price there comes a point when people will say, "that's too expensive for me so I just will not buy". Cattle farmers are doing this right now and bringing cows to slaughter so they will not need as much grain. Lack of buying will produce a surplus in the markets that will eventually push prices down I agree that the COT in wheat looks interesting but all the drought news has been focused on corn with very little talk of wheat. However, grains tend to follow each other so if corn falls wheat will most likely do the same.

Dec Wheat closed around 882 and the Dec 1100 calls are going for about $560 each with 99 days to expiration. Those look very good to me.

Dec Corn is around 800 and the Dec 1050 calls are about $250. Eyeing those.

Dec Coffee is still weak and approaching the 150 level which 'looks' like good support. The weather in Brazil has been very good for harvesting this time of yeat and Viet Nam had a very good crop for export. I'm looking to eventually sell puts at some point in this market when prices appear to settle but I do see more of a downside here.

My Dec 55 crude oil puts that I sold for $350 were bought back for $50 this week and I would like to reenter that market but will wait for prices to pull back some for the put premiums to increase.

Margin for selling options: "Usually" the margin required to write options is about 2X the premium collected. Contact your broker for specifics. Also, some brokers might not allow new traders to write options if they are new to trading. Brokers have to cover themselves as well against potential unlimited risk. I would too:cheesy:
 

justtellingitasitis

Junior member
10 6
This is a potentially really interesting topic! Options are sexy :) However, yet again, I am going to be 'negative'!

There are people on this board that can tell you how to price the funkiest of options, that can help with modelling any sort of vol surface you like, and are INCREDIBLY knowledgeable about it. No, I am not one of them, and I am not massaging my own ego, but it is ridiculous that no-one ever seems to ask a real options question!!

There is never any mention at all as to how options are actually priced, as to how anyone is managing an option portfolio, even delta hedging - surely a reasonable assumption as the most frequently queried topic by serious traders - is NEVER mentioned.

I am here because I have too much time, and am very keen to learn. I am beginning to think that my very limited knowledge is already miles ahead of the average discussion. Again, feel free to ridicule me if you wish, that's my view though. There never seems to be any real discussion of anything of note apart from people claiming to be buying the low and selling the high!!!!!

Hopefully someone can convince me otherwise, but I am becoming disheartened. I'm sure for many the prospect of my departure is a welcomed development, but come on - there must be some serious option traders out there!!!

Grrrrrr - it annoys me!!!

Come on, someone make me look a [email protected], tell me I've got it all wrong. I'll eat my proverbial hat with glee.
 

optsonly

Junior member
15 1
This is a potentially really interesting topic! Options are sexy :) However, yet again, I am going to be 'negative'!

There are people on this board that can tell you how to price the funkiest of options, that can help with modelling any sort of vol surface you like, and are INCREDIBLY knowledgeable about it. No, I am not one of them, and I am not massaging my own ego, but it is ridiculous that no-one ever seems to ask a real options question!!

There is never any mention at all as to how options are actually priced, as to how anyone is managing an option portfolio, even delta hedging - surely a reasonable assumption as the most frequently queried topic by serious traders - is NEVER mentioned.

I am here because I have too much time, and am very keen to learn. I am beginning to think that my very limited knowledge is already miles ahead of the average discussion. Again, feel free to ridicule me if you wish, that's my view though. There never seems to be any real discussion of anything of note apart from people claiming to be buying the low and selling the high!!!!!

Hopefully someone can convince me otherwise, but I am becoming disheartened. I'm sure for many the prospect of my departure is a welcomed development, but come on - there must be some serious option traders out there!!!

Grrrrrr - it annoys me!!!

Come on, someone make me look a [email protected], tell me I've got it all wrong. I'll eat my proverbial hat with glee.

I agree 100% with everything you said.

I don't care how the powers that be determine the price of an option. Don't care what the greek variables are saying today, or what the interest rate to Maria Bartaromo's eye lash length is today either. My main concern is how much time is left to expiration and what the premium is. The option market and pricing is a different language for those people that want it to be, my two cents. I look at a potential commodity chart for previous S/R levels, the COT, and a few indys and the seasonal aspect of things...that's about it. No Gann Wheel or moon phase stuff.

I think a serious option trader might be a hedge fund manager or commercial dude, or a full time trading for a living trade. I know none of those people. I am like the majority of people here...Just a trader with a normal full-time job that wants to build their account over time.

I agree...serious options traders please respond!

Picking tops and bottoms...nobody can do that over and over...nobody. I entered the option writing arena because it gives me time to be away from the screen. The market loves to shake out those traders using a 5 cent stop loss on a wheat contract. Sold options can be 50% away from the current price, that's a good thing.

However, this can be a very boring way to make money. It took about a month to make $300 per sold option in the crude puts I sold...a month. That can be made in a few minutes trading the contract....been there done that with FOREX...in seconds. That takes too much of my free time that yo can never, never get back or buy more of. I'll take boring and consistent versus nail biting and quarter flipping any time.

Like you I am keen to learn...about everything. I'll pick up a book on quantum physics for the normal guy one day then how to correctly solder copper pipe the next. Oh, and try to make a buck or two somewhere in between.

Writing options is a 'rare' form of trading...Please, please anyone jump in here.

"Bueller....Bueller"
 

justtellingitasitis

Junior member
10 6
Whether you are buying or selling options is irrelevant. Whether you are naked or not is similarly irrelevant. The point is you have a delta position. Ignoring every other greek (which in itself is a truly ridiculous thing to do. TRULY ridiculous), you still have an effective position in the underlying. The only reason to use options in such circumstances is for leverage.

It seems that no-one even mentions this most basic of facts. If you have no interest in the greeks, which clearly virtually no-one does because no-one ever mentions them at all, then you are only using options for leverage. If you are only using them directionally, then why on earth would you use them at all? If you have no appreciation of the pricing of options, how do you know if it is cheap or expensive?

There's some really clever guys here as I said that can help explain the vol surface as a starter example - literally no-one ever even asks what the vol is, let alone a vol surface.

I just cannot understand it. If you don't get the greeks, if you don't understand how something is priced, then how can you possibly understand it's worth??

Ergo, you don't understand the worth of something, yet are trading it's value.

MENTAL.
 

Martinghoul

Senior member
2,690 276
Erm, I am not really sure what this discussion is about...

No strategy is ever all good or all bad. The devil is, always and everywhere, in the details and the specifics.
 
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MacroStyle

Junior member
11 1
If your strategy is to just short options without every worrying about the vol market or your short gamma position you will blow up.

You are constantly short tail risks. If you're not looking at skew, roll down and absolute vol level how can you be sure that the trade is good?

For example selling vol at these very low August levels is not a trade i would take regardless of what the chart technicals are telling you, it just not good value here.
 

optsonly

Junior member
15 1
If your strategy is to just short options without every worrying about the vol market or your short gamma position you will blow up.

You are constantly short tail risks. If you're not looking at skew, roll down and absolute vol level how can you be sure that the trade is good?

For example selling vol at these very low August levels is not a trade i would take regardless of what the chart technicals are telling you, it just not good value here.

Not sure what August markets you are referring to...
 

optsonly

Junior member
15 1
Sounds like the experts have been here the entire time, and spoken. Depending on what you look for to enter a trade and if you want to filter for the best possible greek variable scenario then your 'choices' for potential sells will be very limited. The method here is simply writing far OTM options with x number of days left to expiration and look for time decay to eat away the premium. X number of days being two or three months of time.

If you want to sell a CZ 700 call option uncovered right now because that is what your greeks are telling you what you should do then knock yourself out. That in my mind is crazy, ridiculous, stupid, and you have no idea what you are talking about. If you have nothing to add to the thread besides criticism then please move on. I don't care if you have over 3,000 posts or 3 posts. Everyone's method is different for whatever reason. I have done this for years. I'm not here to start a pissing contest which sounds like everyone else has already but if that is what you want then fire away. The week is over.
 

marameo

Junior member
19 0
If you want to sell a CZ 700 call option uncovered right now because that is what your greeks are telling you what you should do then knock yourself out.

Hi,

I have a question about greeks I'd like to ask here so that I don't have to start a new thread. Once I know the spot price, option price, style, riskfree rate, date at moment of writing and maturity date I can obtain IV and then, delta etc...by running the formula up-side-down, correct?

Now, suppose I want to calculate greeks (delta mostly) for long-term option, say DEC12, does it make sense to use the current spot price in the formula, or should I use the DEC12 futures settlement price?

I am concerned on this because the delta will indeed change If I either use spot price or the future price sharing the same maturity date :confused:
 
 
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