Options on Futures

S

syzy

Hi everyone,

I was wondering if there is anyone trading options on futures, particularly options on index futures and commodities(preferably grains). I haven't been able to find any threads on this topic.
I've been paper trading these instruments for roughly a month now.
The things that I like about them is more flexibility while having leverage that, unlike leverage in futures, I can adjust and commissions are smaller.

I have a few questions regarding the execution of orders.

In paper trading I can get filled easily at a price between the bid and ask. Is it the same with real orders?

I am currently trading through TOS and when I put an order a confirmation window pops up with a warning that goes "Please note that you have selected a "non-standard" option series and there may be liquidity and settlement risks that you are not aware of". Although if you look at the OI there's plenty of liquidity. So am I missing something here?

Also any additional insight and advice would be appreciated.
Thank you.
 
Quote from syzy:

Hi everyone,

I was wondering if there is anyone trading options on futures, particularly options on index futures and commodities(preferably grains). I haven't been able to find any threads on this topic.
I've been paper trading these instruments for roughly a month now.
The things that I like about them is more flexibility while having leverage that, unlike leverage in futures, I can adjust and commissions are smaller.

I have a few questions regarding the execution of orders.

In paper trading I can get filled easily at a price between the bid and ask. Is it the same with real orders?

I am currently trading through TOS and when I put an order a confirmation window pops up with a warning that goes "Please note that you have selected a "non-standard" option series and there may be liquidity and settlement risks that you are not aware of". Although if you look at the OI there's plenty of liquidity. So am I missing something here?

Also any additional insight and advice would be appreciated.
Thank you.
More...

demo order filled is different than live order filled depend on the liquidity on the certain strike price. Remember, demo order is programmed.

Your worst enemy trading option is time value if u are the buyer of the option.
 
You have touched on the item tham makes me queeeezy when trading options on futures. :)

But honestly if you are a longer time-framne trader the fill should not make or break you. Over time I realized that my losing trades were really because of other factors besides the few 'points' I might have to give up on execution.

As long as you stick with the more liquid futures you should be okay...i.e. S&P futures. Also, I always make sure that the size I am trading is no more than 1/100th of the total volume of a given option. Sometimes you are forced to deal with lower volume options to adjust/close positions.

When executing your order, you might have to babysit/tweak the order until it gets executed. I sometimes have to spend up to 10-15 minutes on orders so I don't lose too much on the spread. The massive leberage makes all this worth it for me. However, I watch my positions closely as the volume can dry up in some of the less popular commodities. This can largely be mitigated by sticking to the S&P futures, Gold and Crude Oil.

Last, this should be standard operating procedure but will mention it anyway, always always use limit orders as much as possible. I personally never use market orders, though I hear that in fast moving markets limit orders are dangerous, but I have never come across that situation.

Hope this helps.
Happy trading. :)
 
We aware of the underying contract you're trading. It sounds like you made some paper trades on thin markets and thin markets in options are very dangerous as the bid ask spread can get real wide.
 
Thanks everyone for the replies.
As far as liquidity goes and the width of the spread in options on grains I think it's quite satisfactory. The spread during the main trading session is usually no more than 0.500-0.750 in OTM options (which I would mostly trade).

And the OI can be anywhere between 1000 and 50000, thus sometimes being even higher than that of the E-mini S&P 500 futures options. So is this considered to be "thin" or will I still be able to pull through ?

In my case time decay would probably serve to my advantage since I will mostly trade credit spreads and occasionally some intraday directional option trades.

Lastly, the order types. Optionable, you mentioned that I should use limit orders with options but the funny thing is there are simply no other types of orders available on the TOS platform for futures options.
Equity options on the other hand do have other types of orders (stop, market, tr. stop enc).
 
Not to digress from the OP but I have been looking into options on futures as well but it looks like the commissions can be prohibitive… TOS charges $3/contract. What do others pay?
 
I've been trading options on ES futures and for many reasons prefer it to SPX options...they are liquid but you don't have to be quite as fast as with the cash...you do need to be aware of the Greeks as you do with all options but if you are trading delta neutral its a great choice.
 
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