Question about selling Index Futures Options

[just21]

Quote from xflat2186:

The overnight margin especially for a retail guy is silly on naked index puts. You're taking someone elses geopolitical risk each night for small premiums. The other issue is volatility skew in the puts is so great that in order to take in any decent premium on a spread you have to spread the strikes so far its hardly worth it. yes the volatility skew in the call side keeps premiums low but there is far far far less risk. Dont forget that many of the calls on barely move at all and surely underpeform their calculated delta on up moves since volatility falls.

ES options use SPAN margining which is much more generous than Reg T for option sellers. Portfolio margin is also better than Reg T but you need more then $100k.

 

[domestic]

Quote from benysl:

my main trading market is now ES.

Most of the time I sell ES naked Put. Call side has not much premium.

Wait for ES to make a dip from the high. Put premium will rise. IV will rise.
For a start aim at those put that is 1 point and below 2 points. Assuming 1 point (USD50) that trade will give you peace of mind.

Try doing a credit spread and you want to collect 1 points of premium and see how close you have to sell.

Problem with most naked seller is they sell too close (greed).

I have been selling naked put on ES for a year and I have not had a losing month (of course that doesnt mean I wont have). The most recent meltdown on the market has not affected my position or sleep not a bit.

Example
ES Sept 1200 put selling for 1 points now. (I wouldn't sell now as I have mention wait for a dip in the market first) for illustration purpose. I will use 1200.
270 points away from the market with less than 30 days.

ES have to drop 10 points on average everyday including weekend to cause your position a problem. Even if ES drop there is technique to do adjustment.

This is just my view.

Naked seller (like me) usually get bashed badly by forum people so I have expected it.

Another way to test is try buying 1 point naked put in this case is ES Sept 1200 put (be a buyer) and spend $50 every month and see after 1 year how many month did your trade ended up being in the money

hey, i am not bashing you, as i even had a naked future option journal.....i just wanted to repeat a quick point.

xflat2186 explained the very valid issues about calls. so you should reread his point. as i mentioned before, i do a lot of calls. in any case, good advice is to actively manage that short vol by protecting your credits the best you can.

and again, there is a reason that something is priced so high , so far away. no free lunch.

 

[pho_chu]

I think the naked selling and regular buying is very easy to execute. The execution of a much more safer (less capital risk) Credit Spread is much more harder. Try using a credit spread anyway you can of close values, like 1350-1360. This limits the risk to 10*50 max risk, but how do you execute this. Any ideas?

You can gamble and buy first and then sell the put. However, the value of the sell can reverse and you may not get a credit. Do you think it is better to do this through Options Desk at big brokers or IB?

Thanks

 

[benysl]

Quote from Option_Attack:

Well I dunno, Beny. Get an overnight event and 10-15% gap down, etc...and Blammo, account liquidation and total wipout.

Even if your strike is not hit, gonna be a real bad day. Those little prems won't seem like enough.

Doesn't happen very often and heck, you may never get hit. I don't like the odds, but it's a personal choice.

Good luck and good trading.

I only trade index futures options. I do not trade stock options. How much do ES gap or drop. As long as market is coming down point by point even thou it can be fast I can still do adjustment to my position as long as it is not a gap down.

Sept 11 2001 ES gap down 54 points when market reopen. This is the gap that I have no control if my strike is that near. I do not have put that is that close. In any case. like what someone mention there is no free lunch in this world, high premium is there for a reason.

But then again I have never look back at futures trading even since I started on ES options and that is just me.

I do not have strategy that I trying out that has a limited risk
http://www.elitetrader.com/vb/showthread.php?s=&threadid=101030

but for ES I will pretty much be doing naked for the time being

 

[El OchoCinco]

Quote from benysl:

I only trade index futures options. I do not trade stock options. How much do ES gap or drop. As long as market is coming down point by point even thou it can be fast I can still do adjustment to my position as long as it is not a gap down.

Sept 11 2001 ES gap down 54 points when market reopen. This is the gap that I have no control if my strike is that near. I do not have put that is that close. In any case. like what someone mention there is no free lunch in this world, high premium is there for a reason.

But then again I have never look back at futures trading even since I started on ES options and that is just me.

I do not have strategy that I trying out that has a limited risk
http://www.elitetrader.com/vb/showthread.php?s=&threadid=101030


Sorry but the foolish sometimes learn the hard way. Imagine you are 40 points OTM with 2 days to expiration left and we get another series of credit crisis news and ES drops 40 points fast. Your short puts will explode in vol premiums pretty fast so if you sold it for 3.00 you might have to pay 20 to buy it back assuming you are smart enough to move quickly.

If your account size is large enough then no problem but if you do nto have a large accoutn and the put explodes in voalue due to vol, your broker may simply force you to liquidate or do it for you and there goes your whole account.

If you trade naked options, then fine, but be aware of the real risk. Last week into expiration the ES futures dropped a lot of points where 50 points was not even FOTM.


Just be careful, better man than you have blown out with naked options and often do.

 

[benysl]

Quote from optioncoach:

Quote from benysl:

I only trade index futures options. I do not trade stock options. How much do ES gap or drop. As long as market is coming down point by point even thou it can be fast I can still do adjustment to my position as long as it is not a gap down.

Sept 11 2001 ES gap down 54 points when market reopen. This is the gap that I have no control if my strike is that near. I do not have put that is that close. In any case. like what someone mention there is no free lunch in this world, high premium is there for a reason.

But then again I have never look back at futures trading even since I started on ES options and that is just me.

I do not have strategy that I trying out that has a limited risk
http://www.elitetrader.com/vb/showthread.php?s=&threadid=101030


Sorry but the foolish sometimes learn the hard way. Imagine you are 40 points OTM with 2 days to expiration left and we get another series of credit crisis news and ES drops 40 points fast. Your short puts will explode in vol premiums pretty fast so if you sold it for 3.00 you might have to pay 20 to buy it back assuming you are smart enough to move quickly.

If your account size is large enough then no problem but if you do nto have a large accoutn and the put explodes in voalue due to vol, your broker may simply force you to liquidate or do it for you and there goes your whole account.

If you trade naked options, then fine, but be aware of the real risk. Last week into expiration the ES futures dropped a lot of points where 50 points was not even FOTM.


Just be careful, better man than you have blown out with naked options and often do.

I am aware of the risk. 50 OTM is not consider far for me.
normally I go for 200 - 250 points OTM after a sharp drop in ES. When ES come to 100 point OTM I will liquidate my position regardless of how many days left or if I make or loss money.
100 point OTM will cause my heart beat faster so I will liquidate and do adjustment and rolling.

we each have different view. Of course the unlimited risk is what not everyone love to have including me.

What is the different between selling ES put and long ES futures. The risk profile is the same. When you long ES futures and ES drop 50 points you are down by 50 points. On the other hand if you short a ATM put (I never sell naked ATM) your loss is less than 50 points because of the premium you have collected.

The only difference is when you long ES futures your reward is unlimited. Of course one can argue they can set stop loss or get out before a 50 points drop in futures. Likewise one can liquidate the options position.

Just my 2 cents worth of view.

 

[windsurfer]

This may help the discussion.

Below are the published results, based on actual trades only and after a 30% incentive fee, for a CTA that currently uses a $1 premium system similar to that which benysl uses. (I apologize for the formatting). The initial capital is $50,000 and 1 SP put is sold each month ($250 premium) and puts are rolled in some cases- hence the losses in some months. The recent Rate of Return is about 12%, although it is just flat this year:

Year Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Year
1999 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 5.9% 5.9%
2000 2.4% 4.5% 2.0% 2.6% 6.6% 1.1% 0.2% 1.0% 0.2% 2.7% 1.1% 4.0% 32.1%
2001 2.0% -2.5% 8.1% 4.3% 1.0% 2.7% 2.6% 0.5% -3.1% 4.7% 5.0% 3.0% 31.7%
2002 3.3% 2.8% 1.3% 0.3% 1.3% 1.9% 8.1% 0.5% 6.4% 7.2% 4.1% 2.2% 46.5%
2003 -1.1% 7.3% 0.8% 4.0% 2.1% 1.5% 0.6% 1.1% -0.9% 4.0% 0.5% 1.3% 23.1%
2004 0.9% 1.7% 2.7% 1.2% 0.8% 1.8% 1.2% 1.0% 1.9% 1.4% 1.1% 0.7% 17.6%
2005 0.5% 0.7% 0.9% 1.1% 1.2% 0.9% 1.0% 1.9% 1.7% 0.5% 1.1% 2.1% 14.4%
2006 1.5% 1.0% 1.5% 0.7% 1.4% 1.9% 0.9% 0.8% 1.1% 0.4% 0.1% 1.0% 12.8%
2007 0.6% -2.9% 3.4% 0.9% 1.8% 0.7% -3.7% N/A N/A N/A N/A N/A 0.5%

 

[Cy_M]

Are ES options the best choice? Or do they lack liquidity and hence big slippage? Aren't OEX options a lot more liquid?
thanks

 

[benysl]

Quote from Cy_M:

Are ES options the best choice? Or do they lack liquidity and hence big slippage? Aren't OEX options a lot more liquid?
thanks

ES bid ask spread is pretty wide. But because most of the time I let it expire worthless so I do not need to worry too much about it.

I prefer ES because it is electronics trading/

Now sure about QEX

 

[benysl]

Quote from windsurfer:

This may help the discussion.

Below are the published results, based on actual trades only and after a 30% incentive fee, for a CTA that currently uses a $1 premium system similar to that which benysl uses. (I apologize for the formatting). The initial capital is $50,000 and 1 SP put is sold each month ($250 premium) and puts are rolled in some cases- hence the losses in some months. The recent Rate of Return is about 12%, although it is just flat this year:

Year Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Year
1999 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 5.9% 5.9%
2000 2.4% 4.5% 2.0% 2.6% 6.6% 1.1% 0.2% 1.0% 0.2% 2.7% 1.1% 4.0% 32.1%
2001 2.0% -2.5% 8.1% 4.3% 1.0% 2.7% 2.6% 0.5% -3.1% 4.7% 5.0% 3.0% 31.7%
2002 3.3% 2.8% 1.3% 0.3% 1.3% 1.9% 8.1% 0.5% 6.4% 7.2% 4.1% 2.2% 46.5%
2003 -1.1% 7.3% 0.8% 4.0% 2.1% 1.5% 0.6% 1.1% -0.9% 4.0% 0.5% 1.3% 23.1%
2004 0.9% 1.7% 2.7% 1.2% 0.8% 1.8% 1.2% 1.0% 1.9% 1.4% 1.1% 0.7% 17.6%
2005 0.5% 0.7% 0.9% 1.1% 1.2% 0.9% 1.0% 1.9% 1.7% 0.5% 1.1% 2.1% 14.4%
2006 1.5% 1.0% 1.5% 0.7% 1.4% 1.9% 0.9% 0.8% 1.1% 0.4% 0.1% 1.0% 12.8%
2007 0.6% -2.9% 3.4% 0.9% 1.8% 0.7% -3.7% N/A N/A N/A N/A N/A 0.5%

windsurfer

that is interesting thanks. Where did you get this data?
Do they have it for other markets?