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Selling Options on Futures?


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Selling Options on Futures?

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  #7351 (permalink)
NotJonathan
Raleigh, NC
 
Posts: 5 since Mar 2022
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MDRider View Post
Selling naked puts and calls does carry risk and the brokers respond with relatively high margins but this can be managed by following a few rules. TDAmeritrade will let you trade all types of options in the same margin account, but their margins tend to be about as high as the other large brokers. I've been trading oil futures options for a few years and haven't had a margin call there but try to keep the total at around 50% of my account.

DeCarley Trading[/URL] is a boutique broker that seems to have lower margins and reduces them further after the initial trade. They also allow retirement accounts to be used for futures trading, which is rare. Carley Garner is great to work with and has written several helpful books on the subject. Margin goes up as volatility rises with abrupt market fluctuations, like in this week, and Carley will occasionally contact you to make adjustments that will lower their risk if things get out of hand.

While you can hedge by forming a spread and reduce the margin somewhat, it's more effective to create a strangle each month. If you open the month by selling Puts at a delta of around 10 when the oil market dips, you can then sell Calls when the price seems to peak without adding margin at all, as the risk can only run in one direction. Hedging with wings added to one or both sides (created by buying cheaper options further away from the money to form an iron condor for the month) will also control the risk. Both options will decay over time due to theta and can be closed as expiration nears.

Did you have any oil positions on over the past week? If so, how did they fair and did you make any adjustments?

Additionally, what do you think of CL going forward? Up 1.31% today, personally, I think it will recover most of the loses over the next two weeks.

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  #7352 (permalink)
 
MDRider's Avatar
 MDRider 
Washington, DC
 
Experience: Intermediate
Platform: ThinkOrSwim, GAIN
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NotJonathan View Post
Did you have any oil positions on over the past week? If so, how did they fair and did you make any adjustments?

Additionally, what do you think of CL going forward? Up 1.31% today, personally, I think it will recover most of the loses over the next two weeks.

I did have $66 Puts that I adjusted to $63 Puts early in the week and those got way too close to the money today! Luckily, oil has rebounded a bit so I think I'll be OK with a tolerable loss from the adjustment this month.

Predictions based on either fundamentals or technicals are always challenging, but I'd agree that CL will probably keep heading back up once the banking issues quiet down. The Fed rate announcement may cause a ripple. However, there's plenty of time left in the month to tinker.

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  #7353 (permalink)
NotJonathan
Raleigh, NC
 
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MDRider View Post
I did have $66 Puts that I adjusted to $63 Puts early in the week and those got way too close to the money today! Luckily, oil has rebounded a bit so I think I'll be OK with a tolerable loss from the adjustment this month.

Predictions based on either fundamentals or technicals are always challenging, but I'd agree that CL will probably keep heading back up once the banking issues quiet down. The Fed rate announcement may cause a ripple. However, there's plenty of time left in the month to tinker.

Good news for out Puts over the weekend! Another few days and I will close out the 49s I sold on 3/16 then adjust some gold calls that are getting a little hot.

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  #7354 (permalink)
rajab
westhills california US
 
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Any hope for NG to rally beyond last year's highs?
Now that OPEC is limiting supply, will NG rally?
What would be some of the hidden variables for an amateur like me?
Please comment.

Thanks
Bob

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  #7355 (permalink)
 
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 SMCJB 
Houston TX
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rajab View Post
Any hope for NG to rally beyond last year's highs?
Now that OPEC is limiting supply, will NG rally?
What would be some of the hidden variables for an amateur like me?

Never say never, but NO! Unless something really crazy happens elsewhere in the world! US is awash in gas. Production is up. Storage is much fuller than normal, and demand is down. Gas in west Texas is selling for pennies... literally!

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  #7356 (permalink)
NotJonathan
Raleigh, NC
 
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rajab View Post
Any hope for NG to rally beyond last year's highs?
Now that OPEC is limiting supply, will NG rally?
What would be some of the hidden variables for an amateur like me?
Please comment.

Thanks
Bob

I agree with what @SMCJB posted. Additionally, CL and NG are not correlated, just anecdotally but look at the past day, CL up 6% while NG is in the dumps down 5%. Season Algo has correlation data if you are interested. Also, I am not sure if he frequents anymore but there was a trader, @ron99 who started this thread that is focusing on NG now (from observing his twitter). Following him on twitter, Ronh999 I believe that is his handle for more info.

Jonathan

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  #7357 (permalink)
 
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 josh 
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SMCJB View Post
Gas in west Texas is selling for pennies... literally!

Can you elaborate?

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  #7358 (permalink)
 
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 SMCJB 
Houston TX
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josh View Post
Can you elaborate?

Sure. April Waha settled 42c last night and Permian 52c. That's actually up from last week. In bid week (Mar 27-29) April Waha traded as low as 0. For next month/May23 both Waha and Permian settled 53c last night. Very different that the $2 you see printing for Futures/Henry Hub.

* Permian refers to the El Paso Pipeline Permian Basin delivery point and Waha to the Waha Hub also within the Permian Basin. Both of these points are in West Texas, around Odessa (of Friday Night Lights fame) & Midland

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  #7359 (permalink)
Eratosthenes
Gφttingen, Germany
 
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Hello and Greetings to All Participants of this thread!

I'm a newbie to options trading and wanted to ask whether it is possible to trade commodities with options on futures in a similar way as trading them directly with futures?

Background is that I'm a german trader and in germany only a maximum loss of 20k is tax-deductible in future trading and as well with "most" options trading strategies. After that the entire gross profit is taxed with 27% with no regard for any further losses which can lead to a tax rate of several hundred % and you are taxed even when your losses exceed the profit.
Only exceptions are very basic sell to open options trades, without being assigned. That is simply short selling puts and calls (no long puts/calls). Here we can still offset losses incurred when buying back or rolling options against the received premium. But only on the condition that no assignement or cash settlements (e.g. index options) takes place.

So as I've already reached the 20k limit, that's the only remaining possibility for me to continue trading for the rest of the year unless I would switch to mere stock trading, which is not affected by the 20k limit but which I definitely don't want.
I'm still quite new to future trading but have been quite successful in trading mostly WTI and gold for the recent months. I would like to continue with WTI and branch out into other commodities, especially some agricultural products as I'm interested in their markets and characteristics due to my educational background.

Is this possible by trading options on commodity futures, limited to very basic short selling puts and calls without assignement or would this be a bad idea under these limitations?
I wanted to learn options trading anyway but I must nonetheless stress that I would for the time being very much prefer to trade commodities directly with futures as I'm still relatively new to this business. But due to our tax regulations I have no other "option" but to, well trading options under the above mentioned limitations.

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  #7360 (permalink)
 myrrdin 
Linz Austria
 
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Eratosthenes View Post
Hello and Greetings to All Participants of this thread!

I'm a newbie to options trading and wanted to ask whether it is possible to trade commodities with options on futures in a similar way as trading them directly with futures?

Background is that I'm a german trader and in germany only a maximum loss of 20k is tax-deductible in future trading and as well with "most" options trading strategies. After that the entire gross profit is taxed with 27% with no regard for any further losses which can lead to a tax rate of several hundred % and you are taxed even when your losses exceed the profit.
Only exceptions are very basic sell to open options trades, without being assigned. That is simply short selling puts and calls (no long puts/calls). Here we can still offset losses incurred when buying back or rolling options against the received premium. But only on the condition that no assignement or cash settlements (e.g. index options) takes place.

So as I've already reached the 20k limit, that's the only remaining possibility for me to continue trading for the rest of the year unless I would switch to mere stock trading, which is not affected by the 20k limit but which I definitely don't want.
I'm still quite new to future trading but have been quite successful in trading mostly WTI and gold for the recent months. I would like to continue with WTI and branch out into other commodities, especially some agricultural products as I'm interested in their markets and characteristics due to my educational background.

Is this possible by trading options on commodity futures, limited to very basic short selling puts and calls without assignement or would this be a bad idea under these limitations?
I wanted to learn options trading anyway but I must nonetheless stress that I would for the time being very much prefer to trade commodities directly with futures as I'm still relatively new to this business. But due to our tax regulations I have no other "option" but to, well trading options under the above mentioned limitations.


Welcome,

It is difficult to answer your question without knowing which style of trading you follow in future trading.

There are major differences between future trading and option selling. Among others:

• Trading options is much more complex than trading futures.
• Your profit / loss does not only depend on the price of the underlying commodity, but also on volatility, time decay etc.
• In option selling, profits are small, and potential losses are large. Thus, you need a high success rate.
• According to my experience, selling of naked options works best with options 60 to 90 days until expiry and holding these options for 30 to 60 days, whereas in future trading there are people making money in daytrading.
• More sophisticated option trading includes trading option spreads, which is not possible because of the German tax law.
• Stop orders do not work properly for most of the options.

Trading options successfully requires to deeply understand them. Learning to trade these products will take a while. I suggest urgently to start in a paper account.

Please do not hesitate to ask more detailed questions.

Good luck !

Myrrdin

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Last Updated on July 28, 2023


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