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You can do credit spreads but you will find that to get a reasonable net premium you will have to go closer to the ATM price which then increases the chances of taking a loss. The generally accepted risk management technique is to sell well OTM naked options where there is still a decent premium and to use a financial stop, ie exit if the premium doubles or the price reaches a level where you decide you were wrong.
The unlimited loss scenario that exists with selling naked stocks which can go bankrupt overnight or get bought out is not really the same when selling commodity options which you would not expect to go to zero.
With stock options the spread sets a maximum loss but more importantly dramatically reduces the margin required from the cost of the whole position (cash covered put) down to the cost of the spread (max loss). Whereas with futures options the margin is much smaller to start with even if selling naked.
Other than OTM credit spreads to collect premiums, you may also short calendar for futures like GC. I recently shorted GC Dec/Nov -1780/+1780. This trade needs patience for GC to move far away from 1780 (upside/downside).
In fact the margin required is quite low (with IB).
The margin is about 790 for 1 spread, expect underlying price +/- 80 to be away from strike i.e. 1700/1860 in 1 week's time. So the gain will be around 450-550 which is about >50% gain already !
Interesting. Does the price going up or down have the same effect on this spread? I used to think that only one scenario will favor your spread. Am I wrong? Would appreciate any more elaboration.
I just checked the option chain from day to day that the effect should be the same (looking at 80 away from my strike).
Note that commodities prices in the last week of quarter end will be very crazy that may create big swings which is favourable to this trade (look at 28-30 June 2012 !!!)
The MRCI chart shows a dip in prices for Nov CL mid to late Sep. Looks like we are getting it again this year. But the bottom should be this week and CL is up 1st 2 weeks of Oct most years.
This is directed at brokers and traders, justtradeit84, don't take it personally.
I never understand why people are so scared of naked options and their unlimited loss potential when futures have a much worse unlimited loss potential. You just have to manage the position.
The SPAN minimum margin for being short a Dec CL 70 put is $436 (Sep 24th). Premium is $150. With double excess your possible ROI is 11.3%.
The margin for a short Dec CL 70 put and long a 65 put is $235. Premium is $90. With double excess your possible ROI is 12.0%.
The margin for a short Dec CL 70 put and long a 60 put is $340. Premium is $120. With double excess your possible ROI is 10.7%.
The margin for a short Dec CL 65 put and long a 60 put is $105. Premium is $30. With double excess your possible ROI is 6.2%.
These numbers need to be adjusted for your commissions and fees. I used 5.21 per option. Also the margin you will be charged may be higher at your FCM.
OX just jacked up their margin on CL to 30% (was 20%) over SPAN. So the ROI for these trades at OX are 8.5% and 8.7%. That's still a great ROI for 51 days.