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If I were just starting with selling futures options, I think I'd stick with IB for a while. Reasons:
1. It's a large and very financially sound firm. They have a high excess capital ratio and on an absolute basis, it's a big number, too.
2. You'll get real time quotes, an options chain with real time IV and greeks (including a mouseover bid/ask IV), and a position manager to view your greeks and IV by individual option plus the greeks in the aggregate.
3. A good margin reporting system that lets you know before you put on a trade how much it's going to take. Likewise it tells you how much you'll free up if you exit a position.
4. Commissions are 85 cents per side plus exchange fees. For $3/mo (waived if you meet the base commission requirement) you can get decent Reuters commodity news and limited analysis.
5. Top notch daily and monthly activity reports, margin reports, portfolio analysis, and two types of risk reports - VaR and Stress Test. I don't think there are many firms that can match them in this aspect.
6. A good, free mobile app that's offers more than just quotes and a snapshot of existing positions.
The downside, of course, is that some of their margins for short futures options are way higher than SPAN. I've written about this before as have others, and I included a comparison table with RJO. You can offset some of this with strangles or other spreads but here's the bigger issue: It sounds like you are new to selling options and getting the most bang for your margin buck should not be the priority at this stage.
Even at IB, selling options outright (no strangles or defined risk spreads), you'll have plenty of room to make outsized returns, or to hang yourself. You can be more profitable by finding a firm with SPAN minimum margins, but first I think you should really understand what you're doing and knowing how price-time-IV affect the greeks and your risk:reward.
def vol =
if (close-close("/ES"))==0 then close("VIX")/100
else if (close-close("/CL"))==0 then close("OIV")/100
else if (close-close("/GC"))==0 then close("GVX")/100
else if (close-close("/SI"))==0 then close("VXSLV")/100
else if (close-close("/NQ"))==0 then close("VXN")/100
else if (close-close("/TF"))==0 then close("RVX")/100
else if (close-close("/YM"))==0 then close("VXD")/100
else if (close-close("/6E"))==0 then close("EVZ")/100
else if (close-close("/ZN"))==0 then close("VXTYN")/100
else imp_volatility();
input DisplayIVPercentile = yes;
input DisplayImpVolatility= yes;
input DisplayDaily1StandardDev = yes;
input DisplayWeekly1StandardDev = yes;
input DisplayMonthly1StandardDev = yes;
input TimePeriod = 252;
def data = if !isNaN(vol) then vol else vol[-1];
def hi = highest(data, TimePeriod);
def lo = lowest(data, TimePeriod);
plot Percentile = (data - lo) / (hi - lo) * 100;
def lowend = Percentile < 25;
def highend = Percentile > 50;
addlabel(DisplayIVPercentile , concat("IV Rank: ",aspercent(Percentile /100)), if lowend then color.red else if highend then color.green else color.yellow);
addlabel(DisplayImpVolatility, concat("ImpVolatility: ",aspercent(vol)), if lowend then color.red else if highend then color.green else color.yellow);
def ImpPts = (vol / Sqrt(252)) * close;
AddLabel(DisplayDaily1StandardDev , Concat("Daily 1 SD +/- $", Astext( ImpPts, NumberFormat.TWO_DECIMAL_PLACES)), if lowend then color.red else if highend then color.green else color.yellow); ;
def ImpPts2 = (vol / Sqrt(52)) * close;
AddLabel(DisplayWeekly1StandardDev, Concat("Weekly 1 SD +/- $", Astext( ImpPts2, NumberFormat.TWO_DECIMAL_PLACES)), if lowend then color.red else if highend then color.green else color.yellow); ;
def ImpPts3 = (vol / Sqrt(12)) * close;
AddLabel(DisplayMonthly1StandardDev, Concat("Monthly 1 SD +/- $", Astext( ImpPts3, NumberFormat.TWO_DECIMAL_PLACES)), if lowend then color.red else if highend then color.green else color.yellow); ;
I am not familiar the post style yet, my reply can't even be posted. "
The message you have entered is too short. Please lengthen your message to at least 1 characters."
Edit: IB is a great broker with a lot of good tools, I have been with them since 2008. The only reason I leave is because the margin issue with option selling.
Edit: I have about 10 books about option greeks and strategies and I read most of them, but they are all for option buying, Cordier's book is the first and only one about option selling. His book is by far the best:-)
Re IB, it's going to depend on time of year, product and strategy, but in periodic checks, I've found them to be OK on the grain and lean hog options, and as noted above, especially if one employs a spread to offset some of the risk. The base contract size and the leverage is so much greater in futures (and short futures options) compared to equities, that there are plenty of opportunities to make or lose a good chunk of money at IB, even if you're not using SPAN minimum margins.
That said, perhaps IB is still not close to competitive with ES margins even if you were to buy a lower priced put (put vertical aka bull put spread) or sell a call (strangle). I stick to physical commodities and I've moved some of my crude oil and softs trades elsewhere because of the margin situation.
I think the Cordier book is pretty good (it also doesn't have a lot of competition). If I recall,
(1) a lot of his examples brought in $300 to $700 per option in credit, so they were probably less than 20% out of the money and more than 20 delta.
(2) he also suggested using up to 50-70% of Net Liquidating Value (NLV) as margin. I don't remember if that % was based on initial margin or maintenance margin.
Cordier offers one way to skin a cat, but his style is a lot more aggressive than the method Ron opened this thread with.
You are right, Cordiers' method is pretty aggressive, so I will stick to Ron's since there are quite a few successful traders here to be models;-) thank you again for your help.