Options on ES futures strategies

Discussion in 'Options' started by newguy05, Mar 20, 2008.

  1. Ok i opened an IB account with 25k fund to be used exclusively for writing options on es futures for monthly income.

    Since options on es have pretty low margin requirement, i will trade up to 10k requirement, and leave the rest 15k as buffer (40%).

    Assume JUN ESM8 at 1312, april expiration, and current market condition

    1) which is the better trade? lower probability vs tighter max loss limit.
    - SELL 1150P, BUY 1040P: net: $4.5
    - SELL 1200P, BUY 1150P: net: $4.7
    - SELL 1250P, BUY 1225P: net: $4.5

    2) Which is the better strategy?
    - otm iron condor: SELL 1200P, BUY 1150P, SELL 1400C, BUY 1450C. The plan for this is not to adjust it constantly and has a high probability of expire worthless, but less total premium

    - SELL 1250P (18 pt premium), delta neutral hedge by shorting the ESM8 underlying, 15pt stop loss on the ESM8 in case of gap up. This will require constant adjustment based on events/news, the biggest risk is the ES gapping up like it did on tuesday.

    - otm strangle: SELL 1150P, SELL 1440C. Risk of course is same as naked writing, but since it's an relatively predictable index and both strikes are way OTM, chances of a blackswan with no time for adjustment is pretty low.

    - your strategy...

    3) For april, i wrote the otm iron condo, max loss 42.5pt & max profit 9.5 per contract. What i found odd was the otm iron condo had a bid 8.2, ask 10.5. So i put in a limit for 9.5 credit, and it got filled in like 1 sec. Did i just got lucky, or was there some trick involved? Should i set my limit higher next time than the midprice on those options?
  2. One



    Strictly speaking, one strategy is probably not better than another - since the options market is pretty efficient there isn't much free money to pick up. On the other hand your capitalization would argue for strategies that have lower potential downside so you can stay in the game, the downside of course being that there is a higher probability of a losing trade.

    How did you get quotes on the ES iron condor through IB? Was the spread on the IC simply the sums of the spreads on the components or is it traded on its own as a spread?
  3. yeah i was hoping to get some feedback between the different type of strategies. Will be adjusting the iron condor or closing it out if prices gets closer to one of its legs long before it reachs max loss.

    For quote, i used IB's option trader -> options speads and manually put in both legs. Then IB just treated the iron condor as a single trade by providing me 1 bid and ask. I think it just added up the asks from the long and negative bids from short side and shows the sum for the iron condor bid, and reverse for ask. Not sure exactly the execution details.

    Just found it strange i would get filled so fast, when the bid was more than $1 less than my limit.