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Futures Options Writing
Have you ever wondered who sells the futures options that most people buy? These people are known as the option writers/sellers. Their sole objective is to collect the premium paid by the option buyer. Option writing can also be used for hedging purposes and reducing risk. An option writer has the exact opposite to gain as the option buyer. The writer has unlimited risk and a limited profit potential, which is the premium of the option minus commissions. When writing naked futures options your risk is unlimited, without the use of stops. This is why we recommend exiting positions once a market trades through an area you perceived as strong support or resistance. So why would anyone want to write an option? Here are a few reasons:
https://www.cannontrading.com/tools/education-futures-options-trading-101
Cannon offers SPAN margins for options sellers.
Many brokers will restrict or increase the margins required for options sellers, or traders who like to “collect premium”, but here at Cannon we can find you the best set up utilizing the multiple clearing arrangements we have with more than a few FCMs.
How much margin is required to sell a futures option?
That is a question we get asked often. The exact number is an output of SPAN margins. SPAN deserves a post on its own, but what it stands for is: Standard Portfolio Analysis of Risk. The formula takes into consideration volatility, time value, distance of strike price from current underlying future, and more.
Outright options may be easier to “guesstimate” margin than more complex strategies and spreads, but our free platform, E-Futures Int’l (https://www.cannontrading.com/software/e-futures-international )has a margin calculator built in so you can calculate the margin you will need for different strategies.
Commission for selling options on futures?
Commissions will vary based on the following:
Are you trading online or with a broker?
Trading volume
Account size
Risk responsibility.
The rates for selling options will vary from as low as $0.25 per side + fees for HIGH VOLUME, institutional accounts to $30 per side + fees for retail, broker assisted accounts.
Selling options is NOT for newcomers as it involves higher risk than buying options.
However, selling options and trading option spreads may offer an edge if done with proper risk management. No guarantees are made here.
Our strength at Cannon is our ability to offer CUSTOMIZED trading solutions, so contact a broker at:
https://www.cannontrading.com/company/contact
and learn more about risks and opportunities in futures trading (https://www.cannontrading.com/riskopportunity), what software you can use, consult with a broker on margin, commissions and strategy questions and much more!
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.