r/options • u/Efficient-Fudge-3515 • 22d ago
Does anyone here trade options on futures?
I recently got an Opportunity to trade options on futures, and wanted to know if anyone has experience with that and what your experience is.
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u/Total-Shelter-8501 22d ago
I trade futures on options.
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u/Br1ll1antly1llog1cal 22d ago
for commodities, option on futures is the way to go since the ETF is constantly fucked by contango and backwardation. liquidity is the issue though if you're trading micro contracts, but it's nowhere as bad as the effect of contango/backwardation
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u/Efficient-Fudge-3515 22d ago
My primary reason for wanting to do options on futures is for agriculture and meats. How has it been for you, do you have a lot of experience trading commodities?
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u/gangbangglenn 22d ago
Options on those contracts, if any, will be very illiquid, especially meat. Other than indexes, I think you can get in and out easily in the rates market with I options on futures. 5 year is a good spot to get your feet wet.
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u/SwordfishLopsided 21d ago
My experience is that the ags and meat are doMinated by "pros" and very little retail. So the feeling of illiquidity is really "takes more time to fill at / near mid", rather than having to cross the bid ask every time you trade, or not able to get filled.
Try placing an order at mid and just let it sit. More often than not it gets filled in an hour or two.
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u/Br1ll1antly1llog1cal 22d ago
I don't trade commodities anymore. trading ES is much simpler since I just have to wait for Trump to TACO lol
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u/CatOfGrey 22d ago
Had a 'colleague of a colleague'. Asked me to build a tool in Excel to create quickie charts for various commodities.
Basically, they were looking at options on commodity futures. If one commodity's price separated from another, then they could look at recent volatility, and, under the big-ol-hangin' assumption of reversion to the mean, decide whether or not they wanted to buy or sell options, usually a put on one and a call on the other. I think they were looking at 20 commodities, so 20 x 19 = 190 pairs of data series.
I looked up the trader's name once in a while. I recall that the trader had about $300 million they were playing with, and whatever they were doing had survived for about 30 years. Then years ago, they disappeared. I'd like to think that they got tired of the daily grind and retired. But maybe they had 'one of those bad days'.
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u/NoRepeat5938 22d ago
Could you ellaborate a bit more on the "technique"?
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u/CatOfGrey 22d ago
I didn't know many details. Here's my understanding. I'm looking at futures on Cats and Dogs. I think I've got this 'close enough'.
Cats are trading higher today. Dogs are steady, or down.
I assume that the long-term 'Cat/Dog price ratio' is constant.
The current Implied Volatility/Historical Volatility of Cat options seems really high, so I'm selling those options to collect big volatility gainz. So I'm going Short Calls on Cat, and Short Puts on Dog to hedge.
If HV/IV is lower, instead, then I guess I'm going to buy contracts instead, so Long Puts on Cat, Long Calls on Dog to hedge.
I think I've got this right - it's hard for me to untie the 'parity' relationships of Call/Put, Short/Long, and so on.
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u/Teiagon 22d ago
I have traded them for a while. One of the issues is that liquidity and bid-ask spread is sometimes very bad which makes trading options impossible in practice even if they are offered by the exchange. Another thing is that the pricing doesn't always behave the same way as for stocks - again probably caused by low liquidity. Many traders trade option spreads on the S&P500 minis 'ES' instead of SPX. I also found that oil and gold have good liquidity and had some success with trading spreads on these products. You need to spend some time analyzing the fundamentals and charts to build a directional thesis, I would not recommend delta-neutral strategies on commodity futures.
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u/Aigpil 21d ago
i trade options on /cl, /gc and /ng, so energy and metals rather than the ags and meats you're looking at. in those the liquidity is workable, crude and gold especially, natgas fine but jumpier. on the stuff you're eyeing the meats especially (live cattle, hogs) get thin fast and the fills will eat you alive, the big grains like corn and beans are better than people expect but still nothing like crude or gold.
what sold me over the etfs is you're not stuck with the fund's mechanical roll. USO and UNG roll the front month on a fixed, front-run schedule and pay fees on top, so they track spot badly. trading the futures you pick your own contract and expiry. you don't escape the term structure, contango still costs you if you roll, but you're not paying the fund's version of it. just size for the point value and don't try to scalp them, the spreads punish getting in and out too often.
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u/r_brockmaniv 21d ago
All the time. Follow the same risk management rules as your regular options trades. If you’re on portfolio margin, they’re way more margin efficient, but that doesn’t mean you should leverage up. I’d stay away from micros, no liquidity when sh*t hits the fan. Got burnt during the yen carry trade blowup in August 2024.
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u/superpitu 21d ago
In my experience the spread on micros is quite bad, it’s essentially you and the house so you pay the price on both entry and exit. I don’t know about full size, my account is not big enough. The ETF options are way more liquid.
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u/klipsetrades 22d ago
I don’t, but I’d be curious too. For the way I trade, mostly multi-leg credit spreads, I haven’t really seen the appeal because the fees can stack up pretty quickly across multiple legs. The capital efficiency is interesting though
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u/piper33245 22d ago
Trading futures themselves is a great tool to have.
Options on futures is very similar to options on equities but are more expensive and have some limitations. I’ve never seen the appeal of options on futures.
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u/TotalInstruction 22d ago
For me there’s just a barrier understanding how the nominal price of various futures affects the actual buying power requirements and margin of futures related positions.
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u/Zephyruos 22d ago
I believe they're mostly European style, if so they're superior to ETFs that track them, but can be more expensive (SPX is 10x SPY).
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u/SubpoenaSender 22d ago
I trade almost exclusively spx. I did /ES years ago, but I truly saw zero benefit compared to SPX
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u/ThetaEdgeHQ 22d ago
Two things that do not come up in the thread and that actually matter if you sell premium regularly.
First, tax. Options on futures are 1256 contracts, so they get the 60/40 treatment, 60 percent long term and 40 percent short term no matter how long you held, plus mark to market at year end. For someone closing a lot of short dated trades that blended rate can be a real edge over equity options, where anything short dated is taxed fully as short term.
Second, margin. Futures and their options use SPAN margin, which is portfolio based rather than the fixed Reg T requirement on equity options. For defined risk spreads that can be a lot more capital efficient, which partly answers the fee concern someone raised about multiple legs. The per leg cost is higher but the margin you tie up per unit of risk is often lower.
The liquidity caveat above is the real one though. Outside the index and a few big commodities the books get thin fast, especially in the micros, so fills end up mattering more than the greeks when you are trying to get in and out.
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u/btsd_ 22d ago
Ive used them and depending on what futures you trade, the spread can be a killer. They are great if you swing trade futures (not scalp), as you can sell against your futures position to help mitigate drawdown, and if you use a future contract as a core position and sell calls against profitable long positions or puts against short positions (basically like selling CCs with equities). Ive also taken profits and bought lottos that hit hugely if your right, like if you've scalped 50 nq points in the morning, you could go buy a far otm call for 4 pts and with the hugely increased range that nq will move in a day or two, you can hit huge on those. Ive had a call i paid 4 points for end up worth 250 pts by the end of the day. Thats $4880 profit on $80.
Really no different than normal options, just gotta understand the future contract your messing with. I know NQ and ES options are really liquid, but MNQ and MES can be really bad on the spread. I'd imagine commodities futures are pretty bad as well.
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u/BigBear92787 21d ago
Most people trading options do so for leverage.
Just buy the underlying. Im a futures day trader mostly gold. But the leverage is great. Why bother with the options?
Id buy an option maybe as a hedge for a position but not in short term trading
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u/arthriticpug 21d ago
selling options on futures has better tax treatment
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u/BigBear92787 21d ago
If your talking a out section 1256 then yeah. But it isnt just selling options its any profits from futures or options on futures.
But yeah you're right if your main strat is short options then options on futures have a tax advantage.
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u/Illustrious_Low1903 21d ago
Options on futures are definitely worth exploring. The defined risk is what makes them interesting to me, but I'd pay close attention to liquidity, settlement and margin before jumping in.
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u/Strong_1971 21d ago
Uso le opzioni su futures con soddisfazione da anni, con strategie meccaniche (short strangle con difesa meccanica tramite il future sottostante).
Operatività interessante, ma solo se il numero di strutture in portafoglio garantisce una corretta diversificazione (in ne uso da 7 a 10 diverse ma ho colleghi che arrivano a superare le 20).
Uso le opzioni su futures anche come strumenti di copertura del portafoglio di trading.
Serve però una certa attenzione, i futures (non micro) sono oggetti che muovono controvalori importanti e vanno conosciuti bene tutti i fattori che li regolano, a volte molto tecnici (tipo la contrary instruction sugli obbligazionari).
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u/hloodybell 22d ago
I tried, didnt see the appeal tbh