TTT 121015 Gold futures options

I have a request to track a trade using a CTM iron condor for which the underlying asset is gold futures. I’ve agreed to do this.


  • Violating main principle #1, I am unfamiliar with options on futures. In fact, I have never traded a futures contract. Thus, I do not know what it is that I do not now (but must know) before making this trade.
  • This trade is being made in a virtual account.
  • I will do the best I can, but feel that I am flying blind
  • I looked for a quick tutorial on trading options on futures and discovered only one item: Margin is much less with futures than equities. SPAN margin is used, and that is similar to portfolio margin. Offsetting that lower margin requirement, there is a requirement to meet margin calls every day – and my understanding is that margin can swing significantly

I may not get to this trade today, and will send an e-mail alert when I make the trade.

2:16 pm

Feb ’13 gold futures are $1,740.90

9:30 am

Futures are now trading at 1706.50 and the delta of the short put option is 36.

The put spread quote is: $1.50 to $2.60. It is tighter than I have seen it and we are not in any trouble here.
The call spread quote is $0.20 to $1.80.

The [problem is knowing what I would have to pay to exit either spread.

So far I discovered that I cannot trade Jan options on the Jan futures. Instead they must be on the February futures.

I’m looking at 25 delta options to trade (but not with real money).
If it is not already clear that I am a complete novice with futures options, please do not make this trade with real money.

Oct 16

Flying blind, hoping that no one makes this trade, and hoping that this is a useful learning experience.

Gold – Feb 2013 CME data (^GCG13). Apparently this is the symbol for this futures contract: GCG13

Knowing zero about gold, I looked at this point and figure chart. This chart is bearish.

Feb 2013 gold futures contract.

Implied volatility for the options is 15-16% and the equity option skew is absent.

Iron Condor trade. CTM.

The bid/ask spreads are wide
I cannot get markets for the spreads, so am using midpoints (minus 10 cents for the call and put spreads)

Futures options quotes

The numbers I wrote on the page above do not correspond with the actual quotes because the quotes changed while I prepared the images.

risk graph

The Trade: 10 lots, GCG13 iron condor, using Jan’13 options on the Feb’13 futures contract

1665/1675P; 1830/1840C
credit: $4.20
Delta of options sold: 25

Oct 19, 2012

Golf futures are 1724, down almost $23

Delta of short options: 30 and 19.
Not neutral, but no need for us take any action. If you are more conservative and would do something here, leave a comment.

Feb Gold futures, expiration Jan 2013

Oct 24

Gold futures decline sufficiently for us to take another look at our position.

Price: 1712.50
Short puts: 1675 strike, delta 34
Short calls: 1830, delta 15

This is a CTM trade and there nothing has to be done here. The puts are not that far OTM, yet I see no reason to take any action as long as the futures remain above 1690. We may still be in good shape at 1680.

9:30 am

GC is now below 1707.

The short put has a 36 delta.
The short call has a 13 delta.

The market for the spreads are much tighter than I have seen them, yet I still have no real diea what it would cost to try to exit either or both spreads:

Put spread: $1.50 to $2.80
Call spread: $0.20 to $1.80

Note: When I looked at the quote a couple of minutes later, the put spread had widened to $2.70 to $4.30 and the call spread: $0.40 to $1.80. These quotes seem far more realistic.

Nov 2

Pre-opening, gold futures are trading under 1700.
Time for action.
I’ll take a look after 8:30 am

Feb ’13 futures: 1698.20
Short delta: 1675P: 38; 1830C: 10

Put spread: $3.10 to $4.20
Call Spread: $0 to $1.20
IC market: $3.10 to $5.40; midpoint: $4.25. representing a 5-cent loss for the trade. That does not feel right. I wish I knew the true market for this position.

It is probably best to take corrective, risk-reducing action.

If this were a real trade, I would enter two orders:

a) Buy call spread @0.40 (more than my typical buy-back price for equity options, but I’d like a bit of upside safety if I am going to spend cash to roll down the puts)

b) Cover put spread and sell another. This is a difficult choice.
The 20-delta put spread (Jan 1625/1635) is $1.60 to $2.40 is a reasonable place to roll. Thus, I would buy to close the 1665/1675 P spread and sell to open the 1625/1635P spread to open. This is not a big roll – only 40 points. The debit to make this trade (using midpoints) is $3.65 minus $2.00, or $1.65. I assume I must pay $1.80 to complete this roll.

There are alternatives:
One such is to sell the 18 delta put, or the 1610/1620P spread. The cost to roll down would be ~ $0.40 cent higher. Let’s spend that 40 cents to get another 15 pints of protection.

The adjustment

Cover the put spread; roll down to the Jan 1610/1620P spread, paying $2.20. Credit remaining: $2.00
Bidding that 40 cents for call spread, but I’ll assume no fill.

December 4

Feb gold futures are trading between 1699 and 1700.

The put spread is 0.10 to $1.10 and the 1620 put carries a delta = 9
The call spread shows a bid of less than zero and is offered at 40 cents (2 delta)

I am going to exit this trade right now for a few reasons:
a) The profit is good
b) We have been lucky
c) As a reminder, this trade was opened (virtual account; no money on the line) to try to learn something about futures trading. What I learned is that I still do not know how these markets work and that it is difficult to get a rel quote on the positions I am trading.

I assume I can get out by paying: 25 cents for the call spread and 65 cents for puts (I would pay more, just to get out. Limit about 75 cents).

Total cost: 90 cents.
Theoretical profit: $110 per spread.

10 Responses to “TTT 121015 Gold futures options”

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