I worked through getting a more real life accurate ROI% for selling options.

Using that 2.1% from the prior example.

Reducing the cash excess the last 14 days from 2X to 1X at 14 days (if the option is still far OTM) and then 0X at 7 days reduces the excess factor from 2X IM to 1.4. That turns the 2.1% into 2.8%.

The margin drops off when the option gets closer to expiration (as long as futures don't go the wrong way) Assuming flat futures, the margin will average 65% of the IM at 56 days (calculated using SPAN for ES options weekly and EOM). That turns the 2.8% into 3.8%.

Compound the 3.8% monthly and in a year that equals 56.4%.

So 2.1% sounds low but 56% sounds real good to me.

The real life formula now is

option premium-fees / (IM*.65*2.4) / DTE *30

This gives you monthly ROI%. Then this number needs to be compounded for a year. I did that using a spreadsheet table. (is there a way to do that in a formula?)

Does that calculation look correct?

SMCJB, thank for the explanation. Just that the Feb vs Mar is accelerating more than usual last couple of days. So that higher Feb demand surpasses Mar fear of gas in storage, right?

Example:

Mar Nat Gas options expire Feb 25, futures expire Feb 26.

Mar Grain options expire Feb 21, futures expire Mar 14. A grain option trader is OUT before first notice day, before the delivery month, before the 'games' that can happen depending on delivery economics, and he's typically OUT before the most illiquid and volatile spread trade occurs in Mar/May or Mar/any-other-month.

Today in NG Mar options was an example of a day where if you were short calls, you definitely lost money, and if you were short puts at strikes < $3.70, you lost a little money in those too.

Vol curve comparison Wed Jan 22 v Tue Jan 21. Red vertical marker is the Jan 21 close.

Great Posts in this thread! Thank you all for posting such great info.

Ron, your post here back in April 2013 caught my eye:

I was curious if you are still doing this strategy and how it has worked for you?

I tried something a little different the last month.

On 3/19 I sold 5 ESm3 1000p options for 0.50 or $25 in one of my very low risk IRA accounts. ES was 1542 that day. Delta was .0040. Very low. They were very far OTM (542). 95 DTE

I immediately placed a GTC order to buy them back at 0.10 or $5. Today 2 of them traded.

So I held those 2 for 24 days.

Per contract.
3/19 IM 128 excess 256 If kept to expiration 1.8% monthly ROI. Or 3.4% real ROI per month. Decent but not that great.
4/12 IM 52 excess 104

So if you average the 384 IM + excess when i put them on and the 156 IM + excess when I bought them back you get an average of 270 IM + excess held for that position for 24 days.

I netted 12.88 each. $12.88 / 270 = 4.8% ROI for 24 days or 6.0% for 30 days. That's a real good ROI for something that low risk.

Of course ES went 40 points in my favor so that shortened the time held. But even if I held them 30 days the 4.8% ROI for a month is very good.

I'm sure you could move to a higher strike and do as well. You just wouldn't want to move too high because options about 95 DTE are more volatile since they are closer to ITM.

Some traders in this thread have been selling and then buying back before expiration. I wondered the ROI of that and paying another set of fees vs riding to expiration. It looks good to me. Thanks for teaching me something new.

I'm sure my brokers will be happen to get a lot more commissions.

Sorry @ron99 - I quoted the wrong post. What I was referring was this strategy, where you bought back ES puts:

I am curious because tomorrow is 56 DTE for April ES Puts, or whether to do ES Puts at 90+ days DTE.