Option pricing on FTSE 100

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formguide

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Hi guys, I am actually an option trader on fixed income but need some advice on equity index options. I am basically trying to price up options on the FTSE 100 using a standard pricer I have found on the internet, but does anyone know where I can find what dividend percentage to use in the pricing? And also the overnight interest rate to use? In fixed income we only really use volatility, underlying price and time to expiry to price our options up, but i think equities need the interest rate and expected dividend payout.
Cheers

Jonny
 
March Ftse Puts

Hiya - yes it's me the quiet man from Manchester.......

Just recently discovered the joy of index options after making almost 50% on a small put position.

I'm bearish.......... and expect a decent fall before end of Q1 (not PermaBearish just aware of the possibilities :cheesy: ). Consequently, I'm experimenting with index options to get my hand in - so to speak.

Someone told me Out of the money options are where the big money is made (or lost) so that's where I'm focusing... initially on March 6100 Puts....... currently around 86p to buy... with Ftse CASH around the 6236 zone.... The plan is to buy them when Ftse rallies hard and sell them ... when ftse falls ......... lets see :rolleyes:

I really haven't got a XXXXXX clue what I'm doing but it should be interesting to see how things work out.... a bit of a learning exercise.....

Please feel free to comment if you - as is likely - know more about options than me :p
 
Like reading books?

Hook Shot said:
Hiya - yes it's me the quiet man from Manchester.......

Just recently discovered the joy of index options after making almost 50% on a small put position.

I'm bearish.......... and expect a decent fall before end of Q1 (not PermaBearish just aware of the possibilities :cheesy: ). Consequently, I'm experimenting with index options to get my hand in - so to speak.

Someone told me Out of the money options are where the big money is made (or lost) so that's where I'm focusing... initially on March 6100 Puts....... currently around 86p to buy... with Ftse CASH around the 6236 zone.... The plan is to buy them when Ftse rallies hard and sell them ... when ftse falls ......... lets see :rolleyes:

I really haven't got a XXXXXX clue what I'm doing but it should be interesting to see how things work out.... a bit of a learning exercise.....

Please feel free to comment if you - as is likely - know more about options than me :p
Click to expand...
Hi Hook Shot, would you take some advice on reading some literature on the subject? At worst, you could get some idea of what you are doing; here it goes:
Options made easy, by Gary Cohen, Prentice Hall, ISBN 0-273-65499-3; it is easy reading, and the subject is very well explained.
If you have a masochist streak and enjoy hurting yourself, then I would recommend the following:
Options as a Strategic Investment, by Lawrence McMillan, New York Institute of Finance, ISBN 0-7352-0197-8; make sure that you've got a rich supply of your favourite analgesic (that's headache pills for you) at hand, tightly bandage your head with a towel or similar implement (this will prevent your head from exploding) and enjoy your lecture.
Personally, I think that trading options without knowing exactly what you are doing is a bad idea, but there you go - some people have made a fortune out of trading them, who knows, you might be the next!
Eduardo :)
 
ZEPPO said:
Hi Hook Shot, would you take some advice on reading some literature on the subject? At worst, you could get some idea of what you are doing; here it goes:
Options made easy, by Gary Cohen, Prentice Hall, ISBN 0-273-65499-3; it is easy reading, and the subject is very well explained.
If you have a masochist streak and enjoy hurting yourself, then I would recommend the following:
Options as a Strategic Investment, by Lawrence McMillan, New York Institute of Finance, ISBN 0-7352-0197-8; make sure that you've got a rich supply of your favourite analgesic (that's headache pills for you) at hand, tightly bandage your head with a towel or similar implement (this will prevent your head from exploding) and enjoy your lecture.
Personally, I think that trading options without knowing exactly what you are doing is a bad idea, but there you go - some people have made a fortune out of trading them, who knows, you might be the next!
Eduardo :)
Click to expand...

Thanks Eduardo
I was being a little less than candid by inferring that I didn't have any clue whatsoever. I know a bit not much but will certainly have a look at the Gary Cohen book... The Mcmillan one sounds like one for the intermediate to advanced level which I aspire to ...... but I'm not there yet as they say...

Thanks again...

HS ;)
 
March Ftse 6100 puts 74.1 to buy (underlying cash = 6270)
Puts falling nicely........... were ~ 120 last week.
 
March Ftse 6100 puts 76 to sell ...81 to buy @ Ftse cash 6233...
Could have picked them up for under 72 ealier on ...
 
Mar Ftse 6100 Puts 86 to sell and 91 to buy @ Ftse cash 6201
so viewers would now be in profit.....
[I saw 70 to buy yesterday and took it - happyface!]

This is for Education purposes only - i.e this is an experiment.
 
March Ftse 6100 Puts 99.5 to sell and 104.5 to buy...........@ Ftse cash 6166
up ~ 9% since this morning.....
 
formguide said:
Hi guys, I am actually an option trader on fixed income but need some advice on equity index options. I am basically trying to price up options on the FTSE 100 using a standard pricer I have found on the internet, but does anyone know where I can find what dividend percentage to use in the pricing? And also the overnight interest rate to use? In fixed income we only really use volatility, underlying price and time to expiry to price our options up, but i think equities need the interest rate and expected dividend payout.
Cheers

Jonny
Click to expand...
Enter the index "forward" price into your pricing model and set the interest rate value to zero. Normally the forward price would be very difficult to calculate as you would need to know a huge amount of dividend data.

But fortunately the efficient market does it for you. All you have to do is calculate the synthetic price for any given expiry month.To do that just pick a near the money strike, then....Call bid price - Put bid price + strike = synthetic price. Also Put bid price - call bid price - strike / -1 = synthetic price. Do that over 3 or 4 strikes of puts and calls and take the average. You'll be amazed just how accurately the market prices options !
 
Last edited:
Here we go again ...

March Ftse 6100 Puts 72 to sell.....77 to buy @ Ftse cash 6240.

Looks like we will get another cheap entry point if Ftse can just keep rising.... :cheesy:
Reminder - I want to buy the puts as cheap as I can and then offload them as Ftse falls and puts rise in value...

Still an experiment .....but seems a doddle at the moment .... it's getting me a bit worried... :confused:
 
One more time...

March Ftse 6100 Puts 97.4 to sell and 102.4 to buy..... @ Ftse cash 6177

:LOL: :LOL: :LOL:
 
Possible Breakout on Ftse.......

March Ftse 6100 Puts 60.5 to sell and 65.5 to buy @ Ftse cash 6265

If we have broken out of the pennant the price of puts should fold as we move onto 6280.....

This may have been the level where Bolton (Fidelity) bought 3m puts on
Ftse in Nov/Dec............. assuming he did it at the Nov highs :cheesy:
 
I have started accumulating 6100Puts from here on in and as the put prices fall (hopefully) I will buy more.
This strategy is not for short term gain .......... it's a plan for a potential big move in the first Quarter...2007.

For newbies don't try this at home............ I could make a total XXX of myself so be careful not to follow me...
 
March Ftse 6100 Puts 88 to sell and 93 to buy @ Ftse Cash 6196

Mmmmh up 33% from yesterday's prices offer-bid


Update: I have shown to my satisfaction that this options thing need not be as complex as I have always thought. Even with fat spreads of 5 ticks I've proven (to myself) in this short time that options are worth further investigation.... and don't have to be a loss maker. :D :D

Luck may have played a role but ..... there was probably a little bit more to it ?
 
Last edited:
Hook Shot said:
I have started accumulating 6100Puts from here on in and as the put prices fall (hopefully) I will buy more.
This strategy is not for short term gain .......... it's a plan for a potential big move in the first Quarter...2007.
For newbies don't try this at home............ I could make a total XXX of myself so be careful not to follow me...
Click to expand...

Strange looking back.... in the end my belief system (pretty strong at the time) was over-ridden by subsequent index strength.... had to go with the flow despite my suspicions... :rolleyes:
 
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