Delta Neutral Trading
- Thread starter TheBramble
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Anyway guys, the point is that American style options are what you, pretty much, have to trade if you want to trade anything other than index options.
This isn't really a problem, as you are unlikely to get assigned before expiration unless the options are trading at parity, therefore it tends to be worth it in the end.
This isn't really a problem, as you are unlikely to get assigned before expiration unless the options are trading at parity, therefore it tends to be worth it in the end.
Beeryboy,quote:
"Bulldozer, please answer the question."
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If you had any wisdom you would have seen the reply to FK's question in my posts.
You obviously cant see it, because your not as smart/experienced as you make out to be.
bull.
Your quote >> "The whole point of european style options was for instutional investors who write against their portfolios, and therefore didn't want that protection to be taken from them pre assignment. Therefore you find that most index options have european style options, and these are obviously preferred.
As a writer you always should be taking more premium when writing american style and therefore are being 'paid' for the risk of being assigned early."
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How did you come to all the above conclusion? OR is this what you think is the "logical" answers/conclusion.
For your information there are MORE private investors who use Eu style index options than intitutional investors. Also the intitutional investors dont care if they are done on US or EU style because most dont write them!! they infact are mostly buyers of Options. [majority]
The reason they do it on Eu style is because the SELLERS want to do them on EU and they have little choice in the matter. Its the private traders that mostly write options as insurance to the institutional. Inotherwords the institution are buying insurance but the writers want it in thiere choice and that is EU style. and this caused the COLLAPSE of the AMERICAN style.
The same thing will happen when Liffe introduce the EU style options on Equity. If you look at the low volume in Equity options each week? you will notice that the big private investors[writers] are NOT touching them until they are on EU style. So until that happens the big investors and the smaller ones stay in the EU style Options.
Like ive said before: The US brokers prefer that you do US style cause it brings IN more revenue for them. [commisions]
bull
"Bulldozer, please answer the question."
=================================================================
If you had any wisdom you would have seen the reply to FK's question in my posts.
You obviously cant see it, because your not as smart/experienced as you make out to be.
bull.
Your quote >> "The whole point of european style options was for instutional investors who write against their portfolios, and therefore didn't want that protection to be taken from them pre assignment. Therefore you find that most index options have european style options, and these are obviously preferred.
As a writer you always should be taking more premium when writing american style and therefore are being 'paid' for the risk of being assigned early."
=====================================================================
How did you come to all the above conclusion? OR is this what you think is the "logical" answers/conclusion.
For your information there are MORE private investors who use Eu style index options than intitutional investors. Also the intitutional investors dont care if they are done on US or EU style because most dont write them!! they infact are mostly buyers of Options. [majority]
The reason they do it on Eu style is because the SELLERS want to do them on EU and they have little choice in the matter. Its the private traders that mostly write options as insurance to the institutional. Inotherwords the institution are buying insurance but the writers want it in thiere choice and that is EU style. and this caused the COLLAPSE of the AMERICAN style.
The same thing will happen when Liffe introduce the EU style options on Equity. If you look at the low volume in Equity options each week? you will notice that the big private investors[writers] are NOT touching them until they are on EU style. So until that happens the big investors and the smaller ones stay in the EU style Options.
Like ive said before: The US brokers prefer that you do US style cause it brings IN more revenue for them. [commisions]
bull
beeryboy said:
Hi Beeryboy
A question from a novice, if a person trading American options get assigned, how is he nomally notified by his broker? Is it through a phone call or email? (Still trying to understand all the mechanics, I don't have practical experience yet as of now). I was just wondering if you're trading spreads to limit your risk, for eg. and the buyer of the options you've written (or sold) excercises his option (even though its not dividend day), how long will it normally be before you know this, from the broker?
During that time when your options get excercised, and you get informed and take action, if the underlying were to move suddenly against your favour, will you be in a position of great risk, as you're basically naked at this point? Or are you able to instruct the broker to close the entire position should one leg gets excercised?
Thanks for any tips you can provide!
HL
Windlesham1
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Gentlemen-all this bickering and appalling misuse of apostrophes! We ALL know that Equity options are American style,and the only optionable UK index is ESX which is european style. LIFFE has absolutely killed the exchange traded options business with their arrogance,and elitism. Liquidity is laughable on 90 out of 102 ftse 100 stocks. Many people write puts because they claim they are happy to own the stock at the price they get assigned at.I don't buy that,but that's my cynicism. However the cost of early exercis is often precluded by the extrinsic premium in an option with time left,not to mention PIN risk-whichcuts both ways-EG Some time ago I had a calendarspread on a ftse stock,and on expiry day the stock was at my 140 strike,yet the option traded at 4-what to do,as I didn't want to be assigned? It ain't rocket science,it's rocket science maths traded by barrow boys,and I love it!
hlpsg,
As far as assignment goes,
Remember that you are not going to get assigned (unless the guy on the other side is a complete idiot):
1) if there is any time value left
2) If the option is NOT in the money
So unless you happen to be particularly unlucky you probably won't get assigned as often as people may want you to believe.
Depending on your broker you normally get a phone call.
Anyway if you have no real experience, I would recommend that you do not write, but get your head around strategies involving limited risk, PM me if you want further help (I trade during the week so can't really promise how speedy my response will be).
As far as delta neutral trading goes, all you have to remember is that this simply means that you are neutral on the direction of the underlying. There are still lots of factors that can affect your position, mainly volatility and time.
You can work out your rough delta exposure, by remembering these:
Long stock +100
Short stock -100
Long ATM Call +50
Long ITM Call +50 - +100 depending on how much ITM
Long OTM Call +50 - 0 depending
And reverse for the Puts i.e
Long ATM Put -50 etc.
When short just reverse the sign.
Therefore depending on your combination, you can work out whether you are delta neutral (i.e. sum of deltas = 0).
Sorry if this is too simplistic (or too complicated).
Hope this helps
As far as assignment goes,
Remember that you are not going to get assigned (unless the guy on the other side is a complete idiot):
1) if there is any time value left
2) If the option is NOT in the money
So unless you happen to be particularly unlucky you probably won't get assigned as often as people may want you to believe.
Depending on your broker you normally get a phone call.
Anyway if you have no real experience, I would recommend that you do not write, but get your head around strategies involving limited risk, PM me if you want further help (I trade during the week so can't really promise how speedy my response will be).
As far as delta neutral trading goes, all you have to remember is that this simply means that you are neutral on the direction of the underlying. There are still lots of factors that can affect your position, mainly volatility and time.
You can work out your rough delta exposure, by remembering these:
Long stock +100
Short stock -100
Long ATM Call +50
Long ITM Call +50 - +100 depending on how much ITM
Long OTM Call +50 - 0 depending
And reverse for the Puts i.e
Long ATM Put -50 etc.
When short just reverse the sign.
Therefore depending on your combination, you can work out whether you are delta neutral (i.e. sum of deltas = 0).
Sorry if this is too simplistic (or too complicated).
Hope this helps
If i bought 1-50 Calls contracts last week.[120 strike] Now the stock is trading at 190 with 2 months left of time value and the trade was done when the stock was at 110 and my Options is now valued at 75 pts. [70 intrinsic and SOME time value >>5 pts] I will phone my broker to excecise those options!! against the seller.
There is still time value left and i WILL excercise the whole LOT IN ONE GO and there is nobody to stop me. Even if people call me ediot. I think i will be an idiot if i dont. even if there is 2 months of time value left. Its gone to 190 for many reasons, could be take over rumours. and cash in on the divi payments, then I will sell off those stocks probably 2-4 days later at 198 or higher.
I dont care if the writer has the position on "Delta Nuetral" Butterflies,Condors, etc
[Its been many yrs since i wrote US positions]
bull
There is still time value left and i WILL excercise the whole LOT IN ONE GO and there is nobody to stop me. Even if people call me ediot. I think i will be an idiot if i dont. even if there is 2 months of time value left. Its gone to 190 for many reasons, could be take over rumours. and cash in on the divi payments, then I will sell off those stocks probably 2-4 days later at 198 or higher.
I dont care if the writer has the position on "Delta Nuetral" Butterflies,Condors, etc
[Its been many yrs since i wrote US positions]
bull
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Well as I said you would have to have an extremely bad financial sense to exercise that option. As you could trade your options and make more out of them.
Firstly it doesn't matter how many you buy so that's irrelevent information.
Strike 120 How much did you pay (that would be useful to help people thought not essential)
Price of underlying 190
Therefore intrinsic value is 70. You can exercise and get this intrinsic value, or you can sell your option for 75, and make an extra 5pts.
I know what most people would do.
Anyway you would never be exercising that against me, as I would never let it get to that stage, and if I did, I would be well hedged, and so you can exercise whenever you want matey.
As Windlesham said, barrow boys!!!
Bulldozer mate, you go ahead and exercise that option, well done buddy.
I quite like trading against people who don't quite understand options! 🙂
Firstly it doesn't matter how many you buy so that's irrelevent information.
Strike 120 How much did you pay (that would be useful to help people thought not essential)
Price of underlying 190
Therefore intrinsic value is 70. You can exercise and get this intrinsic value, or you can sell your option for 75, and make an extra 5pts.
I know what most people would do.
Anyway you would never be exercising that against me, as I would never let it get to that stage, and if I did, I would be well hedged, and so you can exercise whenever you want matey.
As Windlesham said, barrow boys!!!
Bulldozer mate, you go ahead and exercise that option, well done buddy.
I quite like trading against people who don't quite understand options! 🙂
I quite like trading against people who don't quite understand options!
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Are you saying I'm wrong to excecise at that point? I want your stock and i'm glad youve got your position hedged. Please tell us your hedge. and what if you were away for 2-7 days when you got assigned? and you cant be contacted?
Its quite obvious that i bought them a lot cheaper! because they were OTM when i bought them. with just time value and NO intrinsic value.
Finally are you saying I dont understand Options?? I would say 8 from 10 option traders would take the stock.
Please tell me what Options you are writing ? are they US style? Cause i would love to be at the other end.
Please tell us why I'm an Idiot to excecise my positions on my last post, which also had some time value left.
As a matter of interest how mny times have U been assigned in the last 52 wks?
I have not been assigned for many many yrs, so you can imagine how much commission ive saved.
bull
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Are you saying I'm wrong to excecise at that point? I want your stock and i'm glad youve got your position hedged. Please tell us your hedge. and what if you were away for 2-7 days when you got assigned? and you cant be contacted?
Its quite obvious that i bought them a lot cheaper! because they were OTM when i bought them. with just time value and NO intrinsic value.
Finally are you saying I dont understand Options?? I would say 8 from 10 option traders would take the stock.
Please tell me what Options you are writing ? are they US style? Cause i would love to be at the other end.
Please tell us why I'm an Idiot to excecise my positions on my last post, which also had some time value left.
As a matter of interest how mny times have U been assigned in the last 52 wks?
I have not been assigned for many many yrs, so you can imagine how much commission ive saved.
bull
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I would say that you really don't understand options.
Look at my previous post as to why you would not exercise that option, have you no 'wisdom'? 🙂
Anyway this is a thread about delta neutral trading, not american v. european options, if you want to talk about that set up a new thread, that's the point of them
Look at my previous post as to why you would not exercise that option, have you no 'wisdom'? 🙂
Anyway this is a thread about delta neutral trading, not american v. european options, if you want to talk about that set up a new thread, that's the point of them
Final comment to bulldozer,
You said in an earlier post, 'to hell with the vega', good luck with that attitude mate, and I think it reinforces that you really don't understand options.
Anyway,
As for delta neutral trading, what are everyone's favourite strats? (A boring question I know but I wanted to bring the topic back in line, it was a good thread prior to the disruption.)
You said in an earlier post, 'to hell with the vega', good luck with that attitude mate, and I think it reinforces that you really don't understand options.
Anyway,
As for delta neutral trading, what are everyone's favourite strats? (A boring question I know but I wanted to bring the topic back in line, it was a good thread prior to the disruption.)
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Beeryboy,
I trade away from the mrkt action on high volume, taking premiums from far out OTM positions, with heavy marg. All i care about is the Delta and the Theta. This is why I'm not to bothered with the "Vega". on EU style and never on US style.
bull
I trade away from the mrkt action on high volume, taking premiums from far out OTM positions, with heavy marg. All i care about is the Delta and the Theta. This is why I'm not to bothered with the "Vega". on EU style and never on US style.
bull
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I started trading in 1985. with REAL trades and my career is not over yet. and I dont work for any body.
Your probably still paper trading or on just one contract at a time, and still holding a job. and probably still reading books and looking for the best strategy to use.
Good luck and i wish you a long career in the mrkts!
bull
Your probably still paper trading or on just one contract at a time, and still holding a job. and probably still reading books and looking for the best strategy to use.
Good luck and i wish you a long career in the mrkts!
bull
bulldozer said:
Look pal why don't you leave this thread alone and start your own one called "How not to trade options".....this was an interesting thread for people........
Comments like "Your probably still paper trading or on just one contract at a time, and still holding a job. and probably still reading books and looking for the best strategy to use." are very childish as by the sounds of it you only know one stratagey; selling OTM
I know I like to argue with people on here but when people start complaining about the thread taking a different direction I stop.......
