Option strategies

[frugi]

I've moved these posts here from Fettered's Live or Die by the Sword to avoid muddling two interesting strands of discussion.

Its been done many times before [option threads]

It does not work on this forum. It all becomes hostile with lots of insults and lots of mud slinggin it normally ends up with the thread getting stopped by admin. Ask FC he has seen it all.

I don't think there's anything specific about the options forum that encourages hostility. Unfortunately a glasshouse of insulting posts can appear anywhere on the site, but we try to nip them in the bud, or at least when the poison flower is clearly visible, and this particular forum is no exception.

I hope that we may witness further uninterrupted, intelligent discussion. Anyone who chooses to disrupt this thread with abuse or prolonged pointless off topic-ery will find their posts swiftly dissolved, as usual. Over to you, option warriors .. please keep this one going ...

 

[osho67]

Thanks for starting this thread.

Normally I sell naked put options. This morning I have sold put at 4625 july expiry for net premium of £28.3 per contract. Margin used was about £270.

I would welcome comments to improve my trades. Thanks

 

[kriesau]

I'd make two points here....

1) If you get into writing options then it is very important that you are well margined. I generally do just a few contracts at a time. Doing it this way you get a good balanced feel for the market. If things dont quite go your way then there is plenty of scope for adjustments / hedging etc. The key is to remain relaxed and not under pressure.

2) I find that my trading personality is hugely bias towards psychology. On that basis I like to look at things as simply as possible. This is why I am drawn to writing strangles. Firstly you have the protection of the range and then you have the further protection of any scalping / hedging you can pull off. When I manage to scalp a few points I psychologically add these to my premium and thus my profitable expiry range generally gets bigger and bigger.

Bulldozer - You are correct, I am using the futures to hedge the exposure on the At The Money Calls. What you have stated isn't entirely correct. A loss on the Futures positions does not wipe away ALL profits, it erodes profits as far as the future moves against me (if we are inside the expiry range) and it 'locks' my position if we are outside the expiry range. This is another benefit of trading the way that I do - as my profitable expiry range grows, the point at which I will need to be hedged will move further and further away from the strike price of the Call / Put. This means that there is far less chance of getting a nasty whip.
In reality, and based on experience, I am always prepared to lose as much as I stand to gain. So, given the example of a strangle on FTSE which has paid me 40, I am prepared to drop 40 before I get any kind of desire to hedge the whole position out - again this prevents whip. At the end of the day it's all down to personal psychology and how you decide to look at your trading / positions. Obviously, at present, the strangle writers will technically be showing a loss simply because the volatility is rising and therefore there is a blanket increase on the value of all the short (written positions).

Steve.

What do you guys make of last Fridays LTOM EURO FTSE EDSP at 5138 when:
a) the cash market never traded above 5090 between 10.10 - 10.30
b) the market didn't trade above 5090 for the next two hours after the unmatched orders were executed
c) the market high for the day was 5098.5 at 2.45pm and the market failed to trade above 5100 all day.

 

[bulldozer]

Thanks for starting this thread.

Normally I sell naked put options. This morning I have sold put at 4625 july expiry for net premium of £28.3 per contract. Margin used was about £270.

I would welcome comments to improve my trades. Thanks

==========================================================

SNAP! 4625 strike
Is that £270 per contract? I cant work out how uve got £28? When i trade OTM near month Puts the last digit is either 0 or 5 with my uk based broker.

I sold/wrote some 4625 Puts on the Dec's contracts. Took in £380 per contract.

Warning! to the readers: pls dont copy my trades unless you know what ur doin!

Bull

 

[osho67]

Bulldozer

I use IB and I got £30 and commission was £1.70. For margin I noted my opening balance and after trade it was less by £270 per contract. Any other way can I figure out the margin?

Thanks

 

[stevespray]

What do you guys make of last Fridays LTOM EURO FTSE EDSP at 5138 when:
a) the cash market never traded above 5090 between 10.10 - 10.30
b) the market didn't trade above 5090 for the next two hours after the unmatched orders were executed
c) the market high for the day was 5098.5 at 2.45pm and the market failed to trade above 5100 all day.

We got a thread on that very subject running here......

http://www.trade2win.com/boards/showthread.php?t=15771&page=1&pp=10

Hope this helps,
Steve.

 

[bulldozer]

Bulldozer

I use IB and I got £30 and commission was £1.70. For margin I noted my opening balance and after trade it was less by £270 per contract. Any other way can I figure out the margin?

Thanks

=====================================================================
Osho,
Thanx 4 clarifying.
Marg used £270 for income of just £30 - costs = £28-30 pence. You have to wait until July xpiry to clear full amount! You need help friend! pronto!
You can do better than that if you go to UK brokers [on the marg]
click below and see debate; > Bulldozer . v . IB [ on IB and marg]

http://www.trade2win.com/boards/showthread.php?t=15743&page=1&pp=10

That is one way of working out the margin, i use that method too. But to get the real figure i would need to ring them the NEXT day, cause they need to get it from the clearing hse and this info is normally available on the next day after the trade was filled.

Bull
Blessed is the person who uses wisdom and his God given brains :cheesy:

 

[bulldozer]

Bulldozer

I use IB and I got £30 and commission was £1.70. For margin I noted my opening balance and after trade it was less by £270 per contract. Any other way can I figure out the margin?

Thanks

==================================================================

Osho,
I use UK Brokers i recieved 38 = £380 for 4625 strike[same strike as yours] on the Dec's contracts. Comms £3.50 per contract, MARGIN ONLY £715 AT FLAT RATE NO ADDITION ABOVE THE CLEARING HOUSE RATE!

Now lets look at it in the more sensible way! Your broker charges less on comms but a lot more % on the marg. if you did my trade with IB your marg will BE A LOT GREATER than mine.
Now, you have taken just 3 pts =£30! ..july to december is 6 months away, if you repeat your trade with IB at 3 pts a time up to December you would have taken 18 pts=£180 with 6 comms paid and with marg at more than 1000%.
Chalenge for you CAN IB match my deal? if they can or DO BETTER i will shift my whole 5 ACCOUNTS with them plus many other friends of mine who trade with the same broker as me.

Bull
Be smart and you wont get fooled again!

 

[def]

bulldozer you are comparing apples to oranges. Osho sold a cheap option at the prevailing market prices. I dont' think you could do better. it's one thing to debate his strategy but another thing when comparing margin levels for different months. If he chose to sell the Dec put, he would have rec'd 380 the same as you but with what could be lower maintenance margin levels.

initial margin on that strike is currently around 850 with a maintenance margin of 688. (I have no way to determine what the levels were yesterday). That means you have to maintain a balance of 688 to hold the position. This level is determined daily by the exchange. As expiration approaches and the market moves, this number will fluctuate.

Oshu,
to check real time margin before entering a trade, line up the order and right click on the entry line. a window wil pop up that will tell you the required initial and maintenance levels.

 

[bulldozer]

Osho,
I'm showing you a better strategy how you could make more profits.
Doing your strategy you can only make a max of £30! Even if you do scalping strategy ur max will be 3pts.
If you keep repeating this type of strategy until december you will make £180. plus comms 6 times. $2.70 x 6 = $16.20.
Do you think doing the Dec's and reicieving £380 with same strike [4625] at £715 margin is a better deal and strategy? Total comms £3.50 with Marg at ZERO % above clearing house.

Can you ask your chosen Broker [we wont mention brokers name] if he can do the same deal for you? at the same margin ?


Ps. I believe Mr Def is an employee of your brokers. You can ask him if you chose to post to him

Bull

 

[bulldozer]

Def your quote TO ME!!
"bulldozer you are comparing apples to oranges. Osho sold a cheap option at the prevailing market prices. I dont' think you could do better."
==============================================================

I will wager you $1000 for $500 I can do better. If you are right i will give you $1000
and if you are WRONG all you need to PAY is $500. Or would you like higher stakes?
I'm open to any price above the ones i mentioned at 2/1.
$2000 against your $1000 or higher perhaps?
ADMIN PLEASE DO NO REMOVE THIS POST AS MYSELF AND DEF WANT IT TO STAY ON THE BOARDS. Please please please. He works for a US based Brokers and i dont work for any brokers but i use UK Brokers.


Bull

 

[def]

this is silly. if oshu sold at 3 when the market is 3 offered, please let me know how you could have sold at a better price. personally i don't think selling naked puts is a good long term strategy but each is own.

I'll add though that i pointed out that the current maintenance margin on the dec put you sold at IB was 688 GBP earlier today. that is lower than the 715 you were required to pay yesterday.

finally, please do not put words in my mouth. I do not recall mentioning anything to you in regards to what the moderators should do with my posts. have a good day.

 

[osho67]

Dear def and bulldozey

Thanks for the input. I am learning

def- I tried yo check the margin on 1 put position of YM. Say initial was 27189 and maintenance was 26076. What do these figures represent? I donot have this sort of money in my account but when I do the trade not so much is deducted from available cash. Please clarify. Thanks

 

[bulldozer]

this is silly. if oshu sold at 3 when the market is 3 offered, please let me know how you could have sold at a better price. personally i don't think selling naked puts is a good long term strategy but each is own.

I'll add though that i pointed out that the current maintenance margin on the dec put you sold at IB was 688 GBP earlier today. that is lower than the 715 you were required to pay yesterday.

finally, please do not put words in my mouth. I do not recall mentioning anything to you in regards to what the moderators should do with my posts. have a good day.[/QUOTE

=======================================================================
Dear friends, traders, lurkers and Def,
I'm not talking about getting a better premium for the July puts! I'm talking about getting a better deal on MARGIN for the premiums recieved on any month and on any strike!
I think Osho knows what im talking about and others too.
Less marg = more trades and = more profits! I think most Option players would welcome LOWER MARGIN on positions. including fund managers.

CAN YOUR BROKER MATCH ZERO RATE ABOVE CLEARING HOUSE ON MARGIN?????
SOME UK BASED BROKERS CAN! I'M USING ONE AT THE MOMENT. Those that think I'm a joker? please dont reply. Those who are serius on option trading and want lower and better margins? are welcome to post. PLEASE DONT SPOIL THIS THREAD and NO ABUSIVE OR INSULTING BEHAVIOR OR ADMIN WILL DELETE POSTS. AS THEY ALREADY DID ON THE OTHER THREAD.

Bull
PS; Those that are NOT looking for LOWER margin and are HAPPY trading with their brokers SERVICE /charges PLEASE DO NOT POST. Thanx

 

[bulldozer]

Def, your quote:
"I'll add though that i pointed out that the current maintenance margin on the dec put you sold at IB was 688 GBP earlier today. that is lower than the 715 you were required to pay yesterday."
======================================================================
If you are correct in what you say than i guess i lost the bet and i need to pay you 1000 $
BUT if your wrong in what you say? How much would you pay me? You are saying that Mr Osho is charged LOWER rate on marg than me!

I'LL SAY IT AGAIN IF YOUR BROKERS BEAT ZERO% ABOVE LONDON CLEARING HOUSE ?I'LL HAND OVER $1000 TO OSHO OR ADMIN TO HAND OVER TO YOU.
AND I WILL GET ON PAPER FROM MY BROKERS CONFIRMATION THAT THEY OFFER THE RATE MENTIONED ABOVE. IF IT IS PROVED I'M CORRECT HOW MUCH WOULD YOU PAY ME? AND REMEMBER YOU HAVE THE EDGE ON ME! AS YOU SAID ABOVE 688 BEATS MY 715.
Bull
It is told, the truth will always come out sooner or later.

 

[bulldozer]

Osho,
I'm saying that your broker is charging YOU higher margin levels than my uk broker is charging me. If our friend Mr Def is correct and you are ON LOWER rates! he wins and you dont need to find a better broker. And i wiil pay promptly the $1000 bet.

Now onto the scalping the NAKED put. Scalping the long dated OTM far out month Put is by far better than scalping the near dated OTM put. Because the far OTM puts has heavier prems.

Bull

 

[osho67]

Dear Bulldozer

"Far OTM puts has heavier prems". This is correct to a certain extent and I donot understand why this is so. Is there more risk involved ?

YM premium for 10000 puts-- July 6, August 35 Sept 64 and Dec 156 . August is the best as sept is not 70 and Dec is not 192 (in straight proportion) . Thanks for your insight.

 

[bulldozer]

Dear Bulldozer

"Far OTM puts has heavier prems". This is correct to a certain extent and I donot understand why this is so. Is there more risk involved ?

YM premium for 10000 puts-- July 6, August 35 Sept 64 and Dec 156 . August is the best as sept is not 70 and Dec is not 192 (in straight proportion) . Thanks for your insight.

======================================================================

Osho,
Did you get a reply to your question from def? He told us he works for IB.

I have many questions for your broker perhaps you can put it to them as i had little joy getting Def to answer them. These questions will probably help you and others become better traders.
I will dig them out from the other thread and post here in a mo.

I trade mainly the footsie index. Did you get that link i sent you on prices.?

Osho your quote below:
"Far OTM puts has heavier prems". This is correct to a certain extent and I donot understand why this is so. Is there more risk involved "?

This carries no more risk then the one you did with the same strike for july for just £30 income.
They both have NO intinsic value! just time value only. Obviously my strike pays more, because its far dated. They are both on Delta .o [zero]
You can ask them these questions too and pls let me know their reply and the delta issue on both.


Bull

 

[bulldozer]

Quote:
Originally Posted by bulldozer
kiwi,

My broker is uk based and here are just a few things about their service:
1. Marg charged by them is ZERO on all strategies. Only pay marg to the clearing hse at their rate and no addition made by brokers.
2. All trades are recorded over the phone, so if an error is made and there are losses of x amount of £'s it can be traced thro the tapes.
3. All trades are repeated over the phone to make double sure that details are correct.
4. If a option strategy is on marg call there is 3 days grace to pay up. The bonus of this is that mrkts can change in my favour and the marg-call is cancelled.
5. I am allowed to adjust positions if im on marg-call without first settling the marg issue.
6. They would never close the written legs if marg is not paid after the grace perriod is up. They would close the short and the longs at best price to suit the client [clients best interest]
7. They allow me to use hedge's against my options position that are NOT options related at all and this will reduce the marg by a great deal and increase my contracts volume, which in turn increase's my income [profits]
8. They specialise ONLY with derivatives trading and are not over streched with work. I like this because i can have a good chin-wag with them about the mrkts and other things too.

9. They are regelated by the FSA a stronger bodie than the US

Can your broker provide this type of service?

Bull

======================================================================
Reply by def :

Yes, I do work for IB and I don't want to get into a tit for tat here but I will address your comments:

1. If a strategy requires margin, then we will charge margin as required by the exchanges. If what you imply is that you do not have to put up any capital, I find that hard to believe. Not only does this fly in the face of regulations, would you really be comfortable placing capital at a firm that doesn't require margin for their clients before entering a trade?

2. All trades entered in via IB's TWS have an extensive audit trail that is recorded and saved. Clients can also save a local copy of their audit trail as well. Clients who call in to place a trade naturally do so over a recorded line.

3. By the time your broker confirms the order to you over the phone you may have missed an opportunity. Nevertheless, parameters can be set on the TWS to pop up a warning box or to confirm entry of an order.

4. margin/credit at IB is real time. If a position goes in your favor, you can use that capital to put on other positions.

5. You should be able to close a position given the capital within the account satisfies regulatory requirements

6. You can set which positions/legs are liquidated first via the TWS.

7. Not sure what you are stating but available net liq determines buying power. If you are talking buy/writes and the such, you can do those as well.

8. IB has extensive experience with derivatives.. Look up the history on our web site.

9. We are also regulated by the FSA but to say they are safer is ludicrous. US broker dealers will fall under SIPC which offers insurance of upto 500K (100K cash, 400K securities). In addition, IB has insurance from Lyolds of London with protection up to 30 million. More importantly, IB has ample capital with the Group being ranked the 16th largest securities firm in the US. The IBG has roughly $2 billion in equity with little or no debt.

Other items you address:
- you say interest doesn't matter. It certainly does. interest earned/paid is a factor in pricing options).

- sell ATM options. If you have sufficient equity in the account you can do so. If you don't you will not be able to.

- naked options: when opening an account a number of factors are taken into account when granting option trading permissions. Rogue trading is not an issue at IB since we require margin up front. I.e. if your net liq is not high enough to support initial margin requirements, you will not be able to enter a trade.

- how many leave and why? I don't know. I do know that we receive more than 5 account transfers into IB for every one that leaves.

- trade by car: we're not interested in that type of business. we are interested in servicing the active trader. If needed, clients can trade via a PDA or call into our trade desk.

Our options business is doing very well and is experiencing large growth. We believe our SMART options routing is second to none. With that said, IB is not for all traders and we can't be all things to all people. That's what's great about competition.

This post was taken from :
http://www.trade2win.com/boards/showthread.php?t=15743&page=1

 

[stevespray]

Morning everyone....

Could we get back to the original basis of the thread and talk about the actual strategies being used?

A couple of people have talked about the naked writng of Puts which are well OTM. For example the selling of the 4625 Puts for a premium of 3.0 points (minus comissions). Is there not more 'value' to be had in selling Puts with a slightly higher strike (for say 8.0 - 9.0 points) which could be traded out of once they fell to say 3.0 - 3.5 (or indead left to expiry if the market rallies or maintains a higher range). The idea is based around the much faster decay of premium which occurs in the last month. The risk might be better also as I've seen some of the Puts selling at 9.0 or so decay to 4.0 in just a few days. Obviously this is a strategy to play in stronger markets and the reverse could be played in the weaker markets using Calls.

Views?

Steve.