# Trading XJO



## mattbrad (1 October 2009)

I am thinking about trading the XJO. If the price for the option is 85 (as listed on the ASX website) then would I receive $850 for selling the call as each index point is worth $10?


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## cutz (1 October 2009)

mattbrad said:


> I am thinking about trading the XJO. If the price for the option is 85 (as listed on the ASX website) then would I receive $850 for selling the call as each index point is worth $10?




Correct. 

BTW, i assume you're looking at the Oct 4700 call.


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## jono1887 (1 October 2009)

How many ways are there to trade the XJO?


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## skyQuake (2 October 2009)

jono1887 said:


> How many ways are there to trade the XJO?




An exchange traded ETF, a few non-exchange traded ones, a few index tracker funds, oppies, warrants, cfds, futs, spreadbetting, structured products similar to calls with downside protection, and of course, the time tested way of buying the exact index constituents


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## mattbrad (2 October 2009)

cutz said:


> Correct.
> 
> BTW, i assume you're looking at the Oct 4700 call.




Yes, I was looking at the Oct 4700 call.

How does it work with cash settlement? Do I need to keep an amount sufficient to cover cash settlement should the option expire itm?


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## cutz (2 October 2009)

mattbrad said:


> Yes, I was looking at the Oct 4700 call.
> 
> How does it work with cash settlement? Do I need to keep an amount sufficient to cover cash settlement should the option expire itm?




If the index settles at 4800 and you're short 1 contract you need to cough up $1000, in the meantime you need to cover your margins which varies depending on your broker.

BTW Naked calls.


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## jono1887 (2 October 2009)

what does it mean when a call is naked?


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## mattbrad (3 October 2009)

cutz said:


> If the index settles at 4800 and you're short 1 contract you need to cough up $1000, in the meantime you need to cover your margins which varies depending on your broker.
> 
> BTW Naked calls.




I am planning to go covered using STW shares. Is there a better way to cover?

From researching this forum it seems that interactive brokers have the best reputation. How do IB require margins to be covered for cash settled options?

Also, when using an options calculator that has a dividend yield input, is this only relevant if the stock will go ex-dividend before the option expires? If the stock will not be going ex-dividedn is the dividend yield 0?



jono1887 said:


> what does it mean when a call is naked?




a naked call is when you do not own the underlying stock. A covered call is less risky as there is a cap on your losses as the underlying stock increases in value similarly to your liability from selling the call.


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## cutz (3 October 2009)

Hi mattbrad,

I'm definitely no guru but i don't really think STW and XJO options would work too well together as a covered call strategy, the two don't move in step and STW isn't a contract that can be delivered.

If you really want to enter a covered call strategy strategy on the index, XJO naked puts are the synthetic equivalent something i wouldn't do though.

Margining on IB all i can say is it works extremely well. 

My aussie broker is chewing through over 4 times the amount of margin on a smaller position, go figure. Another issue with my aussie broker is the trading passwords, dealer delays approving orders, no spreads coupled with fixed price brokerage makes position adjustment impossible, try moving a 4 leg spread and you'll see what i mean, don't know why i even bother.


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## Grinder (3 October 2009)

Cutz, you sound like me a year ago.


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## cutz (3 October 2009)

Hi Grinder,

Took me a while but i think i've found the right balance, Eurex/XJO spreading on IB with some equity put strategies depending on conditions, frequent adjustments are painless and what a beautiful platform.

Covered calls plus heavy wing protection with oz broker, set and forget minimal trading, assignment to be avoided. (on long term stock holdings).

Now all i need is the index to stay put for a week so theta can do its thing, i can't really handle another aussie broker adjustment.


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## Fox (3 October 2009)

Hi Cutz,

In the *Re: Options Mentoring* forum thread, you asked if CFDs can be used to hedge/adjust XJO options. Are CFDs your chosen adjustment instrument? If not, what do you recommend? Thanks.

P/S. I initiated a small position on XJO to get a feel for it. As per Grinder's comment of you being a 1 year delayed version of him, I kinda feel that I'm a 1 year delayed version of you . A lot of your questions in the *Re: Options Mentoring* thread were things I wanted to ask as well.


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## cutz (3 October 2009)

Fox said:


> you asked if CFDs can be used to hedge/adjust XJO options. Are CFDs your chosen adjustment instrument? If not, what do you recommend?




Hi Fox,

On XJO's i can't really recommend anything, i have had a play with SPI futures but the contract size is too big, i.e, one SPI contract equals 2.5 deltas, way to big for adjustment on smaller positions, check it out on hoadley's and you'll see what i mean.

In the end my SPI/XJO position was too skewed to the downside so i found myself moving the puts up to make up for the SPI losses, not an ideal situation.


Anyway my new plan is don't play with the original spread, only sell/buy a contract if position delta hits +/- 2.5 ESP, don't have a view on the market outlook.


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## cutz (3 October 2009)

BTW Fox,

I'm not really entirely convinced that gamma scalping is ideal for every situation, recently i had a bank call/put backspread on, the banks ran and i was able to close out the put side for a small profit, the underlying shot through the call spread so i also closed that out for a nice profit, if i had kept neutralizing that position the outcome may not have been as favorable.

What i'm getting at is the position was originally set up because i thought the banks where going to sit still, effectively it was a iron fly with heavy wings, the unexpected happened (for me) so i was able to achieve a different outcome.

What works on the day, i don't think keeping 100% neutral is the key, i.e if you start neutral then you find you're putting on deltas why neutralize, there you go i've just contradicted myself. 

Another head scratching moment, help me out mazza.


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## Fox (4 October 2009)

cutz said:


> I'm not really entirely convinced that gamma scalping is ideal for every situation, ...
> ... i don't think keeping 100% neutral is the key, i.e if you start neutral then you find you're putting on deltas why neutralize, there you go i've just contradicted myself.



My understanding of gamma scalping is that you scalp the small price movements while waiting for the large price moves. In other words, delta neutrality is maintained for the small moves only. 

In your case, it appears that you did not have the opportunity to scalp the small price movements, as the banks did a rapid move up. This of course is the preferred outcome.

I've learnt the hard way (see *Growing Pains* post) that maintaining delta neutrality beyond the small moves will neutralize almost ALL your potential delta gains.


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## cutz (4 October 2009)

Fox said:


> My understanding of gamma scalping is that you scalp the small price movements while waiting for the large price moves. In other words, delta neutrality is maintained for the small moves only.
> 
> In your case, it appears that you did not have the opportunity to scalp the small price movements, as the banks did a rapid move up. This of course is the preferred outcome.
> 
> I've learnt the hard way (see *Growing Pains* post) that maintaining delta neutrality beyond the small moves will neutralize almost ALL your potential delta gains.




Hi Fox,

My take on gamma scalping is neutralizing gamma to kill negative theta as a position gains delta, this i believe is critical if you're making a market as you don't want to have a massive position gaining massive negative theta.

In my case slow gains in delta are not so destructive because of the smaller positions.

But i think i've mentioned it before, the oz market doesn't really cater for the options trader, it's difficult to short stocks, SPI options i feel are too big to use with XJO options, i learnt the hard way last month.


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## Grinder (4 October 2009)

cutz said:


> Took me a while but i think i've found the right balance, Eurex/XJO spreading on IB with some equity put strategies depending on conditions, frequent adjustments are painless and what a beautiful platform.
> 
> Covered calls plus heavy wing protection with oz broker, set and forget minimal trading, assignment to be avoided. (on long term stock holdings).
> 
> Now all i need is the index to stay put for a week so theta can do its thing, i can't really handle another aussie broker adjustment.




Glad to hear it. Don;t know much about the Kospi, but being only a couple hours off Oz it could also be a convenient alternative.


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## jono1887 (4 October 2009)

mattbrad said:


> a naked call is when you do not own the underlying stock. A covered call is less risky as there is a cap on your losses as the underlying stock increases in value similarly to your liability from selling the call.




If you are going short and you own the underlying stock... wouldn't that cancel our your profits??


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## mazzatelli (4 October 2009)

jono1887 said:


> If you are going short and you own the underlying stock... wouldn't that cancel our your profits??




jono,
Short call does not have the same payoff as short stock. If you want to become a market maker [from career thread discussions] you need to be aware of the basics.

cutz,
I don't think you should be listening to any of my drivel,lol
I'd personally gamma scalp to overcome daily theta [leaving long gamma/vega bet], but would drop my sh*t and run with 2-3 weeks to expiry. Like Fox has discussed, I'd only be gamma scalping while waiting for the big move. Personal determination of ranges to scalp are with reference to daily sigmas and break-even points.


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## Joules MM1 (28 December 2017)

trader seinfeld asks, "wots. with. all. the-selling-in-the-middle-of-an-uptrend.....?"


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## Joules MM1 (28 December 2017)

oh, that's right ....sign o the times
Melbourne tests terror emergency warning system 
Australian news 1 hour ago
Melbourne Police have tested a public warning system that will sound in the event of a major emergency.
3 Likes 

https://twitter.com/i/moments/946214010814218241

more people struck by  snails every year and now its 2018 eve week and we've all gone whacko
http://511580395457358476.weebly.com/blog/snails-kill-more-people-than-huge-creatures


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## Joules MM1 (9 March 2020)

$$


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## Joules MM1 (10 March 2020)

and one goes with the other
say goodbye mister president


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## Joules MM1 (15 March 2020)

$spx $xjo

on Feb 5th Walter made his first insightful comment and today another:


Walter Murphy
@waltergmurphy
·
Feb 5
Short term wave counts on several indexes suggest that the market is at risk of a downside acceleration.

Walter Murphy
@waltergmurphy
·
6m
Yesterday's final hour was the largest hour-to-hour point gain for the DJIA since at least 2001 and probably in history.

https://twitter.com/waltergmurphy


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## Joules MM1 (15 March 2020)

$djia $spx
more things of note from people who know how to take notes

* Stock Market Commentary 3/13/2020*
* By Lawrence G. McMillan*
*excerpt*
Market breadth has been the worst in history. The "stocks only" breadth oscillator is at the lowest level in its history, at -1464.

Volatility has gone crazy. $VIX traded at 77.57 on March 12th, the highest level since the financial crisis, when $VIX spiked up towards 90 and was in the 80's on several days. $VIX didn't exist during the Crash of '87, but when its formula was invented in 1993, the CBOE back-tested the data for the Crash, and they estimate that it would have reached 150 at that time and remained above 100 for the next six trading days. Even if the market rallies, $VIX is likely to remain in the 40's and 50's for a while, as is its usual wont in the aftermath of devastating market declines.

The trend of $VIX remains higher. The trend change was registered in a very timely manner on February 20th, right before all of this began. The circled area on the lower right of the $VIX chart shows when this began.

In summary, the major trend is down. Oversold conditions are at record levels, though, and so a considerable rally could unfold. But I would expect a retest of the lows after that rally fades. The bulls are used to "V" bottoms for the last 7 or 8 years, but that may be changing finally. Wait for confirmed sell signals, and even then don't chase rallies.


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## kid hustlr (15 March 2020)

How do you see it from here Joules


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## Joules MM1 (15 March 2020)

kid hustlr said:


> How do you see it from here Joules




sp200 cfd we had a good low and i left some connies on the table on friday as we had moved back 66.6% - within the bullish weekly channel - of the aug 2011 low to the high, so that was due a rebound, i was looking for 70% ish but the trade suddenly died and dax/spx both went constructive bid and were suddenly very active, like mid-session active, so they paused the $xjo kept going with no signal at anytime there was a sell set-up, no set-up you stay with the bid...

the contraction in xauusd/palladium are clear signals of large rotations that still need to play out so i wouldnt bet on an absolute directional bet, i suspect we;ll continue to see "sizeable" rips both ways but my bias is BTO eq's and STO commods (with an eye to BTO platinum)
my only open pos's are STO xauusd and $pdm BTO $xjo  cfd

keeping in mind the diff tween making a call and trading the opposite way when the signals come and that's my default attitude and is serving me well so far

frankly we are at peak bad news everything so a rotation is due, peak extremes in many indicators, news and mass media
i speculate that we could just as easily rip back north and be back above the high within a few weeks but i would like to see the cfd retail sector move back to what it was several weeks ago when everyone was continually at 20% BTO 80% STO whereas at the mo it's been 65%ish BTO so again that makes me say just too many gassed up hens trying to root the only chook in the joint ...no one should think cfd's are being used as a hedge it's just too stupid given the margin with the price lengths being

i also dont think liquidity gang is that involved i think the moves are from players who are usually quiet, i think once the price action suggest liquidity guys are at play we can look for trend to re-establish itself and now there's a boat load of new credit debt in play to shore up the bonds and short-term lenders
technically chart wise i think the xjo should make 4700's but has done enough and within the strike zone to call fridays low THE low at least for this leg down (simple zigzag down-up-down)
$spx i am mindful that it has just made a ratio of 1:1 with the 2007 decline and that is usually a very bullish thing, as it fits a trend, keeping the relative size and context of a multi decadal trend, ideally is about 2350 from making a significant low based an orthodox method i follow, but, like the xjo has done enough for this current downleg to hold water

i am inclined to think that there is no rush by the smart money to be  long, keep in mind the poor breadth that went into making the larger top those players are now 'reaping the discounts' in play and that idea suits the zigzag idea very well, as in, one strong leg down, the hens cluck around buying bargains with a strong buy sentiment (remember cmc cfd shows xjo average 65%ish longs during the whole downswing) so now we need to get to the part where those hens get scared out of the hen house that creates a weak lift and those early movers get slammed and the second leg down cements the sentiment that we're going to hell in a hand basket

then again, tomorrow i'll pretend i didnt write this post


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## Joules MM1 (15 March 2020)

$xauusd
i think we are still early in the sell oppo 
here's my orthodox channel and set-up
one i posted and the second is the cfd closed 
a lift back thru 1600 with impuslive construct would make me think the sell was a fake and portfolio shuffle to cover margin calls which we saw when gold (usd's) sold off initially with broader markets in 2007 .....but i think i've got enough evidence to call this a monthly rotation south, not saying i am calling it as written in stone, but as you can see i was satisified to leave some on the table over the weekend (even tho some were scaled) 
if you look at the silver set-up it was a very good non-confirmation set-up, just had to be refined and look for the first verfication that the rotation was printed, i did notate that i could clearly see all lifts in gold being sold into and that printed in the (red) A > B and the lift that end in (red) A was a 1:1 ratio into C (white 2) at the top of of the channel
so technically i am satisfied i had the channel correct, i called for a confirmation witha momo break of the channel, the channel floor broke .......thus far all parts are in place to say the downside should continue until we see a genral re-expansion of liquidity (not funded by a central bank, that's done n dusted already) when that new liquidity is put to work we'll know if the commods are in autumn mode
i would expect monday to see $xauusd work its way back to centre channel 1550 ish but a strongdownside prevails, only a decent bid set-up would signal to exit regardless of other factors
i dont usually leave pos's open over the weekend but this set-up thus far looks value for more of the same, the bull versus bear convo just yadda yadda, what's the set-up, does it need scales, what are the levels = what is the risk
the number below are to show the margin effect the numbers on the left show it's realtime, the lowest numbers are the early trades scaled out with one trapped that i was going to puke
using the same orthodox method for $pdm too
anwyays, the  2 charts:


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## Joules MM1 (15 March 2020)

Australia, New Zealand farewell spectator sport as coronavirus curbs bite https://reut.rs/2QgS7XP

there you go, peak stupidity signal


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## kid hustlr (16 March 2020)

Ty for your thoughts J.

I feel as though the people selling at this point are weak retail longs or doomsday end of the world players. Agree some kind of weak bull move is likely (or just 10% swings each way for a while whilst actually going nowhere). Probably more downside in the months ahead however likely (hopefully?) not to the same magnitude or strength.

My thoughts above do not change my approach in anyway - purely talkin' mkt


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## dangold888 (7 May 2020)

skyQuake said:


> An exchange traded ETF, a few non-exchange traded ones, a few index tracker funds, oppies, warrants, cfds, futs, spreadbetting, structured products similar to calls with downside protection, and of course, the time tested way of buying the exact index constituents



How can I short the XJO (or other indices), other than using CFDs or futures? My understanding is I cannot short ETFs.


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## Smurf1976 (7 May 2020)

dangold888 said:


> How can I short the XJO (or other indices)



ETF's come to mind:

*BEAR* is a short ETF, so as the market goes down it goes up, and *BBOZ* is a leveraged version of that.

*BBUS* is a leveraged short ETF for the US market (specifically the S&P 500 index)

So you just buy the ETF, which is listed on the ASX, in the normal manner. Your holding that ETF gives you a short position - if the market goes down, your ETF goes up and vice versa.

*In regard to the leveraged variants in particular, I strongly recommend that you do not invest without fully understanding the implications of leverage and the potential for losses in the event that the market goes up. *

More information from the issuer of these ETF's is here: https://www.betashares.com.au/insights/3-bears-learn-more-about-going-short-with-asx-traded-funds/


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