Can we get real about Options on ASF?

[qldfrog]

In a pure conservative way, if I want an insurance on let's say overexposure to PM, I could buy a short on a gold ETF.
Should I want to do that, I need to ensure I do not overpay for that option, and need to know the IV attached to a given option price.
How do I do that?
This is a pure novice question.
And I can do that on either ASX preferred as this would cover currency risk, or US market

 

[Gunnerguy]

CSL Options Directional Trade : Bear Call Credit Spread.
Thesis : I believe CSL will be flat or go lower before June 20th.
Full year ends 30th June. No annuncements/earnings etc. expected before this date.

Trade opened : 26 April
Sell to open June20 296C +0.91, Buy to Open June20 302C -0.44. PM = 47. Risk = 600
296C Delta = 0.117. DTE = 55
RR = 47/600 = 7.8%, Annual ARR = 51%

 

[Gunnerguy]

ASX200 (AP) Options Directional Trade : Bear Call Credit Spread.
Thesis : Although the ASX200 may rise to the EOFY I believe by 18July (XP date) it will remain below 8150.

Trade opened : 29 April. Current SP = 7613
Sell to open Jul18 8150C +22, Buy to Open Jul18 8450C -6, PM = +16. Risk = 300
8150C Delta = 0.131. DTE = 80
RR = 160/3000 = 5.3%, Annual ARR = 23%
My annual minimum required return on my portfolio is only 15% pa.

I have a Buy and Hold Portfolio (BNHP) with a Beta of 0.75 to the ASX200.
If ASX200 stays below 8150 by July18 my profit is the premium.

If the ASX200 goes above 8450 (+11%) by 18July my BNHP goes up +8.3% which is larger than the Max Loss of 3000 on the Options trade.
I am hedging against my BNHP.

Gunnerguy

 

[DaveTrade]

In a pure conservative way, if I want an insurance on let's say overexposure to PM, I could buy a short on a gold ETF.
Should I want to do that, I need to ensure I do not overpay for that option, and need to know the IV attached to a given option price.
How do I do that?
This is a pure novice question.
And I can do that on either ASX preferred as this would cover currency risk, or US market

@qldfrog the suggestions from @Gunnerguy are 'Covered Calls' and these are really income plays, income of course will offset losses. In your question you mentioned buying insurance, or hedging, and this is done by buying 'Puts' or 'Put Spreads'. Puts will give you unlimited protection (higher cost) and Put Spreads will give you limited or defined protection (lower cost). If 'IV' is high then the usual choose to offset this is to use a spread. A more advanced method is to use a 'Collar' and sometimes these can be done at a credit.

 

[ducati916]

This is good thanks @ducati916 - not many contributors yet, but if we keep pushing ideas and talk strategy, hopefully more will emerge.

I know of a Full-Service Options advisor (for AUS market) who is keen to start posting his trades for his clients and trade ideas; might convince him to share them & reasoning on this forum too.

I'm interested to know your thoughts on, in your neutral trades, your preference to Butterflies vs something like an Iron Condor (if that's true?). I have some assumptions as to why (flexibility for set up & adjustment) - How do you play a Butterfly after you're in the position? Is it a shorter expiry set and forget as you mentioned above? I could imagine a lot of staring at screen on the final days + assignment risk on the short legs.

I've played around with the "Broken Wing Butterfly", which sets up like this:
View attachment 175804

Structured as a net credit and allows some directional protection if you don't capture the butterfly zone. I don't enough evidence to have an option on this as of yet, but it shows one of the interesting setups you can achieve with options.

Cheers,

There are many variations to the standard Butterfly:

Butterfly Spread: What It Is, With Types Explained & Example

Butterfly spread is an options strategy combining bull and bear spreads, involving either four calls and/or puts, with fixed risk and capped profit.

www.investopedia.com

Iron Condor: How This Options Strategy Works, With Examples

An iron condor involves buying and selling calls and puts with different strike prices when a trader expects low volatility.

www.investopedia.com

Understanding the basic butterfly is the starting point for bringing in the variations.

The basic issue with all of these trades is this:

Think of the trade as a dartboard. You have to pretty much hit the bullseye to get maximum profits. Add to that the time element. Not only do you have to hit the bullseye, but also get the time correct.

The key to getting this to work, is a criss-crossing 20day and 50day MA.

An example:

That is your range. Of course the longer it has persisted, the less likely it is to continue. You need to catch them early. Often after a big move up or down with a significant gap, will create a consolidation.

jog on
duc

 

[ducati916]

ASX200 (AP) Options Directional Trade : Bear Call Credit Spread.
Thesis : Although the ASX200 may rise to the EOFY I believe by 18July (XP date) it will remain below 8150.

Trade opened : 29 April. Current SP = 7613
Sell to open Jul18 8150C +22, Buy to Open Jul18 8450C -6, PM = +16. Risk = 300
8150C Delta = 0.131. DTE = 80
RR = 160/3000 = 5.3%, Annual ARR = 23%
My annual minimum required return on my portfolio is only 15% pa.

I have a Buy and Hold Portfolio (BNHP) with a Beta of 0.75 to the ASX200.
If ASX200 stays below 8150 by July18 my profit is the premium.

If the ASX200 goes above 8450 (+11%) by 18July my BNHP goes up +8.3% which is larger than the Max Loss of 3000 on the Options trade.
I am hedging against my BNHP.

Gunnerguy

Mr Gunner,

I don't have ASX data, so can't make any sensible comments. A chart would help people understand your set-up.

jog on
duc

 

[wayneL]

In a pure conservative way, if I want an insurance on let's say overexposure to PM, I could buy a short on a gold ETF.
Should I want to do that, I need to ensure I do not overpay for that option, and need to know the IV attached to a given option price.
How do I do that?
This is a pure novice question.
And I can do that on either ASX preferred as this would cover currency risk, or US market

The @rsehole's answer would be to become acquainted with the relevant option pricing model... Black Scholes, Binomial etc. The mathematics there are complex and as for myself, would cause an aneurysm even if I had the capabilities of calculating them.

I have always relied on various platforms for calculating implied volatility, IB, Hoadley, or whatever, to represent the same as an output/graph.

Realised volatility is a relatively simple matter of plotting it on your favorite charting software... Analyse accordingly.

 

[ducati916]

The @rsehole's answer would be to become acquainted with the relevant option pricing model... Black Scholes, Binomial etc. The mathematics there are complex and as for myself, would cause an aneurysm even if I had the capabilities of calculating them.

I have always relied on various platforms for calculating implied volatility, IB, Hoadley, or whatever, to represent the same as an output/graph.

Realised volatility is a relatively simple matter of plotting it on your favorite charting software... Analyse accordingly.

I will look at the implied vol

Then compare it to the average Hist. Vol

Gives you a 'better' gauge on how much (extra/less) premium is currently in the contract. So in this case buying premium is the trade. Selling premium is not a great idea.

Which is the whole point of using combination strategies, particularly if IV is super high and you want to buy. Selling an offset to your purchase balances the IV part of the trade.

jog on
duc

 

[Gunnerguy]

P/L for my CSL trade

 

[ducati916]

P/L for my CSL trade

P/L for my CSL trade

Mr Gunner,

Your risk graph

After reading your position, I think you are looking to hedge the downside of your equity position as this position profits if both Options expire worthless and you keep the credit.

As I'm sure you are aware, this strategy could be implemented also using PUTS. Was the PUT pricing less advantageous?

Also, if you are holding the equity as an investment position, why not sell CALLS against it?

Covered Calls:

If you want to hold the equity and it looks to trade through, you can roll the Option higher. Also a credit strategy.

Why do you prefer your strategy in this case? The downside hedge is fairly limited in both strategies.

So the hypothetical CCJ (Butterfly trade)

jog on
duc

 

[Gunnerguy]

Mr Gunner,

Your risk graph

View attachment 175867

After reading your position, I think you are looking to hedge the downside of your equity position as this position profits if both Options expire worthless and you keep the credit.

As I'm sure you are aware, this strategy could be implemented also using PUTS. Was the PUT pricing less advantageous?

Also, if you are holding the equity as an investment position, why not sell CALLS against it?

Covered Calls:

View attachment 175873

If you want to hold the equity and it looks to trade through, you can roll the Option higher. Also a credit strategy.

Why do you prefer your strategy in this case? The downside hedge is fairly limited in both strategies.

So the hypothetical CCJ (Butterfly trade)

View attachment 175874

View attachment 175875



jog on
duc

My CSL Trade is purely a directional credit tade.
I do not hold CSL, however I believe the SP will be flat or move lower prior to XP date.

Gunnerguy

 

[ducati916]

My CSL Trade is purely a directional credit tade.
I do not hold CSL, however I believe the SP will be flat or move lower prior to XP date.

Gunnerguy

Mr Gunner,

Fair enough, I read that wrong (obviously).

I understood that you were holding BNHP (whatever that is) and hedging it.

Anyway, if it a straight play on obtaining a credit, you seem comfortable with the R/R at 50/550 or 0.09/1

That would be too low for me. I prefer 2:1 or higher. I will on occasion drop to 1.5/1 but my probabilities need to be commensurately higher.

CCJ

So atm, sitting near max loss point.

However, plenty of time left for it to work out.



jog on
duc

 

[Gunnerguy]

Mr Gunner,

Fair enough, I read that wrong (obviously).

View attachment 175972

I understood that you were holding BNHP (whatever that is) and hedging it.

Anyway, if it a straight play on obtaining a credit, you seem comfortable with the R/R at 50/550 or 0.09/1

That would be too low for me. I prefer 2:1 or higher. I will on occasion drop to 1.5/1 but my probabilities need to be commensurately higher.

CCJ

View attachment 175973View attachment 175975View attachment 175976

So atm, sitting near max loss point.

However, plenty of time left for it to work out.



jog on
duc

BNHP - But and Hold Portfolio.

I have a large portfolio of long term ETF's and shares for my retirement ($2M)
I understand your comment about the Risk Return on my AP trade.

My AP trade is a hedge against my Buy and Hold Portfolio.
I sold 10 contracts for a premium of 160, risking 3,000 in the options trade.
However, if the ASX200 goes up 11% my Max Loss is 3,000, whilst at the same time with my BNHP having a Beta of 0.75 this will go up 8% which is 160,000. Meaning is the ASX200 goes up 11% I will loose 3,000 on my options trade but gain 160,000 on my Buy and Hold Portfolio.
So the real risk reward for me is risking 3,000 to gain 160,000.
If the ASX200 does not go up 11% (in 70 days which i think is unlikely especially as it has to blow through the current ATH which willl be a resistance) then I keep the premium of 160. Yes not a lot of premium for a 70 day options trade, however I usually have 3 or 4 of these AP trades open at the same time on different timeframes and ASX200 levels.

Gunnerguy.

 

[wayneL]

So atm, sitting near max loss point.

However, plenty of time left for it to work out.



jog on
duc

As you have previously noted, this is one great advantage of limited risk option trades, as opposed to having a stop loss.

One can just leave it there (assuming there is no risk of assignment in one of the legs) for the entire term of the contract.

"We" get to determine the timing of our exit, not some smart@rse market maker running stops.

 

[ducati916]

Another theoretical trade in FX

https://www.aussiestockforums.com/threads/old-mt4-fx-account-use-it-or-lose-it.38118/post-1277496

The most basic of all: long CALL

jog on
duc

 

[ducati916]

Update CCJ:

Back in the zone.

jog on
duc

 

[ducati916]

CCJ update:

Still out of the profit zone but other way now.

jog on
duc

 

[wayneL]

CCJ update:

View attachment 176533

Still out of the profit zone but other way now.

jog on
duc

Beautiful case in point regarding stops. I'll bet there were a ton of them @~$46 that got taken out..

 

[peter2]

Noticed the professional stop hunt in real time but didn't take advantage of it. OK I admit I was spooked by it.

Options do allow time for a market to correct after a noisy bar or two. Those traders who bought the CCJ $46 calls are making out like bandits already.

 

[qldfrog]

Noticed the professional stop hunt in real time but didn't take advantage of it. OK I admit I was spooked by it.

Options do allow time for a market to correct after a noisy bar or two. Those traders who bought the CCJ $46 calls are making out like bandits already.

For the novice already burnt by stops, this is definitively a reason to be attracted to options for protection even when no black swan occurs