Newbie XJO options question

[James58209]

Hi,

I recently decided to take my first step into the short side of trading, by buying 5 put-option contracts on the XJO @ 4850, expiring on Feb 18, (XJOZI8), as a hedge against falls in my long share portfolio. I am using NAB Online Trading, but hope to switch to Interactive Brokers soon. When I bought the 5 contracts, their premium was listed as 80, and they cost me $800 each ($10 per point).

Now that the XJO has dropped, I would have thought that these options would be In The Money, and I was expecting to see the market value of them increase to
$10 per point x 5 contracts x (4850 - XJO)

However, NAB Online Trading is listing their market value as 162 per contract and a total dollar value of only $81.00.

I expect that if I exercise the options on expiry and the XJO is still as low as it is now, I will get a lot more money back than $81.00, right?

So why is the listed dollar value so low? Is it because the market thinks that there is virutally no chance that the XJO will stay this low until Feb 18? I tried clicking "Sell" and clicking "Preview" (without actually confirming the order), which gave the same dollar value as I was seeing in the Portfolio view.

Am I completely misunderstanding selling of options? I thought that I would be able to sell the right to exercise the option to another investor/trader, and that the option writer would then be obligated to make the transaction with the person I was selling the contract(s) to, instead of me, if they exercise the option.

Thanks in advance,
James

 

[Trembling Hand]

I've got them @ 153 bid

 

[James58209]

I've got them @ 153 bid

Yes, 153 bid, 158 ask and 162 (last trade). So I guess my trading platform was showing the last traded premium (162) as the market value.

But my question is more about how that premium in points translates to the dollar value.

If I can sell them for a premium of 153 points per contract, doesn't that mean that they are worth $1530 per contract? How does NAB Online Trading come up with a value which is lower by a factor of 100? It displays a value of $81, which is 162 - the last traded premium in points multiplied by 5 contracts, giving 810 total "points value", but then instead of multiplying by $10 to get the dollar value ($8,100.00), NAB Online Trading seems to divide by 10 ?! giving $81.00 as the dollar value?!

James

 

[Trembling Hand]

Yes, 153 bid, 158 ask and 162 (last trade). So I guess my trading platform was showing the last traded premium (162) as the market value.

But my question is more about how that premium in points translates to the dollar value.

If I can sell them for a premium of 153 points per contract, doesn't that mean that they are worth $1530 per contract? How does NAB Online Trading come up with a value which is lower by a factor of 100? It displays a value of $81, which is 162 - the last traded premium in points multiplied by 5 contracts, giving 810 total "points value", but then instead of multiplying by $10 to get the dollar value ($8,100.00), NAB Online Trading seems to divide by 10 ?! giving $81.00 as the dollar value?!

James

James I have no idea what NAB is doing with their options and I would never care to. I cannot answer what is on a NAB screen. These brokers are rubbish unless you are doing the twice a year buy and forget stuff.

Your options are currently worth,

Bid @ 155 X $10 per point X 5 oppies = $7750 - less whatever outrageous amount NAB charge for brokerage.

Nice trade

 

[Sizzle]

Tremblinghands. What is that software your using for options?

 

[Trembling Hand]

This,

 

[James58209]

James I have no idea what NAB is doing with their options and I would never care to. I cannot answer what is on a NAB screen. These brokers are rubbish unless you are doing the twice a year buy and forget stuff.

Thanks! I guess it's time for me to brave Interactive Brokers or another broker which takes derivatives-trading more seriously. I got halfway through the I.B. application once before and then chickened out for some reason.

I'm certainly not too impressed with NAB regarding options. I have found conflicting information about automatic exercising of options:
This webpage:
trading.nab.com.au/nolt/Help/Tutorials/ETOIndices.asp
says:
"If you hold an index option on expiry you will need to inform us that you wish to exercise this option to receive the cash settlement (unless you have signed an Auto Exercise Agreement)."

whereas this document:
trading.nab.com.au/PDFs/forms/PDS/Exchange_Traded_Options_NOLT_Retail_PDS.pdf
says on Page 6:
"If you trade ETOs with us, we will automatically exercise your taken ETO contract if your contract is more than one cent in the money or one point for indexes."

 

[Sizzle]

Thanks,
I am fairly new at options as well, are they good for ASX options? also, is there a difference between using IB as opposed to say a commsec in regards to your chances of getting an order filled??

 

[cutz]

Thanks,
I am fairly new at options as well, are they good for ASX options? also, is there a difference between using IB as opposed to say a commsec in regards to your chances of getting an order filled??

Yeah,

There's a huge difference,

For starters you can't execute combos online which is a huge disadvantage (actually over the phone you can but higher brokerage applies ) coupled with delays when legging and you could have a situation where money is simply flushed down the toilet. Daily fine adjustments are impossible with the fixed rate brokerage structure which turns into percentage based over a certain $$ value

Also assignment brokerage fees are huge, something like 0.35% last time I checked.

 

[cutz]

Sizzle,

In case you're wondering I was referring to comsec in my previous post.

With regards to your question on fills, comsec orders are not straight through, the options desk has to approve, even buy to open, hence the difficulty in legging a spread.

If you are considering getting serious with options use IB.

 

[Sizzle]

Thanks cutz, I think I will give them a try.

I am sure this has been asked before, but I am looking at purchasing an options trading book but dont want to waste my time reading crap. I would welcome any opinions/recommendations.

 

[cutz]

Thanks cutz, I think I will give them a try.

I am sure this has been asked before, but I am looking at purchasing an options trading book but dont want to waste my time reading crap. I would welcome any opinions/recommendations.

Hi Sizzle,

Have a read of this thread, https://www.aussiestockforums.com/forums/showthread.php?t=16464&highlight=good+books+options.

 

[Bretski]

I am looking at purchasing an options trading book but dont want to waste my time reading crap.



Try optiontradingpedia.com they have lots of great stuff or options4beginners.com I think they do some free video education.

This might be a silly question as I trade the US markets, however are ASX options liquid enough to trade safely?

 

[Sizzle]

Thanks for that Bretski, the site looks good!

Re the ASX Options & liquidity... You are probably right however at this point I am not familiar enough with US stocks to be trading them..So I only really trade options on a handful of ASX stocks which seems to work OK for now.