Options trading in OZ - 'Reopening' discussions

Thanks for your comments @wayneL . I have gravitated to AP Index options also because they are European executed. With the likes of BHP, CBA, FMG and dividends, someone can easily sneak up on you and call your shares away at a moments notice.

@Sharkman

You are correct, my Breakeven is 7618, fat fingers on my side.

Yes my example was for April expiration, 7/8 weeks. You are correct. I’m just bouncing some numbers and yes if I did the strategy monthly the premiums would be lower, however I may consider doing a 60 DTE every 30 days. I get a higher premium with 60DTE rather than 30DTE. I just have to do some testing on DTE and overlapping trades.

Yes with the high anxiety at the moment and big market moves IV will be high, thus premiums higher and if things ‘quieten down’, IV will reduce and the premiums will also. In the short term I may actually gain from the IV ‘crush’ but longer term the premiums will likely be lower. I just have to balance DTE, Delta, and premiums against the Beta of my IP.

With my 10 Delta yes there statistically will be 1 in 10 times the ASX will go over the strike price, however with the IP and related Beta I hope to be ahead compared to the possible rise over the strike price. Yes there is risk but I am trying to manage this with my potential IP gains.

With Inflation, interest rates, Covid, and now Ukraine I believe, possibly wrong though, that the chances of the ASX200 rushing up to 7600 or 7700 in 30/40/50 days is highly unlikely. I think there are more Macro evens that are pushing the market down/flat. The only event that may cause a ‘melt up’ is if the FED do not raise interest rates due to Ukraine. I think that is a possibility. Another reason to kick the can down the road. If the FED do not raise in March or April then the market may well go up 10%-15% over …… 30/40/50 days.


Thanks for all your comments.

Gunnerguy.
(Learning, listening, adapting, adjusting ........ moving slowly forward)

wayneL said:

I don't really like the snatching pennies front in front of a steamroller allegory. Implies a slow moving behemoth that can be easily avoided so long as you don't freaking fall asleep in front of it.

When you get run over, it's not the steamroller that gets you, unless you're slow and old <cough>, it's more like blind crows picking at carrion on a rural highway frequented by road trains doing 130 km an hour.

And let's not forget that as you try to move out of the way, leaving aside allegories for the moment, you are going to experience volatility rush. Exiting is still going to hurt.

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you're probably right. i try not to interpret it too deeply though, i just take it in the spirit with which it was (presumably) originally intended - as a way of cautioning people that repeatedly taking on positions with a high probability of a negligible gain and a tiny probability of a massive loss will likely bite them on the a#$e sooner or later. i think it's done a good job in that regard, after hearing it for the first time, it readily sticks in the mind as a constant reminder of the dangers of doing that.

Sharkman said:

you're probably right. i try not to interpret it too deeply though, i just take it in the spirit with which it was (presumably) originally intended - as a way of cautioning people that repeatedly taking on positions with a high probability of a negligible gain and a tiny probability of a massive loss will likely bite them on the a#$e sooner or later. i think it's done a good job in that regard, after hearing it for the first time, it readily sticks in the mind as a constant reminder of the dangers of doing that.

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The fat tail is speeding down the road right now... Apologies for the mixed metaphors.

Gunnerguy said:

With the likes of BHP, CBA, FMG and dividends, someone can easily sneak up on you and call your shares away at a moments notice.

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this is only an issue in 2 months out of every year. and the large caps will all have European style options (the ones with strikes that end in .01 and .51 etc) that can be used to mitigate this.

though TBF, i've flip flopped quite a bit on these European style options. i liked them initially, as i found them very convenient when stripping divs for franking credits, which is a tactic i'm quite partial to, as you can probably tell.

then i went thru a phase lasting several months where i struggled to get any sort of decent fill on them (this was all a few years ago), so i wrote them off as being rubbish due to bad liquidity, and went back to using American style, watching them constantly and being prepared to roll/close out if i saw danger of them getting called away prior to ex-div.

i'm back on the European style train again, now that my portfolio is predominantly long term buy & hold, and i prefer not to have to watch the market religiously every minute that it's open these days. it doesn't hurt that fills on the Europeans seem to have improved a bit either. i sold CBA feb 100.01 European covered calls back in dec immediately upon having the stock put to me at 100, and with the stock hovering right around that 100 level in the lead up to feb 16 ex-div, it was much more relaxing not having to watch it like a hawk, trying to figure out if/when to roll/close out to protect the div.

Rolling a Covered Call Up and Out ..... twice

Just looking for some feedback from the community on rolling my CBA covered Call.

I own 400 CBA with a cost base of $100. Caveat(s) - I am happy for them to be called away at a profit and understand that I am limiting my upside if the shares go higher.

Trade costs included below at $1.100.

Option Trade 1.
7/2 STO 4 x 21Mar 102C PM = +$0.305. Premium = +$120.9. Net = +$120.9

Option Trade 2.
[Diagonal/Calander Spread ?] - Rolling Up and Out. Trade completed last week.
16/3 BTC 4 x 21Mar 102C PM = -$2.300. Premium = -$921.1. Net = (+120.9 - $921.1) = -$800.2
16/3 STO 4 x 21Apr 104C PM = +$2.905. Premium = +$1,160.9. Net = (-$800.2 + $1,160.9) = +$360.7

With CBA now at $106.75 I am considering rolling again.

Option Trade 3. (Currently considering this).
Rolling out but at the same price.
22/3 BTC 4 x 21Apr 104C PM = -$4.66. Premium = -$1,865.1. Net = (+$360.7 - $1,865.1) = -$1,504.4
22/3 STO 4 x 19May 104C PM = -$5.64. Premium = +$2,254.9. Net = (-$1,504.4 + $2,254.9) = +$750.5

So if my Maths are correct ......
1. If I don't get assigned, I obviously continue to hold the shares.
2. Rolling has increased my original option 'income' from +$120.9 to +$750.5.
3. If I get assigned my option income is still +$750.5 and my share gain would be ($104 - $100) x 400 = $1,600.

So what's not to like ??? Why am I worried/scared to roll up / out on a covered call ? I did it once already, why should I not do it again ?

...... When I look at the individual P/L's for each BTC/STO trade, they look ugly ..... Closing the first option trade results in a -$800.2 loss. Closing the second option trade results in an increased net loss of -$1,504.4. I just don't like the look of these..... but should I ?

The FINAL result of all this rolling is ..... I have a higher net premium whether or not I get assigned.

Should I be worried about the individual losses for the trades or just ignore them and look at my final result.

I would really appreciate some feed back as I'm just wondering why I don't like this. What am I missing.

Gunnerguy.
(10 months of options trading, 149 trades, and still learning, patience).

Gunnerguy said:

Rolling a Covered Call Up and Out ..... twice

Just looking for some feedback from the community on rolling my CBA covered Call.

I own 400 CBA with a cost base of $100. Caveat(s) - I am happy for them to be called away at a profit and understand that I am limiting my upside if the shares go higher.

Trade costs included below at $1.100.

Option Trade 1.
7/2 STO 4 x 21Mar 102C PM = +$0.305. Premium = +$120.9. Net = +$120.9

Option Trade 2.
[Diagonal/Calander Spread ?] - Rolling Up and Out. Trade completed last week.
16/3 BTC 4 x 21Mar 102C PM = -$2.300. Premium = -$921.1. Net = (+120.9 - $921.1) = -$800.2
16/3 STO 4 x 21Apr 104C PM = +$2.905. Premium = +$1,160.9. Net = (-$800.2 + $1,160.9) = +$360.7

With CBA now at $106.75 I am considering rolling again.

Option Trade 3. (Currently considering this).
Rolling out but at the same price.
22/3 BTC 4 x 21Apr 104C PM = -$4.66. Premium = -$1,865.1. Net = (+$360.7 - $1,865.1) = -$1,504.4
22/3 STO 4 x 19May 104C PM = -$5.64. Premium = +$2,254.9. Net = (-$1,504.4 + $2,254.9) = +$750.5

So if my Maths are correct ......
1. If I don't get assigned, I obviously continue to hold the shares.
2. Rolling has increased my original option 'income' from +$120.9 to +$750.5.
3. If I get assigned my option income is still +$750.5 and my share gain would be ($104 - $100) x 400 = $1,600.

So what's not to like ??? Why am I worried/scared to roll up / out on a covered call ? I did it once already, why should I not do it again ?

...... When I look at the individual P/L's for each BTC/STO trade, they look ugly ..... Closing the first option trade results in a -$800.2 loss. Closing the second option trade results in an increased net loss of -$1,504.4. I just don't like the look of these..... but should I ?

The FINAL result of all this rolling is ..... I have a higher net premium whether or not I get assigned.

Should I be worried about the individual losses for the trades or just ignore them and look at my final result.

I would really appreciate some feed back as I'm just wondering why I don't like this. What am I missing.

Gunnerguy.
(10 months of options trading, 149 trades, and still learning, patience).

Click to expand...

funnily enough i was in a similar position. i sold the mar $100 calls on 18/2 for $1.60. i took delivery when the dec $100 puts were assigned, stripped the div, then had the feb european covered calls expire worthless, so i'd already collected 3 sets of premiums + the div + the franking credits and fulfilled the 45 day rule by then. as the position had already served its purpose, i just let them get called away last week.

rolling up & out should not be an automatic decision the minute covered calls go ITM. at some point doing so becomes counterproductive. i would argue CBA has now reached that point. i'm not an expert chartist by any means, but i can see the RSI is edging close to 80, and in recent months it has corrected sharply on a few occasions on reaching this sort of level. it's starting to look a bit overbought to me.

the danger of rolling covered calls up & out when the underlying is rallying hard is that it either erodes your returns by costing premium, or it ties up your capital for longer periods, or both. and if it happens to pull back sharply to your original strike by the time the new options expire, it then becomes a terrible trade as now you've taken on all the costs of rolling (keep in mind it's not just the brokerage, it's also whatever fraction of the spread the MM will make you cross) and don't have the cap gain to show for it. stocks generally go down faster than they go up!

if the underlying barely creeps above my strike and i expect it to continue rallying at a measured pace over the next month or two, then i'd probably look towards rolling up & out. but in this case it exploded well past my strike so i decided to just take the assignment and look for a pullback to that $100 level sometime in the next couple of months, whereupon i can look to sell the jun/jul $100 puts, strip the aug div, then sell covered calls again.

if your gut feeling is telling you that rolling is iffy, then let the stock go. having the fortitude to forego upside is a crucial part of selling covered calls, when it gets this far past the regret point, sometimes you have to admit to yourself, look, i got it wrong, i'll take whatever gains i've secured so far, i won't chase it any further, and i'll recoup the dry powder so it's there when better opportunities present themselves. i had to do exactly that last week when i had basically the same trade on myself.

A potential issues with option trading.
Not a personal situation but a case where we commoners can not be too right...
I would hate having made the right call and see potentially enormous paper gains just vanishing....
Something I keep in mind with my great paper gold results nowadays...

Gunnerguy said:

Rolling a Covered Call Up and Out ..... twice

Just looking for some feedback from the community on rolling my CBA covered Call.

I own 400 CBA with a cost base of $100. Caveat(s) - I am happy for them to be called away at a profit and understand that I am limiting my upside if the shares go higher.

Trade costs included below at $1.100.

Option Trade 1.
7/2 STO 4 x 21Mar 102C PM = +$0.305. Premium = +$120.9. Net = +$120.9

Option Trade 2.
[Diagonal/Calander Spread ?] - Rolling Up and Out. Trade completed last week.
16/3 BTC 4 x 21Mar 102C PM = -$2.300. Premium = -$921.1. Net = (+120.9 - $921.1) = -$800.2
16/3 STO 4 x 21Apr 104C PM = +$2.905. Premium = +$1,160.9. Net = (-$800.2 + $1,160.9) = +$360.7

With CBA now at $106.75 I am considering rolling again.

Option Trade 3. (Currently considering this).
Rolling out but at the same price.
22/3 BTC 4 x 21Apr 104C PM = -$4.66. Premium = -$1,865.1. Net = (+$360.7 - $1,865.1) = -$1,504.4
22/3 STO 4 x 19May 104C PM = -$5.64. Premium = +$2,254.9. Net = (-$1,504.4 + $2,254.9) = +$750.5

So if my Maths are correct ......
1. If I don't get assigned, I obviously continue to hold the shares.
2. Rolling has increased my original option 'income' from +$120.9 to +$750.5.
3. If I get assigned my option income is still +$750.5 and my share gain would be ($104 - $100) x 400 = $1,600.

So what's not to like ??? Why am I worried/scared to roll up / out on a covered call ? I did it once already, why should I not do it again ?

...... When I look at the individual P/L's for each BTC/STO trade, they look ugly ..... Closing the first option trade results in a -$800.2 loss. Closing the second option trade results in an increased net loss of -$1,504.4. I just don't like the look of these..... but should I ?

The FINAL result of all this rolling is ..... I have a higher net premium whether or not I get assigned.

Should I be worried about the individual losses for the trades or just ignore them and look at my final result.

I would really appreciate some feed back as I'm just wondering why I don't like this. What am I missing.

Gunnerguy.
(10 months of options trading, 149 trades, and still learning, patience).

Click to expand...

@Gunnerguy - this has been a great read on your evolution to options trading (and success) - thanks for sharing. Curious to know if you're still trading and results considering the big XJO move (1000ish points) over the last 5 months.

I think many people (including myself) like the idea of CCs for extra income but deter from the strategy because of the fear of missing out on the positive momentum in the market. I did decide to write calls over my GMG stock after the huge run it's had after earnings - plus the Implied Volatility (28%) makes the options premium have a bit more meat on the bone. Can't complain with a 2x in just as many years.

Cheers,
VB

VolatilityBlake said:

@Gunnerguy - this has been a great read on your evolution to options trading (and success) - thanks for sharing. Curious to know if you're still trading and results considering the big XJO move (1000ish points) over the last 5 months.

I think many people (including myself) like the idea of CCs for extra income but deter from the strategy because of the fear of missing out on the positive momentum in the market. I did decide to write calls over my GMG stock after the huge run it's had after earnings - plus the Implied Volatility (28%) makes the options premium have a bit more meat on the bone. Can't complain with a 2x in just as many years.

Cheers,
VB

Click to expand...

Yes still trading options. I use ti have about 30 trades open at anyone time, but currently down to only 8 open trades at the moment.

My investment portfolio has a Beta of 0.75 ti the ASX200 so doing well there but options trading a bit thin the last 6 months (moved house last July)

Your post is timely however, as I plan to get back in to the groove a bit more and start some stuff in the US.

Good to hear. Hopefully can revive the Options forums on ASF. Reopen the "reopening of options in OZ". I'll do my best to contribute my movements here too.

I've traded US options for about 5 years, bit of a different game to the OZ market - obviously bigger market and opportunities - just be careful of the premium traps on the volatility over there, easy to get carried away overleveraging (talking from experience ).

Spent more time participating in the OZ Options market recently, mainly the XJO index with decent success. I've found that there's many times where Put / Call skew comes into the market frequently and you can buy (or sell) options at a discount (or premium) if you're patient enough.

Yesterday XJO Call Options were trading at a premium to theoretical value, today after the move up, puts trading at a discount to Theo. with IV so low, it creates a cheap opportunity to buy put premium as a hedge. Does anyone else have success with option pricing arbitrage?

It is easy to trade when the market just goes up - best to be prepared for when (if) we see a retracement.

Good example of the Premium skew in the market today on the XJO. Calls are cheap and Puts are expensive on midpoint vs theoretical price. Yes, this means demand is high for puts and low for calls - but from what I've seen usually an overreaction. Is this arbitrage or just taking advantage of emotional mispricing in the market? Just earlier in the week Calls were overpriced, now the market is discounting them. I hardly ever see skew like this in the US market. I'm sure there's a strategy to come out of this. 

Does anyone else look at this or just me?

VolatilityBlake said:

Good example of the Premium skew in the market today on the XJO. Calls are cheap and Puts are expensive on midpoint vs theoretical price. Yes, this means demand is high for puts and low for calls - but from what I've seen usually an overreaction. Is this arbitrage or just taking advantage of emotional mispricing in the market? Just earlier in the week Calls were overpriced, now the market is discounting them. I hardly ever see skew like this in the US market. I'm sure there's a strategy to come out of this. View attachment 174600

Does anyone else look at this or just me?

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all too complicated for me , but some members are liable to be all ears/eyes for this topic
( and maybe even attract new members to the forum )

VolatilityBlake said:

Good example of the Premium skew in the market today on the XJO. Calls are cheap and Puts are expensive on midpoint vs theoretical price. Yes, this means demand is high for puts and low for calls - but from what I've seen usually an overreaction. Is this arbitrage or just taking advantage of emotional mispricing in the market? Just earlier in the week Calls were overpriced, now the market is discounting them. I hardly ever see skew like this in the US market. I'm sure there's a strategy to come out of this. View attachment 174600

Does anyone else look at this or just me?

Click to expand...

What do you mean calls vs puts, vol skew?

On my phone and on the road, so I can't really see your chain well enough. But if there is a difference in pricing at the same strike and expiry between calls and puts, there is a massive arbitrage opportunity.

I doubt that exists so could you clarify here?

divs4ever said:

all too complicated for me , but some members are liable to be all ears/eyes for this topic
( and maybe even attract new members to the forum )

Click to expand...

The Options forum here seems to be a little less active than some other categories. Surely there's more people trading them here. Always trying to look at ways to move the odds my way, options work well overseas so surely viability here. If it doesn't work out for me, I can always go back to Divs .

wayneL said:

What do you mean calls vs puts, vol skew?

On my phone and on the road, so I can't really see your chain well enough. But if there is a difference in pricing at the same strike and expiry between calls and puts, there is a massive arbitrage opportunity.

I doubt that exists so could you clarify here?

Click to expand...

When you can, take a look at the chain. Essentially the midpoint of the bid / ask is much different to the theoretical value (fair price Black Sholes pricing model).

16 May ATM Calls (7825) fair value (theo) was 105, whereas the midpoint is 100 (bid 95, ask 105)
16 May ATM Puts (7825) theo was 103, midpoint is 107.5 (bid 103, ask 112)

The worst price on the chain was the fair price of the option. Anyone who's bet against the Market makers here know they don't give their best price to the market. I've been able to be filled at or around the midpoint comfortably on the XJO.

My gurus tell me this is market skew. More demand for Puts (hence higher prices) and less for Calls (lower prices) indicates negative market sentiment. Seen it multiple times during volatile days. The bears might be right but seems like an opportunity to gain a couple extra % my way.

VolatilityBlake said:

The Options forum here seems to be a little less active than some other categories. Surely there's more people trading them here. Always trying to look at ways to move the odds my way, options work well overseas so surely viability here. If it doesn't work out for me, I can always go back to Divs .


When you can, take a look at the chain. Essentially the midpoint of the bid / ask is much different to the theoretical value (fair price Black Sholes pricing model).

16 May ATM Calls (7825) fair value (theo) was 105, whereas the midpoint is 100 (bid 95, ask 105)
16 May ATM Puts (7825) theo was 103, midpoint is 107.5 (bid 103, ask 112)

The worst price on the chain was the fair price of the option. Anyone who's bet against the Market makers here know they don't give their best price to the market. I've been able to be filled at or around the midpoint comfortably on the XJO.

My gurus tell me this is market skew. More demand for Puts (hence higher prices) and less for Calls (lower prices) indicates negative market sentiment. Seen it multiple times during volatile days. The bears might be right but seems like an opportunity to gain a couple extra % my way.

Click to expand...

If that is the case, trade as many reversals you can get away with.

Then have a festive dinner with friends a family, lobster, caviar, Dom Perignon the whole shebang

Important information regarding Exchange Traded Options​

15 April 2024






Due to ANZAC day public holiday on Thu, 25 Apr 2024 newly listed weekly options expiry is moved a day ahead to Wed, 24 Apr 2024.
What this means for you
There is no action required from you. However, please note that unlike expected occurrence, the relevant weekly options will expire a day early on a Wednesday.

just in case some members will be affected

VolatilityBlake said:

The Options forum here seems to be a little less active than some other categories. Surely there's more people trading them here.

Click to expand...

I use options in my portfolio, but I don’t really talk about it much here, I hate to encourage bad habits .

Always trying to look at ways to move the odds my way,

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in my opinion the best way to do that is to be a seller rather than a buyer, and Make your decisions from a business like perspective, just the same as if you were picking long term investments, and use Strategy’s that are long term and some what open ended, that take advantage of the Weakness of the black scholes method.

VolatilityBlake said:

The Options forum here seems to be a little less active than some other categories. Surely there's more people trading them here. Always trying to look at ways to move the odds my way, options work well overseas so surely viability here. If it doesn't work out for me, I can always go back to Divs .


When you can, take a look at the chain. Essentially the midpoint of the bid / ask is much different to the theoretical value (fair price Black Sholes pricing model).

16 May ATM Calls (7825) fair value (theo) was 105, whereas the midpoint is 100 (bid 95, ask 105)
16 May ATM Puts (7825) theo was 103, midpoint is 107.5 (bid 103, ask 112)

The worst price on the chain was the fair price of the option. Anyone who's bet against the Market makers here know they don't give their best price to the market. I've been able to be filled at or around the midpoint comfortably on the XJO.

My gurus tell me this is market skew. More demand for Puts (hence higher prices) and less for Calls (lower prices) indicates negative market sentiment. Seen it multiple times during volatile days. The bears might be right but seems like an opportunity to gain a couple extra % my way.

Click to expand...

Quite posible that your theo is not allowing for xjo stocks divs in that time period hence why the atm options are below current market price.

VolatilityBlake said:

Good example of the Premium skew in the market today on the XJO. Calls are cheap and Puts are expensive on midpoint vs theoretical price. Yes, this means demand is high for puts and low for calls - but from what I've seen usually an overreaction. Is this arbitrage or just taking advantage of emotional mispricing in the market? Just earlier in the week Calls were overpriced, now the market is discounting them. I hardly ever see skew like this in the US market. I'm sure there's a strategy to come out of this. View attachment 174600

Does anyone else look at this or just me?

Click to expand...

What platform are you using here?

rolly1 said:

Quite posible that your theo is not allowing for xjo stocks divs in that time period hence why the atm options are below current market price.

Click to expand...

It cant be @rolly1; otherwise, THEO would be out of sync all the time. System is built by the same guys that built 90% of the Options Risk systems that Full-Service advisors use to this day.

It's simply just a case of the market selling off hard on the day I posted (April 11th) Open 7848.5 Low 7752.1; as the market is falling off a cliff, naturally Puts are in further demand causing higher prices and trades can't sell their calls because no one wants them, so they trade lower. You'll see this quite often when IV is high and we see a big move in the market (in our domestic market anyways - too many participants for this to happen in the US).

One of the big advantages in the AUS ETO market is "mispricing" in times of fear, simply because of fewer Market Makers. You just need a real-time THEO calculator to find these opportunities.

I put 'mispricing' in quotations because technically it's not mispriced. Assets are only worth what someone else is willing to pay for them.

When the market is in freefall, and you want to hedge your portfolio with a put option, are you going to fight the market on price, or are you going to get hedged as quickly as possible?

rolly1 said:

What platform are you using here?

Click to expand...

Platform is https://volatility.com.au/

Cheers,
VB