SPI 200 and Futures Options

[mazzatelli]

The call premium will be a drop in the ocean, no help if you get hit with a vega bomb.

Don't you mean jagerbomb?
I'd seriously hit that after the strike has been breached
Must be Friday - I'll attribute the stupidity to alcohol

 

[cutz]

There is no loss if I'm short puts @3500 and then sell futures @ 3500.
If the market drops I'm fully hedged if it rises I get out of my hedge.
I cant see the loss.

But before you said the market traded through you, now you're saying you hedged at strike by selling 15 deltas to hedge long 7.5 deltas.

 

[wayneL]

That is correct...as long as i sit on the position I am in control of everything.
It has happened once in 8 years.

Anyone trading futs know that ain't the case. Theta is your friend ATM but you've got 10 futures deltas and if it starts chopping you about those losses can mount up scarily quickly.

Real traders know this.

 

[wayneL]

Don't you mean jagerbomb?
I'd seriously hit that after the strike has been breached

...and lots of them Mazza

 

[Pit Trader]

But before you said the market traded through you, now you're saying you hedged at strike by selling 15 deltas to hedge long 7.5 deltas.

What I said was when the market got to my strike I hedged in the futures.
I was 15 short puts so I sold 15 futures when the market hit 3500.
It then traded below my stike so I was fully hedged.

 

[Pit Trader]

Anyone trading futs know that ain't the case. Theta is your friend ATM but you've got 10 futures deltas and if it starts chopping you about those losses can mount up scarily quickly.

Real traders know this.

There is obviously the risk of losses if you get chopped in and out.
But thats the risk I take...Losses are part of the game.
You may not like or agree with my style/method but it works for me,
I know others who trade options this way.
And yes they are real traders.

 

[mazzatelli]

What I said was when the market got to my strike I hedged in the futures.
I was 15 short puts so I sold 15 futures when the market hit 3500.
It then traded below my strike so I was fully hedged.

You'd only be fully hedged if the delta of the options was ~1 - i.e. for every 1 unit move in spot, the option value changes by 1 unit

You have clearly stated that you hedged with 15 futures at 3500 - which is only ATM with plenty of time left to expiration. Pity that the delta at this point is ~0.5 - meaning for every 1 unit move in the underlying, the option value only moves by half.

Not only that - but you are carrying unrealized losses on the short put
In effect you have over-hedged - not fully hedged [short delta bias], and having shorted so far otm - at this point a reversal is highly likely -> more losses

EDIT: WayneL and cutz have already discussed this in earlier posts.

 

[Pit Trader]

You'd only be fully hedged if the delta of the options was ~1 - i.e. for every 1 unit move in spot, the option value changes by 1 unit

You have clearly stated that you hedged with 15 futures at 3500 - which is only ATM with plenty of time left to expiration. Pity that the delta at this point is ~0.5 - meaning for every 1 unit move in the underlying, the option value only moves by half.

Not only that - but you are carrying unrealized losses on the short put
In effect you have over-hedged - not fully hedged [short delta bias], and having shorted so far otm - at this point a reversal is highly likely -> more losses

EDIT: WayneL and cutz have already discussed this in earlier posts.

If I am short 15 puts @ 3500 then when the market trades there I sell the underlying 15 times I'm fully hedged.If the market trades lower i keep my hedge if the market rises I dump my hedge.It can get difficult if it chops around 3500 but this is my method of protection.It works for me I have done it once,its not ideal but it protects me from big losses.

 

[mazzatelli]

You'd only be fully hedged if the delta of the options was ~1 - i.e. for every 1 unit move in spot, the option value changes by 1 unit

ugh sat mornings...I'm thinking of delta neutrality - not replication here
Position is short atm straddle when deltas are neutralized - far from a lock/perfect hedge

@Pit
It's not protection, you have switched it from a long bet-> short bet
No different to liquidating the short put, then shorting the call
But that's your method..each to their own

 

[Pit Trader]

ugh sat mornings...I'm thinking of delta neutrality - not replication here
Position is short atm straddle when deltas are neutralized - far from a lock/perfect hedge

@Pit
It's not protection, you have switched it to from a long bet-> short bet
No different to liquidating the short put, then shorting the call
But that's your method..each to their own

It's not perfect...nothing is perfect... but it limits any huge losses if I
actively monitor it.
Realize this deep,deep otm options very,very rarely get hit.The key is to fund
the margin and then act to hedge if it comes to that so you don't get wiped out.

 

[Pit Trader]

ugh sat mornings...I'm thinking of delta neutrality - not replication here
Position is short atm straddle when deltas are neutralized - far from a lock/perfect hedge

@Pit
It's not protection, you have switched it from a long bet-> short bet
No different to liquidating the short put, then shorting the call
But that's your method..each to their own

It is protection when the market trades at my strike I'm effectively long 15 lots @3500 then if I go short the physical @3500 my only isuue is if it trades back above 3500.

 

[mazzatelli]

It is protection when the market trades at my strike I'm effectively long 15 lots @3500 then if I go short the physical @3500 my only isuue is if it trades back above 3500.

For the last time, for the sake of others who read these posts, you are not effectively long 15 lots at 3500, only 7.5 lots due to atm delta.

 

[Pit Trader]

For the last time, for the sake of others who read these posts, you are not effectively long 15 lots at 3500, only 7.5 lots due to atm delta.

So If I sell @3500 15 times the futures market and the market never goes above this level before expiry what will be the result of the trade.My premium collected at time of execution is 20 points.??

 

[cutz]

So If I sell @3500 15 times the futures market and the market never goes above this level before expiry what will be the result of the trade.My premium collected at time of execution is 20 points.??

Are you sure you're a year 8 option trader and not having a lend ??

Rule of thumb number one, option delta ATM is ~ 0.5, it's been mentioned several times but you keep banging on about selling 15 lots of futures to get flat.

 

[Pit Trader]

Are you sure you're a year 8 option trader and not having a lend ??

Rule of thumb number one, option delta ATM is ~ 0.5, it's been mentioned several times but you keep banging on about selling 15 lots of futures to get flat.

Please answer the question without more questions ??

 

[cutz]

Please answer the question without more questions ??

I think you missing the point Pit Trader.

But to answer your question you are net short ~ 7.5 deltas, mazza already said that.

 

[Pit Trader]

I think you missing the point Pit Trader.

But to answer your question you are net short ~ 7.5 deltas, mazza already said that.

No the correct answer is my position would expire and I would collect the premium.

I understand your view but I dont use models calculating Delta,impl.
vol.and the like.This is my method and it works... it makes money.You guys use models and graphs ect. that's fine each to his own.

 

[wayneL]

So If I sell @3500 15 times the futures market and the market never goes above this level before expiry what will be the result of the trade.My premium collected at time of execution is 20 points.??

That is only one scenario from numerous possibilities.

 

[Pit Trader]

That is only one scenario from numerous possibilities.

That is correct...very accurate response.
But I can control the possibilities by monitoring my position.
As stated it very,very rarely happens.

 

[wayneL]

That is correct...very accurate response.
But I can control the possibilities by monitoring my position.
As stated it very,very rarely happens.

Are you familiar with the phrase "picking up pennies in front of steam rollers"?

Don't get me wrong I don't have a problem with the premise of the trade, it's the hedging strategy and margin implications that we all think will blow you up one day.

Also don't get us wrong, I don't anyone gives a rats about you and your capital, but in a discussion on a public forum, there are lurkers watching and listening. The discussion and criticism is for the benefit of all.