Trading XJO

[mattbrad]

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?

 

[cutz]

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.

 

[jono1887]

How many ways are there to trade the XJO?

 

[skyQuake]

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

 

[mattbrad]

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?

 

[cutz]

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.

 

[jono1887]

what does it mean when a call is naked?

 

[mattbrad]

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?

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.

 

[cutz]

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.

 

[Grinder]

Cutz, you sound like me a year ago.

 

[cutz]

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.

 

[Fox]

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.

 

[cutz]

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.

 

[cutz]

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.

 

[Fox]

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.

 

[cutz]

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.

 

[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.

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.

 

[jono1887]

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??

 

[mazzatelli]

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.

 

[Joules MM1]

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