Who sells (goes short in) options?
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wayneL
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I know anyone *can* but who does?
If you were to take a cross section of the market right now and look at who's short on every single options on an ASX-listed stock, who would it be?
What percentage of the market for shorts is comprised of mum and dads, I wonder? probably no more than 1-2% I'd imagine... so who do all the rest belong to? CEOs would have a fair few, so too would some banks (but which type of bank??)
If you were to take a cross section of the market right now and look at who's short on every single options on an ASX-listed stock, who would it be?
What percentage of the market for shorts is comprised of mum and dads, I wonder? probably no more than 1-2% I'd imagine... so who do all the rest belong to? CEOs would have a fair few, so too would some banks (but which type of bank??)
I do, there are some neat stuff with options
If you thinks banks isnt a great stock for next 12 months
sell a 12 months LEPO options.
Option is very risky if you dont have a statregy in place
It required margin and if assigned you have obligation to meet.
But if you dont intend to sell then no obligation on your part
Just put up the premium and exercise your right..
If you thinks banks isnt a great stock for next 12 months
sell a 12 months LEPO options.
Option is very risky if you dont have a statregy in place
It required margin and if assigned you have obligation to meet.
But if you dont intend to sell then no obligation on your part
Just put up the premium and exercise your right..
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Why would CEO's be short options?
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First of all let's get the terminology right. "Selling" an option contract does not automatically mean you are short the underlying instrument. Let's take equity ETOs as an example. The seller of a put contract wants the price of the underlying equity to remain above the strike price (hence synthetically long), the seller of a call contract below the strike price (hence synthetically short) to avoid assignment or take a loss.
"Shorting" with options, meaning you expect to profit by a fall in price of the underlying instrument, means either buying (not selling) a put or selling a call.
Corporate execs usually, as part of their compensation package, have company issued (not exchange traded) options that they can exercise at their discretion to purchase company stock at the option price declared by the company at the time. No "shorting" is involved in this transaction.
As to who the individual parties are on each side of an ETO contract, the only entity who would have that information is the OCH and they don't publish that information for obvious reasons around privacy and confidentiality. Shorting using options (and options trading in general) would be done in sheer volume more by institutions than individuals to hedge market risk/exposure. Many individual traders I know mainly sell call options on their shares for extra income or buy puts to limit the downside risk of an existing share portfolio.
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There is many a fool who has lost a lot of their money after going to a wealth creation seminar and learnt the basic concept of options and I think a lot of these fools have been wiped out over the last few weeks.
I thought about not calling them fools but if someone is willing to put their money in the markets on an option trade recommended by an "expert" they deserve what they get.
I thought about not calling them fools but if someone is willing to put their money in the markets on an option trade recommended by an "expert" they deserve what they get.
This doesn't really answer my question, but that's really interesting. Because it explains why (using BHP for an example) the exercise price of calls where $26 and above, but then there'd be these really tiny call prices (literally $0.01 and $1.00)..
thanks for picking that up, my mistake, CEOs wouldn't hold short positions unless they lack confidence in their own ability
Incidentally.. I wonder how that would change CEOs attitudes to risk taking if they did hold short positions??!
I should have worded my question more precisely as: "who holds short ETO options positions??" or even more simply... "who has to pay me if my long put/call positions finish in the money?"
the reason I ask is because if I go long, take a huge win, and go to collect, I want to know that who ever was on the other side of the contract is able to pay!! I don't want to enter any contracts with fly-by-nighters or institutions that could go bankrupt and therefore not have to pay.... is this a legitimate concern?
the reason I ask is because if I go long, take a huge win, and go to collect, I want to know that who ever was on the other side of the contract is able to pay!! I don't want to enter any contracts with fly-by-nighters or institutions that could go bankrupt and therefore not have to pay.... is this a legitimate concern?
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It's only a legitimate concern if you believe that the ASX and OCH could ever be in a situation where they become insolvent institutions (in the case of ETOs) and counter parties can't settle obligations (a black swan catastrophy scenario). Margin requirements exist for good reason, a tangible demonstration that you can meet your obligations. Only a market wide collapse would see a default on options contracts since buyers and sellers are not immediately paired in an options contract. Who ends up on the other side of the contract is of no concern to you, the integrity and financial strength of the institutions providing the market is.
.. does this mean that it's actually the ASX who give me my money if I finish in the money (not the person on the other side of the contract)?
say the other party defaults (say it was just a mum&dad investor like me), and he can't pay, does the ASX still pay me?
Thanks for letting me know that the ASX would only have trouble paying me if it became insolvent - is this the only circumstance that it wouldn't have to cough up? i.e. are there little clauses in the terms and conditions that I should be wary of that could mean they don't have to pay up? (I might be relatively new to options trading but I've been around long enough to know that a financial institutions won't pay up unless it absolutely has to
)Ironic is the word that comes to mind when i see headings like this on stock forums after a >10% correction :dunno: . opportunity knocks sometimes but in this case hes way down the road
I'm not as short-sighted as I may seem - I'm a beginner and I know it, which is a 100 times smarter than a beginner who doesn't know it. I'm just looking to gain some understanding from ppl that've been there done that.. Personally I'm looking to get into options trading (long only) over the next 12-18 months. It's very unlikely I'll make any non-paper transactions any earlier than 2013
I've noticed a couple of opportunities (in hindsight, one was very naive - and would have finished out of the money - 100% loss)... but I was never able to execute actual transactions for lack of full knowledge of the market and an actual options trading account
Anyone who wants to take advantage of the time decay associated with selling options. If this sounds like Greek (or more specifically theta), Google selling options and I'm sure that you will find numerous articles about this characteristic that sellers are exploiting. Sellers and buyers are both trying to take advantage of various option characteristics against a background of their view of the market.
wayneL
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What FX said, plus you have maintenance margin ensuring there are sufficient fund to cover losses.
Also bear in mind that probably the vast majority of options are either covered by stock, cash, or as part of a spread.
For instance a vertical spread - one leg my suffer a huge loss while the other has a slightly huger gain. This all results in an intricate web of positions most of which are covered in one way or another.
Another factor is the principle of novation where these positions are pooled. Your counterparty is not directly tied to your position. Your "ipso facto" counterparty is ACH
Margin and ACH will cover any eventualities. In the event that it can't, I would say that would be the least of your worries.
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[ ] you are going to make so much buying (long only) options that you have to worry about counterparty risk
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I'm nitpicking here and you won't like it, but to prevent confusion for future readers
Selling the put isn't a synthetic long - you are long delta's yes, but the synthetic is long call + short put
Vice versa for the synthetic short.
wayneL
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I'm wondering if there is a slight misunderstanding of the meaning of "synthetic" there.
