XJO Options

[dead trader]

Hey everyone,

I am thinking of selling to open an options trade on the XJO to collect premium.

Any thoughts as to the mechanics of the actual trade?

Open to any accusations of insanity

 

[cynic]

Hey everyone,

I am thinking of selling to open an options trade on the XJO to collect premium.

Any thoughts as to the mechanics of the actual trade?

Open to any accusations of insanity

Two questions:

OTM or ITM ?

Call or put?

 

[dead trader]

Was thinking of selling calls that are ITM... Where the strike is below the current index value. Selling calls due to my bearish outlook. I believe we have begun a bear phase.

 

[cynic]

Was thinking of selling calls that are ITM... Where the strike is below the current index value. Selling calls due to my bearish outlook. I believe we have begun a bear phase.

That's great. I can appreciate your logic.

Another factor that one might need to consider is the likelihood of increases in implied volatility during market downturns.

 

[dead trader]

Hehe do I detect some sarcasm? I can be a little bit repetitive as I like to communicate with clarity. I like your username by the way!

 

[cutz]

Was thinking of selling calls that are ITM... Where the strike is below the current index value. Selling calls due to my bearish outlook. I believe we have begun a bear phase.

Me personally would consider naked calls a little risky.... Unless it forms part of a wider strategy.

 

[cynic]

Hehe do I detect some sarcasm? I can be a little bit repetitive as I like to communicate with clarity. I like your username by the way!

I often come across that way, but on this occasion I can assure you that it was unintentional.

I simply wanted to highlight implied volatility as it can seriously impact the strategy you're contemplating.

Some traders use option spread strategies to mitigate such risks.

 

[boliu]

Hey everyone,

I am thinking of selling to open an options trade on the XJO to collect premium.

Any thoughts as to the mechanics of the actual trade?

Open to any accusations of insanity

I am looking for trading XJO as well, but i have not found a good broker yet, one of reason is exchange rate,
XJO only has monthly option contract, i used to trade weekly contract. i have look at Etrade, NAB, comsec.
Any one has advice for good trading platform?

 

[hhse]

Hey everyone,

I am thinking of selling to open an options trade on the XJO to collect premium.

Any thoughts as to the mechanics of the actual trade?

Open to any accusations of insanity

* Bring up delta data - will give you a proxy for probability of success - 1 standard deviation (68% probabilility of success is good guide).
* Don't wait till expiration, close out between 40-50% of max profit
* Vol generally only expands when market goes down, so less of a concern when selling calls.
* Sell on Up days (if you are selling calls).
* Sell when vol is high
* If you are game, sell a strangle (close at 40-50% Or straddle (close at 20-25%) - takes about 20 days - a lot earlier if vol contracts.

 

[hhse]

- I was referencing about 45 days to expiration
- And I was talking about high implied vol. o_o

 

[wayneL]

Selling in the money you are increasing your delta and reducing extrinsic value and gamma. Depending how much ITM you were thinking, it might be more efficient just shorting futures. It will hurt as much if you are wrong, but if you're right the upside is limited.

You said you wanted premium collection, so ITM calls aren't the ideal thing, too much delta exposure in the first instance.

 

[Siddhartha]

Selling premiums with OTM options is without doubt is one of the most profitable strategies as more than 80% of the options expire worthless. The caveat is understanding the risk and how do you manage that in case of an adverse market move. I haven't seen any Australian brokerage platform that gives the traders all the tools to make such informed decisions, happy to be proven wrong. One challenge is there though, in case of naked PUT or CALL selling for collecting premium, there are no easily usable tools to know your margin requirement. ASX website has a SPAN margin calculator, but that's really one of the most crude I have seen and also the brokers have different margin requirements, this makes it extremely hard to size your positions based on the available capital.

 

[minwa]

Selling premiums with OTM options is without doubt is one of the most profitable strategies as more than 80% of the options expire worthless.

Commonly thrown around myth. As price moves, the more OTM strikes it goes for calls or puts is balanced out in the opposite direction by it's opposing call or put going ITM.

80% is mathematically impossible, unless the market is into giving you ITM options at expiry for free.

 

[Virge666]

Commonly thrown around myth. As price moves, the more OTM strikes it goes for calls or puts is balanced out in the opposite direction by it's opposing call or put going ITM.

80% is mathematically impossible, unless the market is into giving you ITM options at expiry for free.

So very true.

 

[cutz]

Commonly thrown around myth. As price moves, the more OTM strikes it goes for calls or puts is balanced out in the opposite direction by it's opposing call or put going ITM.

80% is mathematically impossible, unless the market is into giving you ITM options at expiry for free.

Playing with Iress data today as of 2000hrs EST.

May XJO's expiring tomorrow.

Total XJO May18th expiry open interest is 161192.
Total contracts "In The Money" based on today's close ; 22164 = 14 % .
Total contracts "Out Of The Money" based on today's close ; 139028 = 86% .

 

[cutz]

Final results ; XJO Options - May18th expiry.

Total XJO May18th expiry open interest is 159923 contracts.
Total contracts "In The Money" based on today's index opening price ; 30928 = 19 % .
Total contracts "Out Of The Money" based on today's index opening price ; 128995 = 81 %

 

[minwa]

Open interest dosn't show the whole picture.

According to The Chicago Board Options Exchange (CBOE) here are the facts:

● Approximately 10% of options are exercised (The trader takes advantage of their right to buy or sell the stock)

● Around 55%-60% of option positions are closed prior to expiration.

● Approximately 30%-35% of options expire worthless


https://www.equities.com/news/why-the-myth-that-90-of-all-options-expire-worthless-is-100-wrong