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XJO Options

Discussion in 'Derivatives' started by greasy_pancakes, Aug 3, 2015.

  1. greasy_pancakes

    greasy_pancakes

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    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 :)
     
  2. cynic

    cynic

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    Two questions:

    OTM or ITM ?

    Call or put?
     
  3. greasy_pancakes

    greasy_pancakes

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    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.
     
  4. cynic

    cynic

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    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.
     
  5. greasy_pancakes

    greasy_pancakes

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    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!
     
  6. cutz

    cutz

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

    cynic

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    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.
     
  8. boliu

    boliu colourbank

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    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?
     
  9. hhse

    hhse

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    * 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.
     
  10. hhse

    hhse

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

    wayneL Rotaredom

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    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.
     
  12. Siddhartha

    Siddhartha

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    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.
     
  13. minwa

    minwa

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    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.
     
  14. Virge666

    Virge666

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    So very true.
     
  15. cutz

    cutz

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    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% .
     
    Last edited: May 17, 2017
  16. cutz

    cutz

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    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 %
     
  17. minwa

    minwa

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