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Hi Guy
I know absolutely nothing about futures so that makes me a perfect candidate
to explain the intricacies of options trading on futures.
Time dilution is irrelevant for the longer term options and should not be
the basis of a trading decision even on the September options if you only
plan to hold for two weeks, in my humble opinion,. Time dilution is only
important during expiration week. All other times the movement of the
underlying will overwhelm the effects of time dilution.
What are the implied volatility's of the options you are considering? That
could enter into the discussion. Are futures options European or American
style options, i.e.. can they be exercised early and are you prepared for
that? Just curious - why are you selling ITM options? Is it because your
models have you short and you expect them to be out of the money by the time
you close out your position?
Regards
John Manasco
----- Original Message -----
From: "Guy Tann" <grt@xxxxxxxxxxxx>
To: "Metastock User Group" <metastock-list@xxxxxxxxxxxxx>
Sent: Wednesday, August 09, 2000 10:37 PM
Subject: What options to sell?
> List,
>
> OK, we've finally determined that we're going to be in the option writing
> business as opposed to the option buying business. Our primary reasons
for
> this are:
> 1- Time dilution works in our favor.
> 2- Capitalizes on our SP trading system.
>
> I would like to pose the following question assuming that we want to sell
> ITM Calls since we are now short the S&P futures. In looking at the
various
> Calls available, how would I determine which ones to write (or which
others
> not listed and why)?
>
> 1- SXZLO Dec 2000 1475 Calls @ 88.1250
> 2- SXMFT Jun 2001 1500 Calls @ 143.25
> 3- SXZIO Sep 2000 1475 Calls @ 38.00
>
> First, there are a few things that need to be considered. Our trades, on
> average, last for approximately two weeks. They can, at times last a
month
> or two but that would be quite unusual. We would like to maximize the
time
> dilution factor in our favor and at the same time minimize our whatever
> margin we have to maintain. We learned about this the hard way a trade or
> two ago when I sold 10 Sep SPX Calls at 46 and didn't impact my trading
> account at all while my brother sold August Calls and had to put up margin
> of $89,000 for the 10 Calls he wrote.
>
> I guess I better call my Schwab desk to find out what the margin rules are
> for trading the near month (you can tell we're futures traders).
>
> Thanks in advance,
>
> Guy
>
> Never be afraid to try something new. Remember, amateurs built the ark,
> professionals built the Titanic.
>
>
>
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