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the reason you trade the future is because it is liquid, to a certain
extent. You buy the put for protection, because if you bought the call
instead of the spread, you could not get out of the call. I have had a
degree of success in some pits by using a net order. Add the cost of the
future and the cost of the put you want and arrive at a total. Bid that for
the combination. Ira.
cb wrote:
> Mervin Yeung wrote:
> >
> > Hi RTs,
> >
> > I am trying to use options to replace stops. I worry about the
> > liquidity. I know the close is usually the most liquid of the day. I
> > wonder if I use Market on Close Order to buy calls or puts right at the
> > close, is it a good way?
> >
> > Thanks in advance!
> >
> > Mervin
>
> A lot of futures options only trades a few (as in say 5) times per day.
> I would assume not necessarily at the close. (As I understand it,
> placing a market order essentially forces your floor broker to offer
> higher and higher; if nobody at all really wants to sell that option at
> that particular time, you might get a very unpleasant result.)
>
> I would place a limit order based on the previous days settlement. One
> idea would be to place a limit order a couple tics above the settlement
> to be more sure of getting a fill. A refinement would be plug in the
> settlement price and futures price into a spreadsheet, and then at the
> open the next day, plug in that price for the futures price and use the
> new option price as the limit. If you don't have a sprdsheet you could
> accomplish essentially the same thing by looking up the delta of the
> option on the net (for example at, http://216.71.81.240/inewf.htm ), and
> using (futuresopen-close) x delta to get the adjustment for your price.
>
> I have a tiny acct. and have traded some fairly illiquid options. I use
> the settlement price on commodities that dont trade overnight, and i use
> the overnight session close on currencies, metals (and interest
> rates?).
>
> I do forsee a problem using options as stops. Presumably, once you are
> in the futures, you want the option, and would not be happy if you don't
> get a fill; yet this may happen. Maybe the risk of being unprotected,
> would make a market order warrented, but you could incur some
> significant slippage, particularly relative to the price of the option
> (a 20 pt. slippage is probably going to *seem* a lot worse on a 100 pt
> option than it would in the futures).
>
> A futures with a put instead of a stop is a lot like a call. Why not
> just buy a call?
>
> Conrad Bowers
> a relatively new trader who has traded perhaps 30-40 or so options in
> the last 3 yrs., most of them fairly illiquid.
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