Basic question for experienced options traders

Thanks for the answers so far.

But can you explain how option exercising happens in practice?

Say I exercise my futures option of strike price $50 when the silver price is $100. What happens?

Do I end up with one $50 futures contract in my trading account? If so, what do I do with this contract? How do I find a buyer for it?

Or will the broker just pay me the difference, i.e. deposit about $250,000 into my account in cash?

Suppose I'm using Interactive Brokers.
 
seems like.. a good idea would be to cost average whatever strategy you employ... no way of telling the bottom. so keep the trades in play for the big fat payout next year... my plan will be to concentrate of Jan 2015. options.
 
Quote from Handle123:

But of course based on Price Action currently that long, medium and short term are pointed south, I think we will see 10.00 before we see 100.00 in next three years.
More...

Nobody asked. If you want to underwrite his position, by all means, continue. Otherwise, stop with the recos.
 
$1,000 For One Ounce of Silver? - Published on Nov 27, 2013

<object width="420" height="315"><param name="movie" value="//www.youtube.com/v/v-19_TWPntM?version=3&amp;hl=en_US&amp;rel=0"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="//www.youtube.com/v/v-19_TWPntM?version=3&amp;hl=en_US&amp;rel=0" type="application/x-shockwave-flash" width="420" height="315" allowscriptaccess="always" allowfullscreen="true"></embed></object>
 
Quote from pgo1970:
----explain how option exercising happens in practice?
----exercise my futures option of strike price $50 when the silver price is $100. What happens?
----Do I end up with one $50 futures contract in my trading account?
----If so, what do I do with this contract?
----How do I find a buyer for it?
----deposit about $250,000 into my account in cash?
----Interactive Brokers.
More...
1) Option buyers "exercise". Option sellers get "exercised" or "assigned". :)
2) Hypothetically speaking, in the event of such a scenario, your option position goes away and is replaced with a long-futures contract at the strike price of $50/ounce. :)
3) Yes. :)
4) You can offset the contract, roll it forward into a deferred month or take delivery of the silver. :cool:
5) You "find a buyer" for the futures the same way you "found a seller" for the call option to you...... in the silver futures market. :(
6) When you offset or roll, ~$250,000 (realized cash equity) would show up in your account. If you take delivery, you'll have "open equity", assuming you get out at $100/ounce. :D
7) If you were to ask these questions at IB, they might not let you do the trade because they can deem you to be too inexperienced. :eek:
 
Quote from pgo1970:

Thanks for the answers so far.

But can you explain how option exercising happens in practice?

Say I exercise my futures option of strike price $50 when the silver price is $100. What happens?

Do I end up with one $50 futures contract in my trading account? If so, what do I do with this contract? How do I find a buyer for it?

Or will the broker just pay me the difference, i.e. deposit about $250,000 into my account in cash?

Suppose I'm using Interactive Brokers.
More...



YOUR option/s will be deeply in the money (ITM), so the delta will be very high, close to 100%. That means you "should" get close to the full $50 per contract ($250,000). This is a very liquid contract. You need not worry about finding a buyer. It is not a penny stock. In worst case scenario, I bet you would still get $225,000 per contract with a crappy, wide bid-ask spread. You can always leave a limit order GTC to get closer to the price you want for several days or weeks if you are not in a hurry to liquidate. Be aware of what the bid-ask spread is; you must give some of your profits up to the market makers. Part of the price you pay to play.

But mind you, sometimes being in a hurry to take profits is good! Sometimes you just need to grab whatever money you can, and run--esp. if the price is dropping quickly. I had silver futures options turn into a fortune and then lose 80% in just a few days once. If only I had grabbed the money, or even half of it, when it was peaking in value. The crash was rapid and devastating. Lesson learned, expensively.

Now, will silver really hit $100? Who knows. But your pay off will be huge if it does. Good luck!
 
Not a bad strategy idea long term, problem is that it doesn't take much from a global, macro perspective to control/manipulate the prec metals market. Unfortunately world governments believe that rewarding the sheeple consumers and punishing the frugal people of the world is the way to go! :( I think the only hope for a free world trading market in everything, is for China/India and pac rim countries to tell the US and the Fed to go fuck themselves and buy gold/silver en masse. That is showing signs as of now, in India gold trades at a +22% prem over spot if your buying bullion.
 
You must log in or register to reply here.
Back
Top