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Call option premiums
- Thread starter spreadem
- Start date
Quote from Foz:
It sounds like you are pretty active in the SPX options and want fills sooner rather than later, Ktm. How do you execute your orders? At the market? Work a limit order? If limit, what price do you use for your limit?
I always use limit orders. The price depends on how fast I want to be filled. With a dollar spread, if I am anxious for a fill, I will sell limit 40 cents less than the ask, less aggressive - about 20 cents inside.
Quote from spreadem:
Why did you sell calls as opposed to buying puts.
For many reasons. The most compelling reason is the buffer zone. I can retain premium with a move in my favor, no move at all, or a move slightly against me. If I want out early, I can generally cover at a profit barring a strong move against me. These conditions are the opposite when buying a put.
SPX puts are also much more expensive than calls for the same movement. The argument to buy calls vs. selling puts is a better one in the SPX, when the VIX is this low and one wants to bet in that direction.
I'm actually (sometimes) putting on spreads - buying the calls about 50pts out to reduce the onerous 10k per contract margin to about 5k minus the prem received.
Monday afternoon ... just before the close : My option is at 2.7
Roughly calculated delta is 0.23 and I got that by dividing change in option price by change in index.
This trade is not a complete hedge but will minimize some of the losses of the underlying index.
A better choice of options would have been one with a higher delta; probably an in the money option.
Roughly calculated delta is 0.23 and I got that by dividing change in option price by change in index.
This trade is not a complete hedge but will minimize some of the losses of the underlying index.
A better choice of options would have been one with a higher delta; probably an in the money option.
Selling calls in a downtrend or selling puts in an uptrend...both make you feel like a genius...its a directional bet however, and should be treated as such...KTM is making this sound like its a no brainer...but lets face facts, selling call premium over the past few months during this 27% rally, which was filled with enuf overnight gaps higher, in a generally declining volatility environment, which did not give you much of a cushion for the premo sales, was not or is not child's play...
Not only that, but you also have to calculate the percentage of vig you are dealing with on spx, oex options...It's not like you pick up alot unless the movement is extreme...I do some of this stuff myself, but in this environment I am not going to be sitting short puts or calls with a potentially large move in the brewing...Overnight risk is still there and once those index options are moving against you, its the roach motel...easy to check in, impossible to check out...
Not only that, but you also have to calculate the percentage of vig you are dealing with on spx, oex options...It's not like you pick up alot unless the movement is extreme...I do some of this stuff myself, but in this environment I am not going to be sitting short puts or calls with a potentially large move in the brewing...Overnight risk is still there and once those index options are moving against you, its the roach motel...easy to check in, impossible to check out...
I'm doing the opposite, selling calls in an uptrend.
It's the Roach Motel if you sit on your hands as your sold contracts dive deeper into the money on the gap. Last I checked, I could pick up some E-minis going my way just about any time of the night. The ES doesn't gap much.
Since the VIX is so low, I am selling much closer to ATM than I would like. That just means more maintenance on moves against me. It is not simple, I would not recommend the strategy to anyone. With the appropriate risk mitigation strategies, this is a low risk and consistently profitable method of trading for me.
I have been doing this for a while.
It's the Roach Motel if you sit on your hands as your sold contracts dive deeper into the money on the gap. Last I checked, I could pick up some E-minis going my way just about any time of the night. The ES doesn't gap much.
Since the VIX is so low, I am selling much closer to ATM than I would like. That just means more maintenance on moves against me. It is not simple, I would not recommend the strategy to anyone. With the appropriate risk mitigation strategies, this is a low risk and consistently profitable method of trading for me.
I have been doing this for a while.
I pay more attention to sentiment than volume. Volume is relative - a high volume event in 2003 does not compare to a high volume event in 2000. I may think something is high volume one day, but 10 days later it looks low volume.
The nature of the volume is also suspect. Was it all buying all day? Were the buyers in the morning sellers in the afternoon, causing high volume? Is the high volume "exhaustion" or just the beginning of a bigger rally with money coming from the sidelines? Was there a catalyst today that won't be effective tomorrow?
These things are too complicated for me to attempt to figure out. The market is too fickle, deceptive and wildly unpredictable.
The nature of the volume is also suspect. Was it all buying all day? Were the buyers in the morning sellers in the afternoon, causing high volume? Is the high volume "exhaustion" or just the beginning of a bigger rally with money coming from the sidelines? Was there a catalyst today that won't be effective tomorrow?
These things are too complicated for me to attempt to figure out. The market is too fickle, deceptive and wildly unpredictable.
I'm finding premium decay, particularly in the Julys, very small right now.