covered call options on es futures at expiration question

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newguy05

Hi, with today's rally my es covered april call option contracts are now ITM as expected. Can i just leave it alone and let my es futures get called away at expiration?

Is there any disadvantage of letting the underlying getting called away vs closing out everything on the last day for options on es futures? I know for normal equity options i just let it go.

I use interactive brokers if that matters.

Thanks
 
Of course I have a similiar situation with my ITM call leg of my short straddle. In my case, I placed a buy stop above the current market to cover the ITM call. If the stop is hit, I will lock in a profit, assuming the ES futures don't drop like a rock on expiration Friday. If the stop isn't hit by Friday PM, then I will simply cover the ITM with a market order at the close of expiration Friday. I think that I would only do this with one to two days left until expiration.

Your situation is similiar. You might want to close out your long call, since there is some time value left. Depending on how far the ITM short call is, you can cover with an ES futures like I proposed above. If you feel that the short ITM call will finish OTM, then leave it alone. After careful study, I wouldn't close out the short call in the options market, for the liquidity and the spread will cause you to lose more money. Also, I wouldn't accept assignment--more expensive with commission and the risk of contrary movement before you get a chance to exit the ES futures.

You didn't mention how far ITM the short call is. Also, you didn't mention the number of stirkes between your calls. Again, if the market is close to the strike and the long call is OTM, I would close it out in the options market to recapture some time value. Then I would just cover the short call at the close of expiration Friday. If the market is close to the long call strike, I would still close out the long call and place a buy stop to cover. You need to do an analysis to determine where you want your buy stop. If all of the calls are ITM, I would probably allow assignment AND exercise.

I will post my results this Saturday, afer expiration Frday, for the short straddle. I hope you post your results as well for comparison.
 
My only position left is
-6x ESM8 futures (long)
-6x APR 1340 call (short)

This was a left over from my iron condor(which is fully closed already) hedge, to make a long story short just wondering should i

1) close out both positions on friday (sell the futures, cover the 1340 call)

or

2) dont do anything, and let the call get exercised and the futures called away.

This is my first time doing this for options on futures, so not sure if there are any issues of letting my covered call get exercised vs close it out before expiration.

thanks
 
Quote from newguy05:

My only position left is
-6x ESM8 futures (long)
-6x APR 1340 call (short)

This was a left over from my iron condor(which is fully closed already) hedge, to make a long story short just wondering should i

1) close out both positions on friday (sell the futures, cover the 1340 call)

AS I MENTIONED ABOVE, BECAUSE OF THE LACK OF LIQUITY WITH DEEP ITM FOP'S, THE SPREAD IS 3 POINTS AS OF 10:00 AM FRIDAY. SO, I WOULDN'T CLOSE OUT THIS POSITION IN THE PERSPECTIVE MARKETS.

or

2) dont do anything, and let the call get exercised and the futures called away.

THIS IS WHAT I WOULD DO, AND I AM DOING IT. MY BUY STOP WAS HIT YESTERDAY, SO I AM COVERED FOR EXPIRATION. I WILL ALLOW MYSELF TO BE ASSIGNED AND THE ASSIGNMENT WILL OFFSET MY LONG ES POSITION.

This is my first time doing this for options on futures, so not sure if there are any issues of letting my covered call get exercised vs close it out before expiration.

I WASN'T SURE EITHER, BUT I WAS INTERESTED IN LOCKING IN A DECENT PROFIT INSTEAD OF TAKING A CHANCE THAT THE MARKET WOULD SHOOT UP TODAY--AND I AM GLAD I WASN'T A PIG, FOR THE MARKET WAS UP 16 POINTS WHEN I GOT UP THIS AM.

thanks
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Quote from jwcapital:

AS I MENTIONED ABOVE, BECAUSE OF THE LACK OF LIQUITY WITH DEEP ITM FOP'S, THE SPREAD IS 3 POINTS AS OF 10:00 AM FRIDAY. SO, I WOULDN'T CLOSE OUT THIS POSITION IN THE PERSPECTIVE MARKETS.
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Hi i saw this too, but i think there are a lot of tricks behind the scene that is ocurring. This is what happened today:

1) My 1340C this morning had BID:49.50 ASK:54.00 when the underlying was hovering around 1389.50

2) I thought what the hell, give it a try, put a limit buy to cover order for 1340C at 49.75

3) AND IT WAS FILLED WITHIN 1 SEC!! that's right bid=49.5 ask=54, my limit=49.75 buy order for 6 contracts, and it was FILLED IN 1 SEC!

4) I then immediately closed out the underlying ESM8 as this is purely a hedge and am not interested in taking on any additional risk. Underlying was filled at 1389.

So my total slippage was: 1389-1340=49, 49-49.75= -0.75, 0.75 x 6contracts = 4.5

please let me know how your expiration goes with IB.
 
There was no time value left on the 1340 call today. The market is spread around parity in the option otherwise there would be no incentive for the market makers to trade with you.
 
Quote from newguy05:

Hi i saw this too, but i think there are a lot of tricks behind the scene that is ocurring. This is what happened today:

1) My 1340C this morning had BID:49.50 ASK:54.00 when the underlying was hovering around 1389.50

2) I thought what the hell, give it a try, put a limit buy to cover order for 1340C at 49.75

3) AND IT WAS FILLED WITHIN 1 SEC!! that's right bid=49.5 ask=54, my limit=49.75 buy order for 6 contracts, and it was FILLED IN 1 SEC!

4) I then immediately closed out the underlying ESM8 as this is purely a hedge and am not interested in taking on any additional risk. Underlying was filled at 1389.

So my total slippage was: 1389-1340=49, 49-49.75= -0.75, 0.75 x 6contracts = 4.5

please let me know how your expiration goes with IB.

FYI, I DO NOT USE IB. I USE GLOBAL/RCG WITH GIVE-UP TO JP MORGAN TT. THE RAN PLATFORM FOR TRADING FOP'S, IN MY OPINION, IS NOT AS GOOD AS TWS. IT IS SLOW. I DON'T KNOW IF YOU WERE LUCKY, OR SOMEONE ACTUALLY SOLD IT TO YOU. ONE THING, IB IS A MARKET-MAKER, AND IN MY EXPERIENCE, IB WILL STEP IN AND MAKE THE TRADE WITH ONE OF THEIR CUSTOMERS IF IT IS CLOSE TO THE BID (OR ASK). SINCE THE TWS IS FASTER, YOU CAN QUICKLY CANCEL THE LIMIT ORDER IF IT IS NOT FILLED IMMEDIATELY. THE RAN IS NOT SO FAST. WITH THE SHORT STRADDLE, IF ONE LEG REALLY TAKES OFF, AND MY MENTAL STOP LIMIT IS REACHED, I WANT TO EXIT BOTH LEGS QUICKLY. IF THE STOP IS REACHED AT ANY TIME BEFORE THE THURSDAY AND FRIDAY BEFORE EXPIRATION, I WILL NEED TO EXIT THE TRADE IN THE OPTIONS MARKET. PLACING A LIMIT TRADE AND HOPING FOR EXECUTION WILL TAKE TIME; IN THE MEANTIME, I FEAR THAT SLIPPAGE OR THE SPREAD WILL KILL ME. I AM SURE THAT ONE DAY I WILL NEED TO EXIT THE SHORT STRADDLE IN THE OPTIONS MARKET. IF I CAN'T GET OUT IN A REASONABLE FASHION, THEN I WILL PROBABLY START LOOKING FOR A NEW BROKER. GLOBAL IS AT LEAST NINE MONTHS AWAY FROM USING THE CQG PLATFORM--WHICH IS A DECENT PLATFORM FOR FOP TRADING.
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