Does anyone trade options via spread betting firms?

[nxt7]

I was wondering if someone can verify whether I got my equations right because spread bet options seem to be rather different to normal american style options:

Premium required for Buying an Option regardless whether its a Call or Put=

latest quoted ask price x trade size

Profit/Loss if an Option is bought regardless whether its a Call or Put =

(latest quoted sell price - ask price bought at) x trade size

Premium required for Buying an Option regardless whether its a Call or Put =

latest underlying instrument price x margin factor x trade size

Profit/Loss if an Option is shorted regardless whether its a Call or Put=

(sell price bought at - latest quoted ask price) x trade size

What really confuses me is the Profit/Loss for selling options. It should be the premium received but apparently you have to sell to close the option at the latest quoted sell price to profit.

 

[cvds16]

I don't know anything about spread bet options but it seems you are confusing things ...

 

[Martinghoul]

You got it a little wrong...

The 2nd time you mention "Premium required for Buying an Option" (third item on the list), it sounds wrong. The first item on your list is the correct answer to this.

As to the last question you ask, you are very confused indeed. Why would you expect that the PNL when selling options should be premium received? After all your position is marked-to-mkt, like everyone else's. Specifically, mark-to-bid for longs and mark-to-offer for shorts.

 

[nxt7]

You got it a little wrong...

The 2nd time you mention "Premium required for Buying an Option" (third item on the list), it sounds wrong. The first item on your list is the correct answer to this.

As to the last question you ask, you are very confused indeed. Why would you expect that the PNL when selling options should be premium received? After all your position is marked-to-mkt, like everyone else's. Specifically, mark-to-bid for longs and mark-to-offer for shorts.

I dont understand the last bit. I thought a premium is received upon immediately selling an option?

 

[cvds16]

you don't 'get' the premium untill it's expired worthless

 

[Martinghoul]

I dont understand the last bit. I thought a premium is received upon immediately selling an option?

Yes, you receive the premium, but, in exchange, you get a position. Cash flow and PNL are two very different concepts. Think about it a bit and you'll figure it out, I'm sure.

 

[nxt7]

you don't 'get' the premium untill it's expired worthless

What if the option is closed in the money before expiry? Do you still get the full premium?

 

[cvds16]

off course not, you need a book on basic options clearly ...

 

[Martinghoul]

What if the option is closed in the money before expiry? Do you still get the full premium?

Your PNL here is always going to be premium received less the cost of closing the position. And yes, you should read a book.

 

[cvds16]

your profit or your loss will be the premium received minus what you payed for buying it back ... that can be much more than the premium received ... that's how people go broke selling options if they don't know what they are doing ...