ES OTM Put Option Performance During Flash Crash

[SailorG]

I would like the profit potential of leverage without being wiped out with 1 fluke day in the market....ahhh to dream

 

[JackRab]

So what exposure are we talking about? Give us a rundown of your risk at -5, -10, -20%... in dollar terms...

 

[Sig]

Which broker are you using? And do you have a portfolio margin account?

I'm not sure how that put will be valued if there's no trading and no market in it... if you have a low rated broker they likely will not value the put correctly with the new spot level and you might be screwed anyway.

Also, you might have to roll the option position when ES moves up... and maybe keep it at minimum half a year out... otherwise it might not kick in in time to cover anything.

That rolling will be more costly as well...

Maybe you should be rolling constantly, every week... even when going down. That way your mainly protected for the 10-20% instant drop with a flash crash...

I can tell you IB will value the put based on it's bid/ask even if intrinsic is far higher, so in their case you're right, the put might not keep them from autoliquidating you if the bid/asks go haywire.

 

[JackRab]

I can tell you IB will value the put based on it's bid/ask even if intrinsic is far higher, so in their case you're right, the put might not keep them from autoliquidating you if the bid/asks go haywire.

Yeah that's what I thought... but with a portfolio margin account it should be fine anyway I think. And maybe IB has some discretionary system in place to check for hedges.

What happens in overnight large drops? What if you're fully hedged in FDAX with DAX put options... and the future drops overnight.... The options are not updated since those are closed for trading. Surely they've got some system in place to value the hedge....

 

[Sig]

Yeah that's what I thought... but with a portfolio margin account it should be fine anyway I think. And maybe IB has some discretionary system in place to check for hedges.

What happens in overnight large drops? What if you're fully hedged in FDAX with DAX put options... and the future drops overnight.... The options are not updated since those are closed for trading. Surely they've got some system in place to value the hedge....

I should have specified that was for a regular margin account. I presume you'd be OK with PM, but their calculations with that were so opaque I stopped using it after a day, so I can't be sure.