futures Option`s questions for OYM

B

BlueStreek

What are the main advantages of options on the ym? Is it the fact that you gain increased leverage by only margining about 420 dollars versus 2,500 rounding per contract?

Moreover, if you are buying a put for jan. 07 at 11,800 for 85.....what does the 85 represent besides the market premium.....as it isn`t the strike price premium like stock options....so what does the 85 actually represent in the market...besides 85x(5)=the margin requirement?----Is this how the margin requirement is set in the first place? Whatever price between the bid and ask is negotiated determines this premium/margin requirement.....this doesn`t seem objective....and why 77 for the bid and 87 for the ask......what market conditions are these bid and ask prices being generated/related/based upon?

thanks for the help:) I couldn`t find much useful from the cbot site besides generalities.
 
I would first respectfully suggest that you do a LOT more research on options before you jump in, they are far more complex than they might first appear. For example, option margin is calculated with an algorithm called SPAN (Standard Portfolio Analysis of risk) which takes into account relative Deltas, Vega, etc. in figuing how much margin is needed for a given position, so there isn't really an easy way to do it yourself. For example, selling both a call and a put on the same underlying, typically requires less margin than selling just one or the other, even though it may bring in twice as much premium. Many spreads function the same way, as they often have a more limited risk than outright buys or sells. And the required margin for an option position often changes daily even if the price doesn't, as a function of increasing or decreasing volatility, so that $400 margin could actually become much more without much notice in a weather market or huge market move.

Whenever you are thinking about margin on futues or options on futures, you have to keep in mind that it is really just a performance bond, and that you are actually liable for the entire value of the underlying contracts, REGARDLESS of the margin required. If I am trading a TY 5-lot, I am actually liable for the entire move in $500,000 in notes, whether I put up $100 or $100,000 in margin. The deceptively lower margins in options, especially OTM (out-of-the-money) options, has bankrupted a lot of inexperienced traders.

The main advantage of options is their flexibility. With stocks or indices, you essentially expect them to go up or down and try to profit from that move. With futures, you expect them to go up or down, but there is added complexity based on both the underlying moves as well as future market expectancy and cost of carry (interest rates, storage costs, etc.) With options, you trade all those things, plus both VOLATILITY and TIME. This allows you to construct positions that will profit from far more market scenarios, but also requires you to be AWARE of far more complex market conditions. You can be right about direction of a move and still lost money as a result of passage of time or exploding or rapidly contracting volatility, or you can make money in a market that doesn't move at all for years if you are positioned properly, so they are marvelous tools. You can limit risk by only buying (although very few people do this profitably for any length of time) or you can create synthetic futures positions. And as market conditions change, you can alter your positions to fit. They really aren't very good "buy and hold/ignore" vehicles.

If you are now at the point of learning about basics like premium and volatility, I would get a good basic book on options like MacMillan's and start there. If you like math, stats & probabilities and puzzles, options may be a good fit for you.
Good luck!
Jessie
 
i had the direction right bought 18 more early when the ym was still high thursday morning for 80 sold them for 91......worst trade i ever made......lol.......i had like 20 options....the ym went down 50-60 points in my direction made about 900 bucks....what a waste of my time.....and the fill is the worst.....one guy buying and selling 75 contracts.....now i appreciate the value of daytraders-----we do add considerble value to markets-----anyway.......just better vehicles for your trading than these......absolutely....a waste of time.....you would be better off shorting 3 ym contracts for the same movement in the underlying.....the cat and mouse fill games are pathetically like waiting for paint to dry before putting a second coat of paint on the wall.......but thanks for the info
 
I think you are right, for pure directional trading, there are certainly better vehicles (unless you are looking for a particular defined risk profile). But unless you are a purely directional trader and don't want to venture beyond that, I wouldn't give up on options altogether. As I described, their real value is in flexibility, and unlike directional vehicles, allow you to profit in far more diverse market scenarios. As for liquidity, because there are so many more possible permutations trading options, once you are OTM more than one or two strikes, or are trading back months, it is often limited. There are MMs trading off of sheets in those markets who will make a market, and you will eventually get your trades done, but you need to use limit orders and be prepared to wait and/or miss some fills, it's not a scalpers market unless you are a MM, but there is a lot of money to be made there.
Good Trading!
Jessie
 
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