Futures Options - Buy and Hold?

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panaceus

Newbie Q:

I've never traded futures options--does anyone know a good discount broker which will allow me to trade them within an IRA? I want to buy and hold long-dated crude oil calls (e.g. 2010, 2011). I use TOS for equities options, but they don't offer CL options.

Also, I'm finding mixed information on whether margin is required, though it seems like it shouldn't be.

And if anyone thinks this is a terrible idea, feel free to let me know that too.
 
Quote from panaceus:

Newbie Q:

I've never traded futures options--does anyone know a good discount broker which will allow me to trade them within an IRA? I want to buy and hold long-dated crude oil calls (e.g. 2010, 2011). I use TOS for equities options, but they don't offer CL options.

Also, I'm finding mixed information on whether margin is required, though it seems like it shouldn't be.

And if anyone thinks this is a terrible idea, feel free to let me know that too.
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If you're buying calls for, say, Jan 2011, keep in mind that the underlying is not $38. The current contango in crude is the steepest in history, and the Jan 2011 futures are trading around $60 a barrel. So if you buy a $60 call, you're not going to pay far OTM prices, you're going to pay ATM prices. That's if you can find a market in them at all. That's the second problem - I'm not sure that options that far out are liquid enough to even trade.

You might want to look instead at the crude ETF, symbol USO. For one thing, you can trade it in your existing stock account. There are options as far out as Jan 2011, but implied volatilities are awfully high, around 65%. USO is around 29, and you can buy a 40 call for example for about 8. So your breakeven point at expiration would be 48. So you might think about simply buying USO at 29 instead.
 
Thanks a lot, guys.

@dmo: Thanks for your detailed response. I'm making the play based on an estimated floor of $50/b in 2011, so I think I'd be ok paying for the USO options. Is there a reason the price difference between USO and CL options hasn't been arbitraged, though, or am I missing something?

@thegazelle: Very cool. Which guy?
 
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