Futures Options Max Loss

[gaussian]

I just wanted to make sure I am understanding things correctly as it gets confusing with options in futures.

If I wanted to trade a non-standard expiration - say the DEC expiration on /ZC using DEC options - I would have a max loss that is equal to the underlying contract loss at that point since they both expire at the same time right? The reason I ask is the margin requirements are significantly less than my maximum loss (something like 10-15% of max loss!).

 

[tommcginnis]

Is this what you mean??

https://www.cmegroup.com/trading/ag...&sector=AGRICULTURE&exchange=CBT&pageNumber=1

 

[gaussian]

Is this what you mean??

https://www.cmegroup.com/trading/ag...&sector=AGRICULTURE&exchange=CBT&pageNumber=1

hmm, doesn't seem to match my numbers over here. If I try to order up a vertical put spread on /ZNZ19 for DEC 19 - 130.5/130 my maximum loss is 265.63, and my buying power effect is -108.00.

Come to think of it this might be SPAN margining taking effect. I'm used to trading equity options where generally speaking maximum loss and buying power effect tend to be closer to equal.

 

[Wheezooo]

Gaus,
I'm the king of stupid questions, so here goes.

1- Why do you say non-standard expiration? Is this OTC?

2- Options on futures always settle a few days prior to the Futures contract to allow people to get their positions flattened and clean up errors, otherwise all hell would break loose with people taking delivery. So no, fu and opt do not expire simultaneously. It used to be penult back in the day, many products have since moved it to 2-3 days.

3- Yes margin is extremely different, and therefore make sure you are using a FU options model otherwise your i rate function will be totally off. Which at current rates probably is not too big of deal, but well, still a big deal.

You will have two types of margin, initial and maintenance. Initial is pretty tiny and maintenance depends on your p+l, so long as that does not go negative, no maintenance margin. One warning, with commodities, if they become volatile, the exchange tends to raise margin requirements pretty quickly, and could easily double.

I'm not certain I understood, and therefore correctly answered your question, but hope it helps, if not maybe from what you think is missing from my response you can add further clarification and I can try again.

 

[gaussian]

1- Why do you say non-standard expiration? Is this OTC?

Not OTC, I guess for /ZN (what I am looking at right this second) DEC 19 options are "non-standard" since they don't expire on a friday or something. I'm just quoting my broker.

Options on futures always settle a few days prior to the Futures contract to allow people to get their positions flattened and clean up errors, otherwise all hell would break loose with people taking delivery. So no, fu and opt do not expire simultaneously. It used to be penult back in the day, many products have since moved it to 2-3 days.

This makes more sense - maybe the "non-standard" thing is a client error.

You will have two types of margin, initial and maintenance. Initial is pretty tiny and maintenance depends on your p+l, so long as that does not go negative, no maintenance margin. One warning, with commodities, if they become volatile, the exchange tends to raise margin requirements pretty quickly, and could easily double.

Do you still have initial + maintenance with futures options? I know you do if you trade outright but I didn't see any maintenance requirements w.r.t. the option.

 

[Wheezooo]

Do you still have initial + maintenance with futures options?

I might be the worst person to ask this of as:
1- It's been a heck of a long time since I've traded;
2- When I did, everything was cross margined, and meeting margin requirements was never an issue that involved me.

I find it difficult to believe that you wouldn't still have initial and maint, or some form of SPAN, but I'd take this as opinion and value it at near 0. Hopefully someone will provide specificity for you shortly.

"I'm just quoting my broker." - nuff said.

 

[ffs1001]

he reason I ask is the margin requirements are significantly less than my maximum loss

This is exactly why it's called 'margin' - you don't need to have the max loss cash equivalent in your account to open the position.

 

[gaussian]

This is exactly why it's called 'margin' - you don't need to have the max loss cash equivalent in your account to open the position.

Yes I am aware. My experience has always been that trading a vertical for example the broker will require me to post the difference between the legs times the number of contracts (at least). In this case it is significantly less which is why I was confused.

 

[CannonTrading_Ilan]

Not OTC, I guess for /ZN (what I am looking at right this second) DEC 19 options are "non-standard" since they don't expire on a friday or something. I'm just quoting my broker.



This makes more sense - maybe the "non-standard" thing is a client error.




Do you still have initial + maintenance with futures options? I know you do if you trade outright but I didn't see any maintenance requirements w.r.t. the option.

We have an option calculator in our E-Futures platform that will calculate the SPAN margins for diff. options strategies etc.

 

[ffs1001]

My experience has always been that trading a vertical for example the broker will require me to post the difference between the legs times the number of contracts (at least)

Are you sure? That's never the case for me. I'm with IB. Try it with an SPX credit spread for example. On a 10 wide ATM credit put spread on SPX (theoretical max loss $1,000), IB is quoting me margin of around $100.