If you knew when the next major down move will be

[R. Raskolnikov]

ElCubano has seniority

 

[El Guapo]

Quote from achilles28:
Deep out of the money put options on index futures.

Quote from Pa(b)st Prime:
If you know then you want to maximize, eh? Far OTM index puts. Clearly.

Ok, thanks guys; Deep OTM Puts it is.

So, how deep and how far? That is, what strike/month? Again, looking to maximize the gain. Yep, I'm an option newb!

muchos gracias

 

[Ivanovich]

Just out of curiousity, how can you ask for such specific information when your whole thread is based on the unspecific timeframe of said unknown event?

 

[El Guapo]

Great question! I'll try to frame my question it better; Let say I believe the market will fall on on the 4/27, so I want to build my postion during the week of the 20th, for example. As an option newb, which month will I be looking to buy the puts? May/Jun/Jul/Aug/ Thats the how far part, as far as the deep part, whats considered deep? 10-20-40 pts away from the current? Again, forgive my option newb-ness.

Quote from Ivanovich:

Just out of curiousity, how can you ask for such specific information when your whole thread is based on the unspecific timeframe of said unknown event?

 

[Susannah]

How big do you think the move will be? That will in part determine how far OTM you want to go. You usually want to buy as close to the event date as possible for the biggest percentage move in the option.

 

[milktruck]

don't forget to fund your puts by selling deep in the money calls!

 

[PAPA ROACH]

Quote from milktruck:

don't forget to fund your puts by selling deep in the money calls!

That makes your delta go to high, might as well just get short the underlying for less commissions.

 

[Clubber Lang]

Quote from El Guapo:

Alright look, no tinfoil hat here, just sayin', if you knew the exact date of the next MAJOR down move, and I'm talking precisely the date, what position would you put on the day prior?

Kind Regards,
El Guapo

 

[El Guapo]

Many thanks!

Quote from Susannah:

How big do you think the move will be? That will in part determine how far OTM you want to go. You usually want to buy as close to the event date as possible for the biggest percentage move in the option.

 

[4444CJones4444]

Quote from El Guapo:

Ok, thanks guys; Deep OTM Puts it is.

So, how deep and how far? That is, what strike/month? Again, looking to maximize the gain. Yep, I'm an option newb!

muchos gracias

You need to analyze it. If you are certain of the date the market will drop you will want to purchase DOTM puts that expire in the front month.

For instance, if you bought a thousand APR 730 puts for $140K earlier today and the S&P dropped to 710 tomorrow in a dramatic sell-off, you would make over $3 million in one day ($140K worth of the 680 puts would make you over $5 million).

Since those puts expire in 8 days (5 trading days), there is very little margin for error. You could buy the puts one month out and a little closer to the money to reduce your risk, and of course, your profit potential.

But like some others have mentioned, if you purchased 3500 put contracts at the 680 strike a day before the S&P tanks 115 points, consider yourself under investigation.