Minimum and SPAN margins for options selling

[Dael]

Quote from increasenow:
see Dael...how did this guy get so low margin?

This is because of 2 main reasons.

1. NYMEX and/or CME substantially rised margin requirements for Light Sweet after Libyan intervention. So right after that the same strangle mentioned in your example cost not $1,000 but nearly $3,000 of margin.

2. When you make a strangle or iron condor (with both sides i.e. calls and puts involved) the total margin would be less or at least equal then the one naked short option. This is because of some kind of insurance (price couldn't get to both call and put at the same time, so opposite side will be in profit anyway). This is SPAN margin in essence.

Look at attached picture. I've made 0.57-0.39 + 0.38-0.22 = $340 of premium with $900 margin required. Just an example.

 

[increasenow]

Quote from Dael:

2. When you make a strangle or iron condor (with both sides i.e. calls and puts involved) the total margin would be less or at least equal then the one naked short option. This is because of some kind of insurance (price couldn't get to both call and put at the same time, so opposite side will be in profit anyway). This is SPAN margin in essence.

Look at attached picture. I've made 0.57-0.39 + 0.38-0.22 = $340 of premium with $900 margin required. Just an example.

thanks Dael...is this example here with current quoates and SPAN margin or from a long time ago?...if current, this seems to be the route to go...banking $340 premium with only $900 margin required...both expire on 7/15, this week?

 

[Dael]

Quote from increasenow:

thanks Dael...is this example here with current quoates and SPAN margin or from a long time ago?...if current, this seems to be the route to go...banking $340 premium with only $900 margin required...both expire on 7/15, this week?

Actually you have a misconception on options selling.
Why would the other side (option buyer) give you a $300 premium for just a week holding of wide (i.e. 100% guarantee of not touching the strike) options? Just why?

In example posted above I've got SEP 11 options (as you may see in the lines) which will expire after 66 days (as you may see in first column).

Closer to expiration options have less premium. Here's another example. Short strangles of 115 call and 75put on JUL and AUG options, both opene at one time.

JUL strangle got 0.14+0.17 = $310 premium for $1,400 magin at this moment.
AUG got 0.54+0.55 = $1,090 for $2,400 margin.

 

[heech]

Quote from increasenow:

For real example...what would the SPAN margin be per 1 contract of the following futures options (both are naked)...

sell naked 1 August 90 strike put CL (oil) which expires on 7/15/11

and

sell naked 1 July 1310 strike put ES (mini sp 500) which expires on 7/15/11

thanks in advance...

Hi,

I dug up my CME account info just so I could re-download PC-SPAN for ya... hope you're grateful. .

Using July 8th settlement requirements from the CME...

- 1 Aug 90 put, $5704/4099 (initial/maint)... including $170 short option premium.
- 1 July 1310 ES put, $4368/3516 (initial/maint)... including $110 short option premium.

CME updates all exchange requirements multiple times every day, available for download here:
ftp://ftp.cmegroup.com/pub/span/data/cme/

 

[heech]

And just to be clear: SPAN margin requirements are what the exchange requires your FCM to post *every day* in cash or cash-equivalents. The goal from the exchange perspective is simple: someone has to be on the hook to make good on this contract.

It's up to your FCM to require more or less margin from you, as they see fit.

 

[increasenow]

Quote from Dael:

Actually you have a misconception on options selling.
Why would the other side (option buyer) give you a $300 premium for just a week holding of wide (i.e. 100% guarantee of not touching the strike) options? Just why?

In example posted above I've got SEP 11 options (as you may see in the lines) which will expire after 66 days (as you may see in first column).

Closer to expiration options have less premium. Here's another example. Short strangles of 115 call and 75put on JUL and AUG options, both opene at one time.

JUL strangle got 0.14+0.17 = $310 premium for $1,400 magin at this moment.
AUG got 0.54+0.55 = $1,090 for $2,400 margin.

thanks...understood...so, long story short...the July CL strangle expiring 7/15, if none in the money, you walk away on 7/15 with $310 in total...this seems REAL likely as CL is not gonna pass 115.00 nor go below 75 by 7/15...hmmm...thanks...got me thinking...Short Strangles are the way to go...!!...thanks

 

[Dael]

Quote from increasenow:

thanks...understood...so, long story short...the July CL strangle expiring 7/15, if none in the money, you walk away on 7/15 with $310 in total...this seems REAL likely as CL is not gonna pass 115.00 nor go below 75 by 7/15...hmmm...thanks...got me thinking...Short Strangles are the way to go...!!...thanks

The trades were made on 06/15. Margin was $3,000 for that time (so it reduces getting closer to expiration).
For JUL options it's true that I'll take $300 premium, which gives 10% return on invested margin per month.
I made a post on Posterous. Just some thoughts for myself. Read it, I bet it'll be more clear with option selling.
http://optionseller.posterous.com/

 

[maxima120]

Quote from increasenow:
hmmm...thanks...got me thinking...Short Strangles are the way to go...!![/B]

have you made your million?