Premium as % of Strike

[Philo Judeaus]

Hello all,

I'm a long-time lurker, recently signed up to jump in the discussions.

I was reading this old theads: https://www.elitetrader.com/et/threads/selling-naked-puts-option-strategy.291395/page-3

And one of @newwurldmn posts made me think.

"If an option were 10% OTM, would that qualify as picking up nickels in front of a steamroller? What about ATM? What about selling vol in general?

There are 15% OTM options at all different price points:
Jan16 HLF 15% OTM puts are >15% of strike, while Jun16 SPX 15% OTM puts are 3% of strike, while BLUE Jun15 15% OTM puts are 8% of strike."

Can anyone elaborate the significance or an options price as a percentage of strike?

Thanks!

 

[tommcginnis]

Hello all,

I'm a long-time lurker, recently signed up to jump in the discussions.

I was reading this old theads: https://www.elitetrader.com/et/threads/selling-naked-puts-option-strategy.291395/page-3

And one of @newwurldmn posts made me think.

"If an option were 10% OTM, would that qualify as picking up nickels in front of a steamroller? What about ATM? What about selling vol in general?

There are 15% OTM options at all different price points:
Jan16 HLF 15% OTM puts are >15% of strike, while Jun16 SPX 15% OTM puts are 3% of strike, while BLUE Jun15 15% OTM puts are 8% of strike."

Can anyone elaborate the significance or an options price as a percentage of strike?

Thanks!

SPX IV ~16 15%OTM option @ 3%
BLUE IV ~56 15%OTM option @ 8%
HLF IV ~33 15%OTM option @>15%

almost there.....

 

[Philo Judeaus]

SPX IV ~16 15%OTM option @ 3%
BLUE IV ~56 15%OTM option @ 8%
HLF IV ~33 15%OTM option @>15%

almost there.....

Thanks for the comment @tommcginnis

Besides the examples listed above by newwurld, in general, I'm trying to figure out why a trader should be aware of option prices as a percentage of a strike.

For example if a strike on the SPX has an option thats 3% of that strike price, what does that mean exactly? What percentage should the premium be in relation to a certain strike?

 

[Robert Morse]

Hello all,

I'm a long-time lurker, recently signed up to jump in the discussions.

I was reading this old theads: https://www.elitetrader.com/et/threads/selling-naked-puts-option-strategy.291395/page-3

And one of @newwurldmn posts made me think.

"If an option were 10% OTM, would that qualify as picking up nickels in front of a steamroller? What about ATM? What about selling vol in general?

There are 15% OTM options at all different price points:
Jan16 HLF 15% OTM puts are >15% of strike, while Jun16 SPX 15% OTM puts are 3% of strike, while BLUE Jun15 15% OTM puts are 8% of strike."

Can anyone elaborate the significance or an options price as a percentage of strike?

Thanks!

IMO, it is about size allocation to risky trades. If you have a $200,000 account and expect an OTM put will expire and is overpriced and your sell "some" as a percentage of your allocation, that can work well. That way in times of stress, you are not forced to buy back an OTM put that just expanded. However, if you do this with 50% or more (A random level) of your risk based account (PMA or Futures), there will be a time you will get hurt. Selling naked options is scale in a reg-t account is not margin efficient.

I know your question is about what strike to sell, but that is up to you and I can't help you with that.

 

[newwurldmn]

Hello all,

I'm a long-time lurker, recently signed up to jump in the discussions.

I was reading this old theads: https://www.elitetrader.com/et/threads/selling-naked-puts-option-strategy.291395/page-3

And one of @newwurldmn posts made me think.

"If an option were 10% OTM, would that qualify as picking up nickels in front of a steamroller? What about ATM? What about selling vol in general?

There are 15% OTM options at all different price points:
Jan16 HLF 15% OTM puts are >15% of strike, while Jun16 SPX 15% OTM puts are 3% of strike, while BLUE Jun15 15% OTM puts are 8% of strike."

Can anyone elaborate the significance or an options price as a percentage of strike?

Thanks!

There isn’t any significance. It’s just a way to compare the option prices of different underlyings with very different values: hlf was a 50 dollar stock, SPX was a 1800 index, BLUE was a 150 dollar stock.

 

[Wheezooo]

Hello all,

I'm a long-time lurker, recently signed up to jump in the discussions.

I was reading this old theads: https://www.elitetrader.com/et/threads/selling-naked-puts-option-strategy.291395/page-3

And one of @newwurldmn posts made me think.

"If an option were 10% OTM, would that qualify as picking up nickels in front of a steamroller? What about ATM? What about selling vol in general?

There are 15% OTM options at all different price points:
Jan16 HLF 15% OTM puts are >15% of strike, while Jun16 SPX 15% OTM puts are 3% of strike, while BLUE Jun15 15% OTM puts are 8% of strike."

Can anyone elaborate the significance or an options price as a percentage of strike?

Thanks!

Never once crossed my mind. Irrelevant.

 

[tommcginnis]

Never once crossed my mind. Irrelevant.

And so if given a choice between option strategies on two different underlyings -- with same DTE, same volatility, same multiplier, and strikes with same relative distance-to-market, but one is $3, and the other, 33% more @ $4, you're not going to accord any reward-to-risk difference between them, eh?


("Well! Since you put it *that* way...!" )

 

[Wheezooo]

Not aware of what you mean by DTE or multiplier.

1- Preferred analyzing option values of A vs. underlying A, and analyzing option values of B vs underlying B, than options of A vs options of B.

2- Never looked at risk from an expiration graph perspective, unless it was expiration day, so the answer remains an emphatic NO.

 

[tommcginnis]

Not aware of what you mean by DTE or multiplier.

1- Preferred analyzing option values of A vs. underlying A, and analyzing option values of B vs underlying B, than options of A vs options of B.

2- Never looked at risk from an expiration graph perspective, unless it was expiration day, so the answer remains an emphatic NO.

"Not aware," huh.
But you can opine about theta versus vega?
Trolllllllllllllllllll.
https://www.elitetrader.com/et/threads/spx-iron-flies.333392/page-2#post-4876382
We're done here.

 

[Philo Judeaus]

There isn’t any significance. It’s just a way to compare the option prices of different underlyings with very different values: hlf was a 50 dollar stock, SPX was a 1800 index, BLUE was a 150 dollar stock.

This is essentially the answer I was looking for.

Looking at $SPX and $SPY option chains as you all know $SPY is 1/10th the size of $SPX, so obviously the premium will also be 1/10th the size.

I was just curious if one could gage the moneyness (value) of premium at different strikes by comparing the price as a percentage of the strike price?