Selling Naked

klutz · Jun 12, 2003

Quote from Kap:

Hey klutz, "giving the right for someone else to sell to u the underlying instrument = you are giving the buyer the right to sell to u the underlying instrument " all at a fixed price in exchange for a premium

sounds the same to me ?

Sorry I read you wrong .............fastafuckinsleep this morning.

Kap · Jun 12, 2003

Quote from klutz:

The premium is only an issue if you want to close the position before expiry

The premium is everything !

For valuing index & stock options the strike, spot, interest rate and dividend yield are all constants (99.9% of the time ) the only variable is the Volatility which makes up the premium.

I traded FX options for an institution, we would only trade the volatility, the other factors being consant, the volatility being the premium.

Kap · Jun 12, 2003

OK, your forgiven, its early, are u in Euro land being up at this hour ?

klutz · Jun 12, 2003

Yeah........uk & U?

Kap · Jun 12, 2003

UK , greetings from London

klutz · Jun 12, 2003

Just reading his post again I think he wants to know ,if he is obliged to take delivery of $100 worth of shares at some point then surely his margin can not exceed $100 at any stage

Kap · Jun 12, 2003

Quote from klutz:

Just reading his post again I think he wants to know ,if he is obliged to take delivery of $100 worth of shares at some point then surely his margin can not exceed $100 at any stage

true, I'd like to know what to do with the 0.01$ premium

.

aphexcoil · Jun 12, 2003

Quote from Kap:

We're talking about selling Puts here, giving the right for someone else to sell to u the underlying instrument for a premium. Yes at expiry there is a worse case scenario u can calculate, but the problem arrises inbetween to expiry where with a few sharp movements the MARGIN required by the exchange and/or to your broker to hold the position can be come astronomical, and I'm talking from experience.
The price (or margin required for a seller)of a put CAN rise in even in a rising market and likewise for a call in a crash. If you can't work out the last sentence then you shouldn't be playing.

Worth noting is that the implied volatility for a call and a put at the same strike theoritically should be the same, according to the put/call parity but very often there slightly skewed, which is a good indication of market sentiment.

Thanks Kap

ktm · Jun 12, 2003

Quote from Kap:

We're talking about selling Puts here, giving the right for someone else to sell to u the underlying instrument for a premium. Yes at expiry there is a worse case scenario u can calculate, but the problem arrises inbetween to expiry where with a few sharp movements the MARGIN required by the exchange and/or to your broker to hold the position can be come astronomical, and I'm talking from experience.
The price (or margin required for a seller)of a put CAN rise in even in a rising market and likewise for a call in a crash. If you can't work out the last sentence then you shouldn't be playing.

Worth noting is that the implied volatility for a call and a put at the same strike theoritically should be the same, according to the put/call parity but very often there slightly skewed, which is a good indication of market sentiment.

In your example from earlier, where the put was SOLD at a $100 strike and the stock rises sharply to $5000, the put is worthless. My max margin is $10,000 (100 shares *$100) per contract, period. At a price of above $100, the margin is a percentage of the total exposure - depending on the broker, below $100, the value ITM plus a percentage of the remaining exposure. Who (as an owner of a $100 bought put) would put stock to me and get $100 when he can sell it on the open market for $5000?

IV or HV have absolutely nothing to do with margin. Margin is based on relatively simple mathematical formulas that calculate the broker's exposure of exercise and delivery. The greeks go down the toilet at exercise and for those who are holding to expiry.

On the Call side, there are different issues. For Puts, I still say you are wrong.

Kap · Jun 12, 2003

Quote from ktm:

IV or HV have absolutely nothing to do with margin. .

WTF !, it may seem bizarre to you but IV does have an inlfluence on the price! which in turn has an effect on your margin calls!

and to think I missed my "out " reading that !