Some basic futures options questions...

C

CALLumbus

Hi all,

so far all I do is scalp futures intraday, but I want to expand this a bit and hold some overnights here and there and combine this with some futures options (FOPs). I have no experience with those, so I have some basic questions:

1.) What would be a good broker for options trading ? Is there a good broker besides IB that offers futures AND FOPs ?

2.) Lets say I open long 1 contract CL to hold it overnight, @98.05. If I buy at the same time a PUT option on CL, strike 98.00, will this lower the (overnight) margin needed for the CL contract ?

3.) Is it only possible to exercise a FOP that has the same contract month as the futures contract ? So if I have a April CL future, I also need an April option, if I want to exercise it ? I cannot exercise a May CL option on a April CL future ?

4.) Why would anybody ever want to exercise a FOP ? Options price is intrinsic value + time value, so it is always a better idea to sell your option than to exercise it, or no ?

I hope you guys can help me with these questions.

Wish you all good trading,
CALLumbus
 
CALLumbus said:
Hi all,

so far all I do is scalp futures intraday, but I want to expand this a bit and hold some overnights here and there and combine this with some futures options (FOPs). I have no experience with those, so I have some basic questions:

1.) What would be a good broker for options trading ? Is there a good broker besides IB that offers futures AND FOPs ?

2.) Lets say I open long 1 contract CL to hold it overnight, @98.05. If I buy at the same time a PUT option on CL, strike 98.00, will this lower the (overnight) margin needed for the CL contract ?

3.) Is it only possible to exercise a FOP that has the same contract month as the futures contract ? So if I have a April CL future, I also need an April option, if I want to exercise it ? I cannot exercise a May CL option on a April CL future ?

4.) Why would anybody ever want to exercise a FOP ? Options price is intrinsic value + time value, so it is always a better idea to sell your option than to exercise it, or no ?

I hope you guys can help me with these questions.

Wish you all good trading,
CALLumbus
More...

1. Most major brokers offer FOP some smaller ones don't. Margins are tricky..re-evaluated daily so if you have a losing position the loss is basically ADDED to the overnight margin so you can build a neg margin issue in a very short order. TOS doesn't auto liquidate don't know about other brokers so that might be an issue with IB.

2. YES

3. You can buy/sell FOP months away... if you close a trade its settled in cash. If you are exercised (allow it to expire) then its usually into the current month trading...unless its an option (like monthly in CL or Quarterly in ES) that is expiring then its cash settled.

4. I've found its always better to buy back or sell my option than to let it get exercised away (unless its protected such as a spread that is deep in the money)
 
CALLumbus said:
---- Why would anybody ever want to exercise a FOP ?
----it is always a better idea to sell your option than to exercise it....
----no ?
More...
1) To exercise an option that is or becomes deep-in-the-money can be better than offsetting it if the bid-ask spread is "excessive" and/or if the option is trading at a discount to intrinsic value. :)
2) A trader who wants to maintain a position in a particular contract month, for whatever reason, can exercise the option to maintain the position, in that contract month, after expiration of the option until last trade day of that futures into delivery. :cool:
 
Richard, how and how much will this lower my margin ? Is there any real guideline for this, or can any broker decide by his own calculations how much he wants to adapt the margin for the futures contract ?

For example, overnight initial for CL at Interactive Brokers is 4,030... if I buy the future @100.50, and at the same time a Put with strike 100.50, how much will the margin for the future go down because of the put ? From 4,030 to 3,500, or 3,000, or 2,000 or 1,000 ?

What do you think about Interactive brokers for trading options on futures ? Do you think there is a better broker for this ? If yes, which one ?

I think if a married put would lower the margin of my futures position, it would make sense to trade both the option and the future in the same broker account. If there is no real impact on the future margin, then I think I should look for the best of both worlds... trade the futures at a good FCM and open an additional account at one of the best options brokers... but I have no idea who is a real good broker for FOPs :-/

I am hoping for some more input... and wish you all a great weekend.

Greetings,
CALLumbus
 
I've been trading FOPs on CL and NG on both IB and ToS - they are both OK, I think execution on IB is better - faster and you get better fills. Also, ToS only allows you to trade CL options for next 3 expirations, while IB - as far as you wish, and of course IB's commissions are lower then ToS's and they allow trading options on waaaay many futures than ToS. Hope this helps.
 
Call .......I'm not the person to ask about margin calculations on futures the maths are way over my head. When you buy puts/calls your biggest risk is theta/gamma so as you get closer to expiration this will be the issue. If you are going to buy then I would trade more directionally (either put or call) because buying a straddle/strangle is a bet on increading vol which CL hasn't had that much (change) in the past year. Now if you really think volatility will increase in CL fine. What has worked best for me is to sell a put on CL slightly OTM....then IF I start making money on it sell the call...basically reversion to mean. Worked pretty well last year...this year I've been shaken out.

good imput from above poster however beware of trading too many contracts....period... the key is trade small.
 
Richard, nazzdack and space...

I thank you for your constructive input, this helps me. I have an account with IB and will do my FOP trades from there then. The options trades will be mostly to protect overnight futures positions, so the positions will be pretty small, margins will not be an issue. I was just interested in the general mechanics of the margin policy regarding futures-options combinations.

Wish you all a great weekend, lets have some beer now :-D
Greetings,
CALLumbus
 
You could dig into SPAN and learn what the SPAN-minimum margins are for your positions, but that will take you only so far since Interactive Brokers (like all FCMs) can choose to margin your position at something > SPAN minimum.

If you're trading small to moderate quantities at IB, you can probably get most of your margin questions answered by:

1. Looking at the nightly margin report, esp. for the dates you've made a trade to see how things have changed.

2. Use the order ticket and click on "check margin" prior to placing an order. You don't have to actually place the order but you can see what your margin looks like before and after the hypothetical trade. You can probably also do this in the 'paper trading' or simulated section of IB. I've never set up paper trading so can't say for sure.
 
I trade strictly ES options through IB and unless you're doing massive size I would stick with them. As far as margin IB uses SPAN but if there's some real velocity happening to the downside they'll jack it up instantaneously to protect themselves since you have so much more leverage with futures as opposed to cash indexes or stock. FOP's only carry 50% of the credit but they're still cheaper as far as margin is concerned to trade. Futures options are really great since you can hedge 24 hrs a day and liquidity is becoming really tight on spreads
 
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