The options ladder. Newby question

zapbrannigan

zapbrannigan

As I understand it, most longer term options expire useless (not being exercised). So my thinking is that traders with larger funds will be hedging forex/futures positions by buying puts or calls as a kind of insurance.

With this in mind, is there a way for me to see the DOM in the options market? How do I see where all the volume sits? Perhaps this would clue me in to liquid zones which I can avoid (or trade from) in the futures market.

I am new to options so my questions will come across in a very simplistic manner (until such time as I learn the correct words and phrases to use)

Thank you.
 
zapbrannigan said:
most longer term options expire useless
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'longer' or shorter doesn't matter.

zapbrannigan said:
as a kind of insurance.
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it's not 'a kind of...', it *is* insurance.

zapbrannigan said:
How do I see where all the volume sits? Perhaps this would clue me in to liquid zones which I can avoid (or trade from) in the futures market.
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What you want is Open Interest by strike, which *should*be* available on your platform. But it's going to tell you more about where traders *thought* they desired protection. IV will tell you more about what the market is thinking *right*now*. Not "VIX", but the per-strike IV.
 
Thank you tommcginnis. I trade fx from the 4hr and above timeframe and manually enter trades directly on the brokers portal. I use tradingview to chart but generally can look at any price chart to base decisions off. Right now I dont even know where to go to access open interest by strike levels. CBOE?
What is IV?
Thank you.
 
"As I understand it, most longer term options expire useless (not being exercised). So my thinking is that traders with larger funds will be hedging forex/futures positions by buying puts or calls as a kind of insurance."

Yes, buying puts and calls is like in buying insurance. Selling puts and calls is like selling insurance. It is better to be a seller of insurance than a buyer over time. This is because implied volatility is always greater (over time) than actual volatility.
 
zapbrannigan said:
As I understand it, most longer term options expire useless (not being exercised). So my thinking is that traders with larger funds will be hedging forex/futures positions by buying puts or calls as a kind of insurance.

With this in mind, is there a way for me to see the DOM in the options market? How do I see where all the volume sits? Perhaps this would clue me in to liquid zones which I can avoid (or trade from) in the futures market.

I am new to options so my questions will come across in a very simplistic manner (until such time as I learn the correct words and phrases to use)

Thank you.
More...

I recommend reading an introductory book on options. That way you learn the basics in a structured way and in the correct order.

Knowing how to enter orders definitely comes after knowing how they work, and your many questions will be answered with a little reading.
 
Adam777 said:
I recommend reading an introductory book on options. That way you learn the basics in a structured way and in the correct order.

Knowing how to enter orders definitely comes after knowing how they work, and your many questions will be answered with a little reading.
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Thanks I will do just that. Just one question though. Most of the explanations are conceptual which is great but I would also like to see real world examples as I am learning. So for instance it would be nice to see the open interest by strike price levels for Gold, or 6e futures...whatever the actual current state of the market is for a particular instrument. Can anyone recommend a resource that will allow me to view the basic level information for free.....delayed data or EOD data?
Thanks.
 
ES_Aug31EOD_volumeOICapture.PNG


It's pretty consistent in the ES that the OI will be about 10x the volume traded in any given day.
Note that these data are for 71 strikes, 2675-3025 inclusive, and that there is a rollover of /ES from Sept.→Dec. in the data.

FWIW, I find looking at daily volume and OI *interesting*, but not so much determinative, as these trades were all relevant when they were made, and even a single hour's market action may obsolesce a position, but not quite enough to justify its withdrawal.

If you're looking to work OTM, though -- there's another use: targeting the *type* of strike that gets action. Legging into a 2950/2975 will not be too hard, as they're both major strikes that get action early. But try exiting a 2960/2970 as a spread -- it's not going to happen near MIDs. The takeaway: if you might leg out of a credit spread, place your long on an anchor strike. You can buy the short at your leisure, your limit price. And then, with higher volume, you can have a better-but-not-guaranteed chance of selling your long position, on that 'hot spot' strike.
 

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Until I have done further reading, I am going to resist the temptation to ask you what most of that meant.

Except this one thing: Daily volume and OI would be useful to you if you were trading on that or higher timeframe wouldn't it? I cannot imagine institutional money fiddling around on an intraday level?

Example:
If I wanted to long gold and try hold for days/weeks would there be any indication from the daily OI at a specific strike price/zone on where institutional 'protection' is likely to be placed?
 
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