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MvR

Diary of an options trade ( United States Steel )

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Posted (edited)

paging @sancho panza.

For anyone who's interested, I thought I'd record a dairy of a typical options trade to illustrate how they work. The stock in question is United States Steel ( ticker symbol "X" ).  I said I'd put on an X trade today, so here it is, along with my reasoning.  This could be a long thread-starting post.

Firstly, considering fundamentals, US Steel should be seen by investors to likely benefit from infrastructure led QE and the re-industrialisation of the West, so that's broadly bullish.  It's also important to note that they have results coming out on 7th May. This is a big "unknown", which means the price of options expiring shortly after this date will remain elevated before results come out, and, due to market participants hedging, this elevated premium bleeds through into expiries shortly before results come out too. This means if I want to sell premium ( short an option ), I'd prefer to do it with options not much more than a week or so out, as they'll still erode quickly, and if I want to buy premium ( long an option ), I should go for much further out options.

Secondly, chart technicals.  ( see chart below )

I use the Ichimoku indicator, with the parameters doubled from the defaults, so instead of 9/26/52 I use 18/52/104.  This gives fewer but more reliable signals and provides an excellent quick overview of price action. You can use the green( fast) and blue (slow) lines in the same way you'd use the 20ma and the 50ma, only they're more reliable as support / resistance levels.

The wide "clouds" act as areas of support/resistance, and often price consolidates within them, particularly if they're quite thick. Thin clouds offer little support or resistance. When price is a long way above or below the cloud, and a panic correction occurs, the cloud is a reliable target price. The great thing with Ichimoku is the fact it generate clouds for future dates, giving useful future support and resistance levels. No other indicator does this.

The pink dotted line acts like a breakout indicator.. when it's above the clouds, price is breaking to the upside, and vice-versa. 

I also use an oscillator.. W%R with a custom setting of 45 periods, as opposed to the default 14 periods. It gives enough overbought/oversold signals to be useful, but not too many. It's particularly useful for spotting divergences, such as the one that occurred in mid March in X.  This is where price makes a new lower low, but the oscillator doesn't. ( see the short lines I've marked on the chart. ) This is a powerful reversal signal, and works to identify tops and bottoms.

In the case of X, we can see that price has broken above it's falling green "fast" line, and is testing the now levelling off blue "slow" line.  It's common at this point for it to fall back to the green fast line, then bounce back up and break through the blue slow line.  Based on this view, and the clouds, the technicals are telling me we may have put in a bottom, and price is likely to remain between about $6 and $10 over the next month.

I'm not totally short term bullish here, since the W%R oscillator is around it's midpoint and we're testing the blue slow line from below, and we could easily reverse back to the downside, but overall I feel neutral / slightly bullish short term.

702112249_Screenshot2020-04-13at17_43_34.thumb.png.6e99ec64c2fcd2a42b0c6eb6e6c49cd6.png

Given this neutral / slightly bullish stance,  I've decided to be a option seller to start with, since long options require large, fast moves. I'm happy to have risk to the downside since X is a cheap stock and 100 shares ( the number of shares an options contract represents ) would cost only $700 ish, with a realistic downside risk of maybe half that or $350.  I don't want risk to the upside though, since a big dollop of QE could easily send X rocketing upwards towards the cloud, around $10.

Also, being such a cheap stock, the options are pretty cheap too. This means as an options seller, I won't collect much premium for selling them too far from the money. 

So.. those are my parameters.  I want to sell options, near or at the money, not too far out into the future, with no risk to the upside if X rises, but I'm happy to take on some risk to the downside.  

Therefore I decided to put on a "Big Lizard" combo, for a couple of weeks out.. expiry on the 24th of April, 11 days from now.  A Big Lizard consists of a Straddle, plus an extra long call option at a higher strike. To ensure no upside risk, I need to ensure the total premium collected is larger than the distance between the Straddle strike price and the long call. 

Also, importantly, being an options seller, the natural pricing in the market means the odds are slightly in my favour. With good risk control, position sizing etc, I could put these on willy-nilly all day in random stocks, and know I'm statistically likely to make a small profit.

So here it is.

660629577_Screenshot2020-04-13at17_36_16.thumb.png.e1a90edacf62371a9bf5746a9ae8b486.png

I sold a put and a call, strike price $6.5, and bough a call at strike price $7, collecting 59 cents a share, or $59 dollars, minus $3 in commissions ( $1 per option contract ).

At the time I sold the Big Lizard, X was trading at $6.72.  In this thread I'll track the P&L of this options position over time, along with the various adjustments I'll make as time progresses, and compare this to the performance had I just bought 100 shares of X instead.

As I write this, X is trading at $6.89, so 100 shares would be $16 in profit ( taking into account the $1 commission ). My Big Lizard is $7 in profit so far, not counting the $3 commission, so $4 profit overall.  Let's see how this pans out...

1928586732_Screenshot2020-04-13at18_31_26.thumb.png.3c7ae6b61334da7be18372ee89b32d47.png

Edited by MvR

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EOD 1

X closed at $6.80.  

100 shares of stock running P&L = (($6.80 current price - $6.72 opening price) x 100 shares ) - $1 commission = $7

Options position running P&L =  $59 initial credit - $51 current position value - $3 commission = $51362000333_Screenshot2020-04-13at21_31_08.thumb.png.99cc2628e523e8c9c3528113f9ab3d90.png

 

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Great idea for a post MvR.

As I mentioned I dipped my toes in Thursday .Not a major commitment yet but first call options in FCX/X/AA.Looking to ladder in.I jsut took a bullish position Jan 21 but I msut say,there's a bit of me thinking about trading in a more defensive manner,But I'm that sort of person,take a position,back myself,win or lose.

Must say though the throught of straddling nearer term.

 

With the big lizard,if you're selling at the money,then surely the put/call cancel each otehr out less spread,but I do get the long call.

WHat am I missing here?

What did you get selling the

Just now, MvR said:

EOD 1

X closed at $6.80.  

100 shares of stock running P&L = (($6.80 current price - $6.72 opening price) x 100 shares ) - $1 commission = $7

Options position running P&L =  $59 initial credit - $51 current position value - $3 commission = $51362000333_Screenshot2020-04-13at21_31_08.thumb.png.99cc2628e523e8c9c3528113f9ab3d90.png

 

what premium did you raise for the put n call MvR?

Opening price was $6.72?

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Posted (edited)

@MvR you've had me looking up Ichimoko :ph34r:, and I've never used WIlliams either even though you have mentioned it before.

 

I tend to enter longer term trades jsut ebcause I'm not that active a trader,what with kids,work etc.

 

Ref teh X trade,I see the spreads on yahoo are quite wide.$6.50 showing 53c to 65c.I realise the marekts shut but in a lqiuid market,can you get much of a discount or is the bid ask spread pretty much waht you get?

 

Edited by sancho panza

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Posted (edited)
51 minutes ago, sancho panza said:

With the big lizard,if you're selling at the money,then surely the put/call cancel each otehr out less spread,but I do get the long call.

WHat am I missing here?

What did you get selling the

what premium did you raise for the put n call MvR?

Opening price was $6.72?

You can see the money collected ( in green ) or paid out ( in red ) in the Cost column. The top row is for the whole combo, and the three below are the individual legs.

1362000333_Screenshot2020-04-13at21_31_08.thumb.png.99cc2628e523e8c9c3528113f9ab3d90.png

So I received $34 for the short put, and $56 for the short call.  I paid out $31 for the long call. So in total I received (34 + 56 ) - 31 or $59... less the $3 commission so $56 in total.

The short put and call only cancel each other out in terms of direction - up or down - when price is at the $6.50 strike price. If the stock price falls, the short call has less effect ( smaller delta ) and the short put has more effect ( larger delta ), so the position acts more like a long stock position. If the stock price rises, it acts more like a short stock position.  The long call cancels out the short call in the case of the stock rising, and since the $56 ( after commissions ) I collected is larger than the $50 I'd lose if the stock rose above the $7 long call strike, I can't lose more than I received when the stock rises.. hence no upside risk.

If the stock falls below the short put strike of $6.50, I could be put the stock at that price, but then I'll also keep the $56 I collected, meaning my cost basis on the 100 X shares would be $6.50 - $0.56 or $5.94.. a nice discount on the current stock price.

The $6.72 opening price I mentioned was for the imaginary long stock position I'm comparing it to.. That's what X was trading at when I put on the options  position.

Edited by MvR

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Posted (edited)
38 minutes ago, sancho panza said:

@MvR you've had me looking up Ichimoko :ph34r:, and I've never used WIlliams either even though you have mentioned it before.

I tend to enter longer term trades jsut ebcause I'm not that active a trader,what with kids,work etc.

Ref teh X trade,I see the spreads on yahoo are quite wide.$6.50 showing 53c to 65c.I realise the marekts shut but in a lqiuid market,can you get much of a discount or is the bid ask spread pretty much waht you get?

You'll find Ichimoko and W%R work perfectly well in all timeframes, including daily, weekly and monthly, as well as intraday 5, 15 and 60 minute charts. In fact they can be better on the longer time frames.

As for the spreads,  I start by entering my limit order halfway between the bid and the ask ( this is for the whole combo, not the individual legs ), and this usually fills.  If it doesn't fill in the first 30 seconds or so, I'll modify the order by a cent and re-enter it. If that does't fill after 15 secs, I'll modify it again, slowly working my way towards the bid or ask ( depending whether I'm buying or selling ). 

If I do find myself forced to buy the offer/ask, or sell the bid, I don't mind, since it's a sign the other party doesn't want to make the trade, which means it's more likely to be a good trade for me. 

I'll generally be more patient when opening a position, and less patient when closing it.. since I'm not generally in a rush to enter a new trade, but I do like to move quickly to lock in profits on a trade I'm exiting.

Edited by MvR

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19 minutes ago, sancho panza said:

with the big lizard are you basically arbing the call and put then using the proceeds to buy the long call?

Not really. The short put and call form a short Straddle, which is the options combo that collects the most premium and decays the fastest... great for options sellers.  The long call simply protects me from losses on this Straddle if the stock moves up.

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Posted (edited)
41 minutes ago, sancho panza said:

@MvR you've had me looking up Ichimoko :ph34r:, and I've never used WIlliams either even though you have mentioned it before.

I can't recommend them highly enough. In over 15 years of active daily trading, no other indicators come close in terms of signal reliability and easy chart reading.

I'd like to add Market Profile at some point, as used in the Shadow Trader videos I sometimes post, but I can't find a low cost provider with a decent Mac desktop platform.

EDIT:  In your case, where you look at lots of different charts, these indicators really come into their own.. particularly Ichimoku.  It actually means something like "single glance" in Japanese, and is the fastest way to quickly assess a chart's potential.

Edited by MvR

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32 minutes ago, MvR said:

You can see the money collected ( in green ) or paid out ( in red ) in the Cost column.

1362000333_Screenshot2020-04-13at21_31_08.thumb.png.99cc2628e523e8c9c3528113f9ab3d90.png

So I received $34 for the short put, and $56 for the short call.  I paid out $31 for the long call. So in total I received (34 + 56 ) - 31 or $59... less the $3 commission so $56 in total.

The short put and call only cancel each other out in terms of direction - up or down - when price is at the $6.50 strike price. If the stock price falls, the short call has less effect ( smaller delta ) and the short put has more effect ( larger delta ), so the position acts more like a long stock position. If the stock price rises, it acts more like a short stock position.  The long call cancels out the short call in the case of the stock rising, and since the $56 ( after commissions ) I collected is larger than the $50 I'd lose if the stock rose above the $7 long call strike, I can't lose more than I received when the stock rises.. hence no upside risk.

If the stock falls below the short put strike of $6.50, I could be put the stock at that price, but then I'll also keep the $56 I collected, meaning my cost basis on the 100 X shares would be $6.50 - $0.56 or $5.94.. a nice discount on the current stock price.

The $6.72 opening price I mentioned was for the imaginary long stock position I'm comparing it to.. That's what X was trading at when I put on the options  position.

Thanks for the excellent explanation M.Ill have to look up delta again.

Dare I aks antoher question as I'm finding this very illuminating.What scenario is there that can possibly lose you the most money?

Also,is there any value in this strategy on more medium term time frames?

 

24 minutes ago, MvR said:

You'll find Ichimoko and W%R work perfectly well in all timeframes, including daily, weekly and monthly, as well as intraday 5, 15 and 60 minute charts. In fact they can be better on the longer time frames.

As for the spreads,  I start by entering my limit order halfway between the bid and the ask, and this usually fills. If it doesn't fill in the first 30 seconds or so, I'll modify the order by a cent and re-enter it. If that does't fill after 15 secs, I'll modify it again, slowly working my way towards the bid or ask ( depending whether I'm buying or selling ). 

If I do find myself forced to buy the offer, or sell the bid, I don't mind, since it's a sign the other party doesn't want to make the trade, which means it's more likely to be a good trade for me. 

I'll generally be more patient when opening a position, and less patient when closing it.. since I'm not generally in a rush to enter a new trade, but I do like to move quickly to lock in profits on a trade I'm exiting.

Thanks for this.I did wonder looking at the spreads,but mvoing the limit till you get a bite makes great sense.With it being all automated,do you nearly always get a bite toward the midpoint of the spread?

Have you anywhere with the best expalantion of the Ichimoko?I've stuck them into investing .com charts,do you wait till the signals are right in both?

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Posted (edited)
56 minutes ago, sancho panza said:

Dare I aks antoher question as I'm finding this very illuminating.What scenario is there that can possibly lose you the most money?

The largest loss in this case would be if the stock drops, I get put the stock at $6.50 per share, and then the stock goes to zero, leaving me with a $650 loss. That's a bit less risky than buying 100 shares outright at the $6.72 it was trading for at the time, where the max loss is $672.

56 minutes ago, sancho panza said:

Also,is there any value in this strategy on more medium term time frames?

Yes, up to a point...You get a smoother, slower response the further out you sell them, and pocket more premium, but once you sell them too far out, they move too slowly and lock up your capital for too long given the potential gains.  30-60 days is a common "sweet spot" and is the timeframe the TastyTrade people use.  When selling options, it's important to think about the daily premium erosion ( given as Theta ). You are often better selling three options combos over 3 months, maintaining each for a month, rather than a single lot for the whole 3 months

Alternatively, If you actually do want to be put the stock, a shorter timeframe means faster premium decay which is a good thing, particularly if the only downside is you end up owning something you wanted to own anyway.

The only disadvantage of this strategy ( or any strategy where you're basically short a naked put ), compared to buying the stock outright, is that you may miss out on an up-move.. But the premium you receive for giving up this potential upside makes up for it in the long run, as i hope to demonstrate with this X trade. 

56 minutes ago, sancho panza said:

.With it being all automated, do you nearly always get a bite toward the midpoint of the spread?

Yes, maybe 80% of the time, I get a fill at the midpoint. 

56 minutes ago, sancho panza said:

Have you anywhere with the best expalantion of the Ichimoko?I've stuck them into investing .com charts,do you wait till the signals are right in both?

Here you go..  I originally learned Ichimoku from this guy's videos, which is why I copied his colour scheme :)

I prefer to have confirming signals on both Ichimoku and W%R, particularly if I'm looking to place a directional swing trade or opening a longer term investment position.

If I'm just doing my regular, mechanical short options trading, I prefer neutral looking charts, so I'll generally just check both indicators to make sure they're not screaming buy or sell at the time.

Edited by MvR

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EOD 2

X closed at $6.86.  

100 shares of stock running P&L = (($6.86 current price - $6.72 opening price) x 100 shares ) - $1 commission = $13

Options position running P&L =  $59 initial credit - $51 current position value - $3 commission = $5

1997111067_Screenshot2020-04-14at21_04_03.thumb.png.64aa5c4d71847217f6bc55e3c16de2c2.png

So far, the long stock position is outperforming the Big Lizard, but this is to be expected at this stage.. With 10 days to expiry, the maximum the X options position can be in profit is around $13.... see the curved orange line on this analysis chart, which shows predicted P&L at different price levels.

The straight lines enclosing the green and red areas are the P&L at expiry in 10 days time, when all the extrinsic premium has eroded away. It shows how below $6 ish, the position start to make a loss. Peak profitability is at $6.50, where both short put and call that make up the short straddle expire worthless. Above $7, the position makes $9 however high the price of X goes from there.. ( i.e. no upside risk ).

1453558388_xanalysis.thumb.jpg.f767e06caec65bc93f54eece9c6ea64e.jpg

So, for now, I'l leave things as they are.

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Posted (edited)

It's like antoehr language M...but loving the education.

Random question,I was lookigna tmmy psotioons today,first optiosn stocks I've held onlien and the last two columns are market value,and then exposure.

If I'm buying call options why woud my exposure be different to the markt value?

Hence I'm trialling with small amoutns before commiting big cash.I remember you tellign that stroy about the margin call on the o deflation thread.

I can't work out why my exposure would be different to the market cap if all Im buying is the call itself.

Edited by sancho panza

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6 hours ago, sancho panza said:

It's like antoehr language M...but loving the education.

Random question,I was lookigna tmmy psotioons today,first optiosn stocks I've held onlien and the last two columns are market value,and then exposure.

If I'm buying call options why woud my exposure be different to the markt value?

Hence I'm trialling with small amoutns before commiting big cash.I remember you tellign that stroy about the margin call on the o deflation thread.

I can't work out why my exposure would be different to the market cap if all Im buying is the call itself.

At a guess, margin exposure. If you sold calls and the position goes against you, it would increase?

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8 hours ago, sancho panza said:

It's like antoehr language M...but loving the education.

Random question,I was lookigna tmmy psotioons today,first optiosn stocks I've held onlien and the last two columns are market value,and then exposure.

If I'm buying call options why woud my exposure be different to the markt value?

Hence I'm trialling with small amoutns before commiting big cash.I remember you tellign that stroy about the margin call on the o deflation thread.

I can't work out why my exposure would be different to the market cap if all Im buying is the call itself.

Which broker is it?  Neither of mine use the term "exposure" so I'm not quite sure what they mean.  Could they mean delta?  In my examples, the ETF(delta symbol) column shows the equivalent exposure in underlying shares, so long 7 call has a delta of 46.90 right now, meaning for a given move it will make or lose the equivalent of 46.9 shares of the underlying.  It's a curved response, and the delta is the gradient at that point.

I agree though.. the current market value of a long option is the most you can lose on that option. 

The margin call the other day was due to a combo comprising both long and short options. In terms of market risk, they cancelled each other out, but I hadn't taken into account something called "expiration risk".  This is where, if the price had closed between my long and short options, I may have settled my long option for cash, by the counter party controlling the short option may have exercised it and taken delivery of a futures contract from me, leaving me exposed to a subsequent overnight move in the futures.

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5 hours ago, Castlevania said:

At a guess, margin exposure. If you sold calls and the position goes against you, it would increase?

Yeah, CV I've not sold any calls.Literally,I've bought say call option at 70 c on 100 X for Jan 21=$70,so bought the right to buy said shares,don't have to take delivery.Ergo,my exposure shoudl be the same as the market value.

 

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3 hours ago, MvR said:

Which broker is it?  Neither of mine use the term "exposure" so I'm not quite sure what they mean.  Could they mean delta?  In my examples, the ETF(delta symbol) column shows the equivalent exposure in underlying shares, so long 7 call has a delta of 46.90 right now, meaning for a given move it will make or lose the equivalent of 46.9 shares of the underlying.  It's a curved response, and the delta is the gradient at that point.

I agree though.. the current market value of a long option is the most you can lose on that option. 

The margin call the other day was due to a combo comprising both long and short options. In terms of market risk, they cancelled each other out, but I hadn't taken into account something called "expiration risk".  This is where, if the price had closed between my long and short options, I may have settled my long option for cash, by the counter party controlling the short option may have exercised it and taken delivery of a futures contract from me, leaving me exposed to a subsequent overnight move in the futures.

I'm well away from carrying out the sort of ops you do M.I'm jsut trying to get a full understanding before we trade more.We have certain funds left for investmetn at thsi stage and I'm happy to use the options market rather than buying stock now,as we have enough.

It's just stange.I can't screenshot it on firefox either.

it's with Saxobank

 

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Posted (edited)

can't screen shot it.I've written the column titles.These are held in my USD sub account.It's the $229 figure I'm trying to work out @Castlevania as well.Intrigued.

 

 

 

Instrument -Status-L/S-amount-open-close-stop-limit- P/L- P/L-%Price-Marketvalue-Exposure

X Jan21$10   Open     L       1         0.79    0.70        ADD  -$14  -14  -11.39%   $70                 $229

Edited by sancho panza

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On 14/04/2020 at 00:14, MvR said:

The largest loss in this case would be if the stock drops, I get put the stock at $6.50 per share, and then the stock goes to zero, leaving me with a $650 loss. That's a bit less risky than buying 100 shares outright at the $6.72 it was trading for at the time, where the max loss is $672.

Yes, up to a point...You get a smoother, slower response the further out you sell them, and pocket more premium, but once you sell them too far out, they move too slowly and lock up your capital for too long given the potential gains.  30-60 days is a common "sweet spot" and is the timeframe the TastyTrade people use.  When selling options, it's important to think about the daily premium erosion ( given as Theta ). You are often better selling three options combos over 3 months, maintaining each for a month, rather than a single lot for the whole 3 months

Alternatively, If you actually do want to be put the stock, a shorter timeframe means faster premium decay which is a good thing, particularly if the only downside is you end up owning something you wanted to own anyway.

The only disadvantage of this strategy ( or any strategy where you're basically short a naked put ), compared to buying the stock outright, is that you may miss out on an up-move.. But the premium you receive for giving up this potential upside makes up for it in the long run, as i hope to demonstrate with this X trade. 

Yes, maybe 80% of the time, I get a fill at the midpoint. 

Here you go..  I originally learned Ichimoku from this guy's videos, which is why I copied his colour scheme :)

I prefer to have confirming signals on both Ichimoku and W%R, particularly if I'm looking to place a directional swing trade or opening a longer term investment position.

If I'm just doing my regular, mechanical short options trading, I prefer neutral looking charts, so I'll generally just check both indicators to make sure they're not screaming buy or sell at the time.

Just watching that ichimuko vid.Excellent watch.Cheers M

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Posted (edited)
3 hours ago, sancho panza said:

can't screen shot it.I've written the column titles.These are held in my USD sub account.It's the $229 figure I'm trying to work out @Castlevania as well.Intrigued.

Instrument -Status-L/S-amount-open-close-stop-limit- P/L- P/L-%Price-Marketvalue-Exposure

X Jan21$10   Open     L       1         0.79    0.70        ADD  -$14  -14  -11.39%   $70                 $229

OK.. I see the problem.  Saxo use a different method to calculate margin requirement than Interactive Brokers or TastyWorks.  In this case, when it's says "Exposure", it actually means "Absolute Exposure", but which it appears to mean its margin requirement, based on their non-standard formula... See here :-

https://www.home.saxo/en-gb/products/margin-information?tabactive=f4a376a3-b784-4ae6-b0ac-43c342913773

Quote
Out-of-the-money naked calls

Stock Options

Call Price + Maximum((X%* Underlying Price) - Out of the Money Amount), (Y% * Underlying Price))

Out-of-the-Money Amount in case of a Call option equals: Max (0, Option Strike Price - Underlying Price)

Example:short 1 DTE jan14 12.50 Call at 0.08

Spot at 12.30
(0.08*100shares)+((0.15*12.30)-(12.50-12.30)*100shares) 8€ of premium + 164.5€ of margin

So instead of the margin requirement being the maximum loss on a long call option, namely it's value, they incorporate a portion of the underlying instrument the call option represents,  on the assumption that the client may want to exercise the option, rather than sell it for cash.  

I suppose it does at a layer of customer protection, discouraging them from spending their entire account value on long options which may all become worthless ( and therefore losing them as a customer  ), but it's not helpful for those with a little more self-control. 

They also talk about increasing the margin requirement as expiry approaches, and even closing out the option automatically shortly before the end of the day the option expires.. again, like all those "driver aids" in modern cars, they not actually helpful, and in this case it adds a new kind of expiration risk unique to Saxobank.

In terms of your real risk, assuming you don't exercise the option, your maximum risk really is just the value of the long option, regardless of the "exposure" figure. 

Ultimately this is a good example of a retail-focused institution making up it's own vocabulary, rather than using standard terms.  I think they do this deliberately to confuse people, making their services seem more elaborate or complete compared to other brokerages, and maybe encouraging people to think "sod it, this is too complicated" and buy a mutual fund instead.

Edited by MvR

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53 minutes ago, MvR said:

OK.. I see the problem.  Saxo use a different method to calculate margin requirement than Interactive Brokers or TastyWorks.  In this case, when it's says "Exposure", it actually means "Absolute Exposure", but which it appears to mean its margin requirement, based on their non-standard formula... See here :-

https://www.home.saxo/en-gb/products/margin-information?tabactive=f4a376a3-b784-4ae6-b0ac-43c342913773

So instead of the margin requirement being the maximum loss on a long call option, namely it's value, they incorporate a portion of the underlying instrument the call option represents,  on the assumption that the client may want to exercise the option, rather than sell it for cash.  

I suppose it does at a layer of customer protection, discouraging them from spending their entire account value on long options which may all become worthless ( and therefore losing them as a customer  ), but it's not helpful for those with a little more self-control. 

They also talk about increasing the margin requirement as expiry approaches, and even closing out the option automatically shortly before the end of the day the option expires.. again, like all those "driver aids" in modern cars, they not actually helpful, and in this case it adds a new kind of expiration risk unique to Saxobank.

In terms of your real risk, assuming you don't exercise the option, your maximum risk really is just the value of the long option, regardless of the "exposure" figure. 

Ultimately this is a good example of a retail-focused institution making up it's own vocabulary, rather than using standard terms.  I think they do this deliberately to confuse people, making their services seem more elaborate or complete compared to other brokerages, and maybe encouraging people to think "sod it, this is too complicated" and buy a mutual fund instead.

So long story short,I might be better of with Tasty Works?

It does make it unnecessarily complicated and given it's an option(the clue is in the title),if I don't have the cash,I won't excercise.

Like you say though,I'll have towatch them in the run up to expiry but I think they'll be long gone.

Which would you reccomend between Tasty and IB?

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So question here,if they've lifted my exposure due to my owning the calls,if I bought some puts at the same strike,would it reduce my exposure?

My current 4 shares I'm tracking XOM/FCX/AA/X all down nicely today.

What's it called when you buy puts/calls at same strikes?

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1 hour ago, sancho panza said:

So long story short,I might be better of with Tasty Works?

It does make it unnecessarily complicated and given it's an option(the clue is in the title),if I don't have the cash,I won't excercise.

Like you say though,I'll have towatch them in the run up to expiry but I think they'll be long gone.

Which would you reccommend between Tasty and IB?

Given this issue, plus the outrageous commissions they charge on bonds (£70 ish, compared to under £5 with IB), I'd say Saxo isn't great.

Out of the two, IB and TastyWorks, I say IB would be your best bet. The platform is more complex, but you won't need 95% of its features and you can customise the interface to hide the stuff you don't need. The steeper learning curve won't be an issue in a few weeks once you've made a few trades and got a feel for it.

The big advantage with IB is its reporting.. a huge time saver when it comes to tax time, All conversions to your base currency are done for you for example, unlike TastyWorks which only reports in dollars and will need some hefty Excel work to figure out CGT etc if you trade a lot.

IB also offer SIPPs, and you can trade options in it too, which is nice.. being able to sell covered calls, acquire stock at a discount using put spreads, and hedge with collars etc, would be a big advantage.

The main advantage of TastyWorks is the slick, easier to use platform, and their awesome customer service, though IB customer service is good too.

IB is also incredibly stable. I was watching every tick through the 2007 peak, the big drops and 2009 low, and at no point did the platform even struggle, unlike so many others where everything froze..

IB also allows you to route orders to all the various sub-exchanges that make up the whole stock market. There around a dozen or more of these sub-exchanges that route to the NYSE for example, or the NASDAQ. Some are optimised for algos, arbs, retail traders etc, and most brokers won't route to all of them. IB will, and offers "smart routing" to ensure it send your order where you'll get the best fill.

These different sub-exchanges are the reason retail investors wonder why they didn't get a fill when the charts shoe the stock did trade through their limit order. It could be because it didn't trade through that price level on the exchange the have access to, but a different one instead.

You can also open multiple accounts with IB, keeping different investment buckets / styles separate. And it's proper multi-currency, allowing you to keep all currencies in the account, and trade between them with negligible spreads and commissions.

So.. overall, a big recommendation for Interactive Brokers if you only choose one.  You'll need to tell them you have good / extensive options trading knowledge in the application form for them to let you have a proper options account, but in all honesty, if you spend a day or so watching  some of the training videos TastyTrade.com ( all free ) you'll be able to honestly say you have good knowledge compared to the vast majority of retail investors.

34 minutes ago, sancho panza said:

So question here,if they've lifted my exposure due to my owning the calls,if I bought some puts at the same strike,would it reduce my exposure?

My current 4 shares I'm tracking XOM/FCX/AA/X all down nicely today.

What's it called when you buy puts/calls at same strikes?

In theory a long put should reduce your "exposure", but since they do things a strange way, I don't know.

I wouldn't recommend buying puts and calls at the same strike. That's a long Straddle, and selling these ( i.e. selling a put/call to form a short Straddle ) is the options sellers' most profitable play.. You're paying the most in extrinsic value ( time value, or "premium" ) which means they're expensive and the odds of success are not in the buyers' favour.   That's why I put on a Big Lizard, consisting of a short Straddle with a long call to protect me in case the price rises.

 

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Posted (edited)

EOD 3

X closed at $6.55.  

100 shares of stock running P&L = (($6.55 current price - $6.72 opening price) x 100 shares )  - $1 commission      = - $18

Options position running P&L =  $59 initial credit - $53 current position value - $3 commission = $3

180740764_Screenshot2020-04-15at21_36_51.thumb.png.516fa3811c787c901d0e1de41a699dce.png

1386222940_Screenshot2020-04-15at22_08_28.thumb.jpg.701c88080a0220d1c4f17b2c841f643b.jpg

As predicted in my opening post, X bounced off the blue slow line (Kijun Sen)resistance, and turned down towards the green fast line (Tenken Sen) support. 

It didn't quite touch it, so it's more likely than not to have another go tomorrow. if it bounces, it should test resistance again.

If it breaks above the Kijun Sen on decent volume, we could see a run up to the 10 area within a couple of weeks... or it could fail and consolidate around the 6-8 area for a month before it encounters the cloud and we get to see if X has the energy to break above it. 

The lack of green cloud in the future suggests more consolidation first, but if we do break up through that flat cloud top in a couple of months, that will be a key milestone, and we could expect a decent run up from there.

Overall, my opinion since putting on the trade hasn't changed, so I'm leaving things as they are.

With the stock falling back today, the imaginary 100 share position is now showing an $18 loss after commission, whilst the options position is still showing a small profit.  

That's one of the counter-intuitive things about being a net options seller.. You tend to experience less overall volatility in your account, along with a steady up-draught due to time decay working in your favour.  This is what you get in exchange for giving up some potential upside.

Edited by MvR

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25 minutes ago, MvR said:

EOD 3

X closed at $6.55.  

100 shares of stock running P&L = (($6.55 current price - $6.72 opening price) x 100 shares )  - $1 commission      = - $18

Options position running P&L =  $59 initial credit - $53 current position value - $3 commission = $3

180740764_Screenshot2020-04-15at21_36_51.thumb.png.516fa3811c787c901d0e1de41a699dce.png

1386222940_Screenshot2020-04-15at22_08_28.thumb.jpg.701c88080a0220d1c4f17b2c841f643b.jpg

As predicted in my opening post, X bounced off the blue slow line (Kijun Sen)resistance, and turned down towards the green fast line (Tenken Sen) support. 

It didn't quite touch it, so it's more likely than not to have another go tomorrow. if it bounces, it should test resistance again.

If it breaks above the Kijun Sen on decent volume, we could see a run up to the 10 area within a couple of weeks... or it could fail and consolidate around the 6-8 area for a month before it encounters the cloud and we get to see if X has the energy to break above it. 

The lack of green cloud in the future suggests more consolidation first, but if we do break up through that flat cloud top in a couple of months, that will be a key milestone, and we could expect a decent run up from there.

Overall, my opinion since putting on the trade, so I'm leaving things as they are.

With the stock falling back today, the imaginary 100 share position is now showing an $18 loss after commission, whilst the options position is still showing a small profit.  

That's one of the counter-intuitive things about being a net options seller.. You tend to experience less overall volatility in your account, along with a steady up-draught due to time decay working in your favour.  This is what you get in exchange for giving up some potential upside.

I'm going to need to sit down and get my head around these trades.By nature,I'm prepared to back myself and have never really bothered hedging my calls but compared to my current 5 running positions you're runnign a lot less volatility.I'll be averaging in as per my plan,little and often,but this world is really opening up to me.

Historically,I never really bothered with this as I only ever dealth in LIffe options where the spreads were that wide,you effectively were unable tot rade too foten

I'm liking the Ichimuko crowd TA.Very much so.Going tot ake some getting used to.I've always used very simple charts with momo indicators.

The reason I mentioend the long straddle earleir because it was in my mind that I think companies like X will msot likely be considerably hgiher by Dec.Or bust.I think the middling option is off the table.Hence my inquiry.

I'll set up an IB account tmrw.

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