Thursday, January 20, 2011

How Options Expiration Affects Index Futures: January 2011 Expiration

How Options Expiration Affects Index Futures: January 2011 ExpirationSocialTwist Tell-a-Friend
Taking advantage of market data can help traders anticipate where a trade may go.  This video discusses the interaction between SPX index options expiration and S&P 500 futures.  The SPX options open interest tonight may dictate how futures trade at the open in the morning on Friday.  As off-the-floor traders in our HFT chatroom, we use this data to trade the S&P emini futures during the opening hour.  The data from OCC shows huge open interest at 1275.00 strike on SPX January options.  Meanwhile, the S&P cash closed at 1280.  There is a 5 point spread that's expected tomorrow morning for the market open.



This video was filmed at the CME Group. Follow the CME Group on twitter http://twitter.com/cmegroup

Tuesday, January 18, 2011

Checklist for Applying Option Strategies | Options Like a DPM Webinars #8: Ratio Spreads

Checklist for Applying Option Strategies | Options Like a DPM Webinars #8: Ratio SpreadsSocialTwist Tell-a-Friend
The Admiral, a former CBOE designated primary market maker, runs through a checklist to both master various option strategies and expertly analyze the market to determine which option strategy is the best for a particular stock at a particular time. Having gone through 8 Options Education Sessions in this "Trade Options Like a DPM" series, students should have enough tools in their toolbox to take advantage of any stock move and the possible scenarios.

This a Q&A excerpt from "Trade Options like a DPM Webinar #8: Ratio Spreads" - http://hamzeianalytics.com/pow_register.asp




"RATIO SPREADS" OPTIONS WEBINAR CLASS DESCRIPTION (December 13, 2010, 1800 CT)

An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased. A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to capture a gain on a small upward move in the underlying stock's price. However, any move past the higher strike price ($50) of the written options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's price can cause an unlimited loss to the investor due to the extra short call.

ABOUT "THE ADMIRAL"

The featured speaker, whom we affectionately call "The Admiral," was a Designated Primary Market Maker (DPM) on the floor of the CBOE for five years. Although we're not using his real name (so don't ask!) suffice it to say that we consider him to be one of the most knowledgeable option traders on the planet. As a floor trader in the '80s and '90s he did the opening options rotation for 5-25 stocks the old-fashioned open outcry way—meaning he opened each option strike price for each of these stocks within the first 30 minutes of trading, both calls and puts.

That meant he had to price more than 500 option strikes, plus as a market maker he traded and kept the markets current. As a DPM, technology brought forth auto-quoting of option series, but pricing of those quotes remained his responsibility. Trading 1 million shares of stocks and 50,000 options contracts was a normal day for him. In 27 years at CBOE, he has traded through the crash of '87, the smaller crash of '90 and the tech bubble in 2000. He has traded three-digit volatility and seen every possible market environment imaginable. So, if you're going to learn options, it might as well be from the very best.

Monday, January 17, 2011

Mastering Volatility for Ratio Spreads | Options Like a DPM Webinars #8: Ratio Spreads

Mastering Volatility for Ratio Spreads | Options Like a DPM Webinars #8: Ratio SpreadsSocialTwist Tell-a-Friend
Volatility is a key component of any options strategy. Understanding volatility can mean the success of a trade or a total disaster, painting oneself into a corner. In this excerpt from the Q&A session of "Ratio Spreads," the Admiral gives several tips and experienced insights on how to analyze volatility and some common traps. Also, he explains how news and seasonality may affect volatility in ways that is unintuitive, debunking some options trading myths that may have endangered traders.

This a Q&A excerpt from "Trade Options like a DPM Webinar #8: Ratio Spreads" - http://hamzeianalytics.com/pow_register.asp



"RATIO SPREADS" OPTIONS WEBINAR CLASS DESCRIPTION (December 13, 2010, 1800 CT)

An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased. A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to capture a gain on a small upward move in the underlying stock's price. However, any move past the higher strike price ($50) of the written options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's price can cause an unlimited loss to the investor due to the extra short call.

ABOUT "THE ADMIRAL"

The featured speaker, whom we affectionately call "The Admiral," was a Designated Primary Market Maker (DPM) on the floor of the CBOE for five years. Although we're not using his real name (so don't ask!) suffice it to say that we consider him to be one of the most knowledgeable option traders on the planet. As a floor trader in the '80s and '90s he did the opening options rotation for 5-25 stocks the old-fashioned open outcry way—meaning he opened each option strike price for each of these stocks within the first 30 minutes of trading, both calls and puts.

That meant he had to price more than 500 option strikes, plus as a market maker he traded and kept the markets current. As a DPM, technology brought forth auto-quoting of option series, but pricing of those quotes remained his responsibility. Trading 1 million shares of stocks and 50,000 options contracts was a normal day for him. In 27 years at CBOE, he has traded through the crash of '87, the smaller crash of '90 and the tech bubble in 2000. He has traded three-digit volatility and seen every possible market environment imaginable. So, if you're going to learn options, it might as well be from the very best.

Sunday, January 16, 2011

Call Ratio Spread Basics | Options Like a DPM Webinars #8: Ratio Spreads

Call Ratio Spread Basics | Options Like a DPM Webinars #8: Ratio SpreadsSocialTwist Tell-a-Friend
This clip from the latest "Trade Options like a DPM" Options Education Class with a full lesson on Call Ratio Spreads. As with the "Backspreads" class, the Admiral teaches the details of putting together a Ratio Spread Options Strategy by doing an example from beginning to end. The Admiral starts with the basic concepts for a Ratio Spread, breaking out each Options Greek variable. Then, he analyzes the various scenarios for stock price movement and volatility to determine if Ratio Spreads are a good strategy choice for this particular stock at this particular time. The stock in this example was Amgen (AMGN).



"RATIO SPREADS" OPTIONS WEBINAR CLASS DESCRIPTION (December 13, 2010, 1800 CT)

An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased. A ratio spread would be achieved by purchasing one call option with a strike price of $45 and writing two call options with a strike price of $50. This would allow the investor to capture a gain on a small upward move in the underlying stock's price. However, any move past the higher strike price ($50) of the written options will cause this position to lose value. Theoretically, an extremely large increase in the underlying stock's price can cause an unlimited loss to the investor due to the extra short call.

ABOUT "THE ADMIRAL"

The featured speaker, whom we affectionately call "The Admiral," was a Designated Primary Market Maker (DPM) on the floor of the CBOE for five years. Although we're not using his real name (so don't ask!) suffice it to say that we consider him to be one of the most knowledgeable option traders on the planet. As a floor trader in the '80s and '90s he did the opening options rotation for 5-25 stocks the old-fashioned open outcry way—meaning he opened each option strike price for each of these stocks within the first 30 minutes of trading, both calls and puts.

That meant he had to price more than 500 option strikes, plus as a market maker he traded and kept the markets current. As a DPM, technology brought forth auto-quoting of option series, but pricing of those quotes remained his responsibility. Trading 1 million shares of stocks and 50,000 options contracts was a normal day for him. In 27 years at CBOE, he has traded through the crash of '87, the smaller crash of '90 and the tech bubble in 2000. He has traded three-digit volatility and seen every possible market environment imaginable. So, if you're going to learn options, it might as well be from the very best.

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