CL options trading question

Discussion in 'Trading' started by oldtime, Jul 2, 2011.

  1. I'm short an AUG 90 put which I sold for around .70

    What will happen if the option expires out of the money?

    What will happen to me if it expires in the money?

    Do I need to do anything or will everything just take care of itself?
  2. spd


    You should be fine, dont worry about the details. Just keep throwing money at the market, sit back, and wait for all your dreams to come true.
  3. Betapeg


    The option premium will be $0 if it expires OTM which is what you want since you want to keep the premium.

    The option premium will be worth the intrinsic value of a put (strike price minus actual price) if it expires ITM which is what you don't want.

    Nothing ever "takes care of itself". Don't let your naked put position (I assume this is what you have) go ITM. My rule is I buy back the option if the premium doubles. Also, I sell very far OTM of options. $90 is REALLY close to the strike and would be too much risk for me. I don't know about you though. Maybe you like taking gambles? I sell the farthest OTM strike with a bid and ask price available and with at least 100 open interest.

    For example, I saw downward pressure on oil, so I sold 10 $130 August call options back in June with a delta of 0.01 (currently) and a premium of $0.09 or ($0.09 x 1000 barrels x 10 contracts = $900). I received a $900 premium. Oil is unlikely to surpass $130 in the 46 days to expiration so I'll most likely keep the $900.

    Why choose close to the money strikes if you can still get a decent premium selling far OTM where you're almost guaranteed to win the trade. $90 strike is awfully risky in my opinion. Just don't get exercised.
  4. I'm willing to get long CL at 90. Not sure I understand the procedure if my short put expires in the money.

    If I get excercised that's fine with me.

    Over at the CBOE everything would just get settled in cash, but I'm not sure how it works with futures options.
  5. Dael


    Nice shorting! :) I use the same approach selling far OTM options (preferring strangles actually). The only question I have is about margin requirements for this 10 lot naked shorts. What's it? Smth about $2,000 per contract, so $20,000 total?

    This is the only bad side I see in OTM selling. $900 premium for $20,000 margin makes 5% ROI (actually 2-3% return on total account equity because you have to use just part of your account in order to have ability to ajust).