I have a couple silly questions here that i hope some can help out with. -I bought a put option on gold futures. $16 put on ZG. It is OTM. My unrealized profit fluctuates. How can my unrealized loss grow...i thought the point of an option was that you can only lose the premium? ($16) -It seems i had to post margin as if i was buying a futures contract...i assume this is standard procedure? -How do i calculate a running P/L count. How do i calculate the value of a $2 change, or a $1 change. I assume this will change based on how the greeks change. Yes i know i sound like an idiot, so flame away if you'd like. But, I'd really appreciate any help. Thanks all.
Soon2Bgreat, You can't do any better than this: http://www.cme.com/edu/ I hope this somewhat helps. Tom
Quote from Soon2Bgreat: -How can my unrealized loss grow...i thought the point of an option was that you can only lose the premium? ($16) You cannot lose more than that. If you're losing money on the position, your unrealized loss will converge on the premium for the option. Make sure you included the multiplier. If you bought a $16 put on gold, you're actually on the hook for $1600 (since the full sized ZG gold multiplier is 100) -How do i calculate a running P/L count. How do i calculate the value of a $2 change, or a $1 change. I assume this will change based on how the greeks change. I'm not sure I understand this question. I think what you're looking for is the delta of the position. It will tell you the change in the value of the options given a change in the underlying. For example, if you have a delta of .5, you will make $.50 for every +$1 change in the underlying. Delta changes as the underlying changes relative to the strike of your option.
I forgot about the multiplier...it makes sense now. Yes the delta is what i was looking for, thank you again. Tom, that is a good link, very comprehensive list of information, thank you. Now to go take care of my position...which happens to be 100x's larger than i thought
I have another question about the ZG options. Are these options exercised often? More specifically if options are slightly ITM, say not enough to cover the premium, do they get exercised, or are they rolled over? Also they are US style...and i'm wondering if they get exercised early very often? I'm not sure if there's an answer, as 'it depends' is probably the best answer, but i'm looking to see what people have experienced. I'm not sure if i'm being clear, but i'd appreciate your thoughts. Thanks.
If there's little or no time premium left in the options, they will almost certainly be exercised. Think of it this way--if the holder of a long option keeps it, he's out the value of the premium in cash. If he exercises, he's posting a performance bond which he can earn interest on. Posting margin instead of premium will get a higher return.