Comparing an IWM vs. TF call sale (short)

Discussion in 'Options' started by Brighton, Jan 10, 2013.

  1. Brighton


    Hi - I've been trying to get up to speed on the mechanics of selling some premium on a slice of a portfolio that's in small caps (long stock and short puts). There are no covered calls in the portfolio because some of the names don't have active options, or it's too much work for limited returns/protection.

    Looking for alternatives, I ran some numbers for two instruments on the Russell 2000 index. I tried to use a round number strike that's close to the money for an apples-to-apples comparison (this is not a trade I would make).

    With the data below, futures options vs. ETF options give a 3x bang for the buck. In my taxable accounts, I trade mostly futures and futures options so I'm not very familiar with Reg T. vs. portfolio margin (PM). If I change this particular account to PM, and assuming same month/strike/premium received, will futures options still be the way to go, or does PM even things out?

    Note: These would be naked call sales; an imperfect and partial hedge, if you will. I am not long IWM or TF.


    Date: 10 Jan 2013

    *IWM (Ishares Russell 2000 ETF) at 87.50
    *90 call is 2.86% OTM
    *Sell ten March 2013 90 calls at $1.34 (b/o 1.30 v 1.37) = $1340 premium received
    *Total commission per side estimated at $3.83 to $13.53 (this is an IB estimate).
    *Reg T margin = $16,393
    *DTE 65
    *Max return on margin, ex commission = 1340/16393 = 8.2%

    *TF (Russell 2000 e-mini futures, NYBOT/ICE) at 879.30
    *900 call is 2.35% OTM
    *Sell one March 2013 900 call at $14.85 = $1485 premium received
    *905 call is 2.92% OTM (use this one; closer to the IWM trade)
    *Sell one March 2013 905 call at $12.80 = $1280 premium received
    *Total commission per side is @2.01
    *Margin = $5427
    *DTE 65
    *Max return on margin, ex commission = 1280/5427 = 23.6%
  2. What is the IV? The last time I checked it was around 12. I find it low.

    IWM behaved strange today -- it lagged in an up day. Is it a sign of something to come?
  3. Brighton


    IV is around 16%, Delta is around 35.

    Like a lot of things right now, the IV is pretty low in IWM and TF.

    This exercise is preparation for when things heat up -- probably about the time Timmay leaves, the guy with the illegible signature takes over, and Congress starts fighting again.
  4. Did you consider time spreads?
  5. Brighton


    I haven't played around with any spread scenarios yet. Still learning about the different RUT-related products and their respective options. Might also look at inverse ETFs, although I understand some of them can be minefields.