Just wondering: If I SELL a covered (Future Option) Weekly Call (slightly above ATM) with an underlying Future LONG, and then at the same time I SHORT the underlying Future (from next forward calendar expiry) and SELL corresponding covered Weekly PUT (slightly below ATM) ..? (So my LONG will neutralize the Future SHORT. Futures are held only to cover their corresponding options sold). I'll earn the Theta decay on both sold Weekly Options (the CALL and the PUT) which are already covered by their underlying Futures, thus without locking any extra margin (except two Future overnight margins, one from LONG and one from SHORT). ? Say there's enough options spreads between the CALL / PUT strikes, that both are slightly OTM at around 1.5 to 2 Standard Deviations from the current VWAP ? What's the catch here?
The futures calendar will only change in value if interest rates or dividend flows change, so that is overall a non-event. You are now short a near term call and put, both just OTM. I'm not getting the value of doing the futures. If you want to be short the Put/calls, just sell that, reduce your margin and execution costs.
Thanks Robert! but won't the naked Sell of OTM Calls & Puts going to lock significant margin? So what's the margin that's going to be locked? From what I knew Short Strangles / Straddles eat huge amounts of margins..
The short OTM Calls & Puts have risk and will require margin. The futures offset each other not the options so they do not lessen risk or margin. And, the futures spread will have a small margin requirement.
hmm ok so if done on a single account. How about both legs are executed from separate accounts? Then I assume both options get covered safe?
Here is an example of short 1 June 2830 P and short 1 2950 call. Margin $5820 When you add the futures, $5876 or $56 more-for no reason.