Dumb Option Question

Discussion in 'Options' started by elomich, Dec 29, 2011.

  1. elomich


    I never really trade options so bare with me. If I bought a put on 6E futures (euro) traded at the CME, what would my risk be if I paid 210? I would assume my risk would just be that - what I paid right? However on my ladder (CTS t4) it says every tick is worth 12.5. So, if the option went to 0, my risk would be 210*12.50? Please help clear this up for me, thanks.
  2. When you buy an option (Call or Put), it's just the premium.
    You should keep an eye on it, however.

    If it expires OTM, fine. you just lose the premium + commissions.
    If it expires ITM, you will be assigned and you're then exposed to whatever the underlying does (in addition to whatever margin requirements are needed).

    Just make sure you know when your expiration dates are so you can check up on things if you don't plan on monitoring stuff every second.
  3. elomich


    Thanks...so in this case the premium would just be $210 for every contract? I understand that when you buy an option you're only paying for the premium, but in this case I'm just confused as to exactly what that is. The reason I'm confused is because my DOM tells me each tick is worth $12.50 (so if the option closes at 200 today, I am down $125?).

    I don't plan on letting the option expire and I can basically monitor my position during all hours the market is open.
  4. The premium on an option for a futures contract is quoted in terms of the amount it's worth over the strike, but the amount it costs is in terms of the tick.
    Which means...
    If I buy an ES option for a 9.5 premium, it actually costs $475 (9.5 * 100/2), because each tick is $50. Thus a 1300 call priced at 9.50 will cost $475, and each tick change in the price will be worth $50.
    6E is quite similar, I'm sure. Multiply the premium by 100, divide by 8, you'll get the price. Each change in price will be worth 12.5.
  5. Most likely you are looking at the futures contract on the DOM (/6E) - and let me guess; you must have bought a put or a call two strikes away. Your option that you bought though can only loose (not to say its a good thing) the amount you already paid. But yes; watch for possible assignment. Then you are exposed to the future position.

  6. elomich


    Thanks for the replies...I think I have it figured out. The premium I paid was 210 (on the DOM). Multiply that by 100 and divide by 8 and I get like 2650 or something. So that is what I stand to lose right?

    I was not looking at the futures contract on the DOM...it was for the options contract. My position is a couple hundred ticks out of the money, it is more for protection than anything else.