ES scenario

Discussion in 'Options' started by asdfghj7, Apr 19, 2009.

  1. Using fridays end of the day data. The December 2009 contract for the e-mini S&P (es) is trading around 860. Currently, the December 2009 contracts 600 put option is around 20 pt. ($1000)
    and the December 2009 contracts 860 put is trading for 100 pt. ($5000)

    If a trader buys one December 2009 ATM 860put for 100 pts ($5000) this monday, and sell one December 2009 OTM 600 put for 20 pt this monday also.

    If this position were both true as of this monday, and the market tanks this coming Wed Thur or Friday. Can the OTM 600 put we sold, ever be worth more than the ATM 860 put we bought since the 860 began to go in the money from the beginning, but the volatility affected the 600 stronger

    Basically, if the market goes from 860 to 700 or lower within a few days, this would make the 860 put gain around 160pt by the time it got to 700. Due to a increase in volatility, can the 600put ever be more expensive than our long 860put

    If the 860put is worth $8000 in intrinsic value at 700,
    can the 600 put ever be worth more than ($8000)
  2. Hi,

    You use a great many words to ask a simple question.

    The answer, as you already know, is NO.

    You are not thinking clearly. Forget volatility. it it 100% irrelevant. here is your question:

    Would anyone ever pay more for the right to sell an item @$600 than he would for the right to sell the same item @ $860?

  3. If the market comes down to 700 in a 3-5 day down move from 860, can the margin increase double or more than the $4000-$5000 margin that normally has?

    eg. If ES at 860 margin then margin is normally around $4000 give take.

    If ES moves from 860 to 700 with a huge 3-4 day drop, margin for ES then becomes $10000 or more.
  4. Margin is commonly thought of as a percentage of the underlying product, but that is not exactly the case. The ES mini contract margin currently is $5625 (per contract), which is a reduction from recent highs of about $6200. The CME group sets the margin rates as they see fit to reflect the risk in the markets. The margin rates can and do change, but not on a daily basis, unless CME chooses to change the margin rates that way. They do not fluctuate with the index value directly.
    If the value of the ES was to drop drastically in the next few weeks, the CME might raise margins somewhat--probably back to the 6200 level, but it would be very unlikely that they would raise it to 10,000. One of the main advantages of trading futures is the increased leverage that they offer compared to individual stocks. It is not really in the best interests of the CME to raise margins unrealistically high. This reduces their main competitive advantage compared to stocks, and would cut into the amount of contracts traded.
    Of course, you should also realize that individual futures firms may also set day trading margins at less than that provided that the contracts are not held "overnight"--although "overnight" usually means holding after the afternoon close. The futures markets trade during the evening and overnight hours from Sunday night to Friday morning. In fact, they are trading as I write this.
    Be careful to learn what you need to know in order to successfully trade options and futures. Read a lot first (Mark's books are a good place to start) and trade on paper to gain a grasp of the basic ideas. Then start small in order to learn the real life lessons you need to know about order fills, bid-ask spreads, etc. You will probably lose some money until you master how things work.
    Best wishes.
  5. Does anyone have a excel spreadsheet or a formula for determining the margin requirement for various futures and options strategies.

    I'm looking at long futures/short call and vice versa.
  6. dmo


    Futures option margining is risk-based, and is thus more rational than stock option margining IMHO. The minimum margin requirements are set by each exchange using the SPAN system and worst-scenario data the exchange determines and publishes in the SPAN files they make available every evening. You can buy SPAN software which will tell you the exact minimum margin requirements for your position daily.
  7. I hate the concept of SPAN... You have to pay $500 for the software to find out what your margin requirements are... It doesn't recognize certain strategies either (at least with Ice cleared OTC) ... The options in question were cash settled european options (read : no exercise risk/pin risk), and I bought a bfly...I was dumbfounded when I saw a (albeit very small) margin requirement....

    Believe it or not you can get PC span from a torrent should you choose.... I haven't used PC span, but the screen shots I've seen scream "windows 3.1!"