I am new to the options world and I hope someone could shed some light to me. I am adopting options to protect my downside, protect myself from flash crashes especially as I am a swing trader and I only spend a couple of minutes a day to trade, would definitely miss the crash if it were to happen. Here is the scenario: Current ES price = 2260 Option strike price at 2260 = $76 Here are my questions: 1. How much does a contract cost? Is it $76 or $76x100? 2. When is the expiration of the option? From the link below, it's a Jun 2017 futures options. So, I am assuming it will expire of the 3rd Friday of June? And it's American, so I could exercise it whenever I wanted? 3. How to incorporate broker's fees? According to OptionExpress, its commission is $12.95. Is it per trade basis or per contract basis? Thanks. Reference: http://www.cmegroup.com/trading/equ...uotes_globex_options.html?optionExpiration=H7
If your post constitutes what you consider "everything I need to know" then the market is going to enjoy taking your money off you. I mean feel free to ask questions on here, that's what this place is here for, but the three you posted are "Dummies 101", you shouldn't have to ask them if you have done even the most rudimentary of reading up on options ! Re: "options to protect my downside" : Its not that easy, otherwise everyone would be doing it. Get a few books, do some paper trading... otherwise you're going to get yourself into a whole heap of trouble.
1- the multiple for ES options is $50-it is listed on the CME website. 2-ES options come as monthly, weekly, end of month and wednesdays-your platfrom should provide days to expiration and you need to learn the symbology 3-ask your broker You are not ready to do your first trade yet.
Once you get your most-basic basics down [as per the above responses], make a profit/underlying graph of the sort you see with every options book. (Look up Russell Rhoads and follow his lead.) Map out what will happen as the ES gains 1%, and loses 1%. What you will find is that the underlying ES will have a 45° line, showing 1|1 loss-or-gain as the ES rises or falls. BUT[!!!] the PUT option which you purchased as insurance will have a swooping line (except at expiration) that will have much less of an angle (to offset the 1|1 ES loss) -- a victim of delta mostly, theta increasingly, and vega eventually. (Learn, learn, all'us be a'learnin'.) If you can't graph it, do NOT trade it.
When I dabbled in this, I found the SPY options more appealing. First of all, they are more liquid I would say. Of course, you can't trade them 24hrs though, so this may be an issue. What I used them for was day trading, simulating the ES, with less leverage, and for this, it worked quite well. Simply choosing the closest weekly expiry with a strike price very close to the actual price, and simply buying calls or puts to go long or short. I can't recall the exact numbers, but trading 2 options was about 1/5 ES contract. (ie. If ES moved 4 points, hence $200, my SPY options would have gained about $40 or so.) Commissions of course is a bit of a bitch because with ES, getting 1 tick profit means you make about $8, but 1 tick profit with options is $1, and your commissions are more than that,so you're actually down and not up. The price to buy or sell was about $1.50 or so, but there were discounts for multiple options, unlike the ES which is the same price for multiple contracts.. In terms of spread, often it was just 1 tick, but you have to watch out for this and focus on limit orders to enter and exit. But all in all, it works great. Instead of risking $100 for the ES trade if I was going to risk 2 points, it could be just over $10 if I used options instead. The most you will also ever lose when buying options is the cost (price x $100), so you're talking $100 to $200 max, if like I say you're buying a close expiry for the weekly that is ATM.
Honestly you should go to the optionseducation website and start watching videos and start reading some basic guides like Options for Rookies is a great book to start, also you really should learn how Margin works, read and understand the Characteristics and Risks booklet. http://www.optionsclearing.com/about/publications/character-risks.jsp Really get a good understanding about all the basics before even thinking about a trade. You can make a mistake that can wipe out your account because of a misunderstanding. BTW: I prefer the CBOE product (SPY options) over the CME products
Actually that is not correct. Unless you call your broker and explicitly provide a no exercise instruction you can lose more if on a Friday night your long option is a cent or more in the money and your long option position is exercised automatically. You can end up short a lot of stock or long a lot of stock over the weekend. So you have to close out the position or call your broker and tell them you do not want to exercise your long option position. http://www.cboe.com/learncenter/concepts/beyond/expiration.aspx What is "automatic exercise" of an option? The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as "exercise by exception." Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money, and an index option that is $.01 or more in-the-money. However, a specific brokerage firm's threshold for such automatic exercise may or may not be the same as OCC's.