Hello, I have spent a LOT of time researching options futures trading the last 48 hours, and still am having some trouble with things. I'm going to try my absolute best to ask these questions as best as possible and sincerely thank whoever helps answer them in advance! I've specifically been considering straddle positions. For the sake of the questions, I'm going to refer to the uploaded image, which shows Options Chain prices for CRUDE OIL (CL) Jan 2021. 1) Why are some calls/puts missing? And, why are a lot of strike points varied/missing? 2) I plan on trading futures options on InteractiveBrokers, probably mostly the NYMEX. How do I know, or can be sure that these are American Style options, versus European and can exercise at any time? 3) I am very interested in exercising a straddle position in the next few months, or even potentially much further down the road. Using the image attached, let's assume I make a straddle position in the 12/16/20 CL option at strike price of $25. 2 calls and 2 puts. Let's say they execute at the current price of 11.06 (calls) and 2.53 (puts), for a total 13.59. 3A) Does this make my break even points for CL Jan 2021 (not including trader fees) $38.59 for the call, and $11.41 for the put? 3B) If the price in the next 5 months shoots up, and I exercise the calls at $50 for both call options, what would the profit be? If things get extremely volatile and I exercise both calls at $50, then the price shoots back down to $20, can I also exercise the puts at a different time and make money on both the calls and puts? 3C) What's the easiest way of executing this example trade on InteractiveBrokers Trader Station? 3D) To close long straddle calls/puts its to my understanding that I simply sell back the positions, is that right? 3E) How would I setup automatic triggers to close said positions at a certain point, like a limit or stop in a stock sale? 3F) How do I calculate the total cost/margin of the example trade above? 4) Is there a good calculator/chart tool that can help in executing a straddle position on futures options? Break even points, P/L calculations, etc? Sorry, I know that's a lot but I just am trying to be as clear as possible and researching doesn't seem to have specific answers/solutions to the above. Thanks! Jimmy
1. What do you mean by some calls or puts or “strike points” missing? Do you mean just strikes? Which ones do you think are missing? 2. Check their specifications, easily Googled. Otherwise don’t trade something you haven’t researched. You’re asking a question here that I or someone could answer, but since you want to “be sure” then you have to have research skills to find the source of the information. 3. Not sure what you mean by “exercising” a straddle. Do you want to exercise both the call and the put and get what? And when? I don’t see a reason to exercise anything. Also, CL options traded that far out aren’t liquid, so aren’t traded much. Why not stick to popular equity options with great liquidity and that everyone understands? CL futures and especially options aren’t for retail traders and newbies. The lack of liquidity shows that even experts have trouble trading and pricing them. But: 3A. Yes. 3B. If you exercise them then you’ll end up with futures, which are risky and may require high margin, if you even have marginable account. You’d also lose the option premium / extrinsic value, which totally wouldn’t make sense and would cosy you $thousands. It’s actually very strange to try to exercise them. Did you read about this somewhere or what you’re trying to accomplish? 3C. Broker doesn’t matter. Simply buy them, though due to low liquidity you may not get a reasonable price and lose on slippage. 3D. Yes. 3E. For limit sale at profit set a limit order. No one uses stops on options, including more liquid stock options, so you have to watch your positions and exit manually. 3F. IB shows all that automatically in the Strategy Builder. IB Performance Graph, though it may be inaccurate and difficult to interpret for illiquid options. Some people use TDA ThinkorSwim just for that. Finally, don’t trade illiquid options that no one else trades, and especially don’t trade oil options without working in that industry. Or when you do, have tons of experience with options in general first, trading stock options first.
I have been trading the E-mini S&P 500 futures options for quite awhile and still don't know all the ins and outs of the energies (Crude Oil, RBOB gas, Natural Gas, etc.) In my opinion they're complicated to such a degree that I simply don't trade them. That said it sounds like you have some more studying to do. The Crude futures options trade quite a few months into the future but volume and open interest is so low in the distant months that not all strike prices are listed. You included a picture of the CLF21 contract but there are dozens of more that go out to Feb. 2031. On my platform (thinkorswim) that contract is not even listed yet. As to whether they are American or European I believe that based on quick look at the CME's website that they're American but not sure. Crude oil options come in all flavors. I've included a screen shot from the CME's Crude Oil Options specifications web page which shows all the different types of crude oil options that are available. They include American, European, Weekly, Daily, spreads, mid-curve, etc. Far more complex than other futures options such as the /ES. You may want to read more about futures options before you start trading. For books there are a couple of decent books that I have in my library both written by Carley Garner (a futures trader and broker.). Worth the money if you're into futures and futures options trading. They are; A Trader's First Book on Commodities:Everything you need to know about futures and options trading before placing a trade -and- Higher Probability Commodity Trading : A Comprehensive Guide to Commodity Market Analysis, Strategy Development, and Risk Management Techniques Aimed at Favorably Shifting the Odds of Success Both widely available in bookstores and online. For online resources I would visit the CME's website (https://www.cmegroup.com/) and find all the information the exchange offers on Crude Oil futures and options. A lot of good stuff but you have to drill down (no pun intended) to find some of the info. For some good material I would also visit tastytrades's (https://www.tastytrade.com/tt/home) website and look at previous segments on straddles, in general, and crude oil futures and options in particular. Pete Malmut is the futures guru at tastyworks. Lots of good stuff there also. Well worth the visit. I have a trading account there also, their futures and futures options commissions aren't too bad, @2.50 per contact round trip. CME Crude Oil Futures Options Finally I highly recommend that you continue your education and visit the CME and NYMEX (part of the CME Group (as is COMEX)) websites, read some literature on futures options, straddles, strangles, spreads, etc. Best
Amen. That's why I trade, and only trade, the E-mini S&P 500 futures options (/ES). I can understand them and they offer pretty high volume and open interest along with narrow bid/asks. Offer Weeklys, Monday, Wednesday and Friday expiration's, etc. Trade 23 hours a day and are pretty active except in the middle of the night (ET) when the markets are quiet(er.) Best
@JBuck, thanks for your 2 posts above. for the OP, from your own personal knowledge of trading E-mini or E-micro S&P futures in terms of experience ease/comparison to trading SPY options? risk, reward, other? I personally dont' trade futures
Hello, Thanks for the swift response and help to all, that helped a lot! Sorry, my terminology may be off. By exercising, I meant selling or closing the call or puts. I did not know there isn't much liquidity. I figured in a really volatile time there'd be a lot! That's what's drawn me to this idea of employing a straddle. I think there's going to be high volatility in oil specifically over the next year and opportunity to beat the break even point, and possible even make money the other way as well! That's why I was asking if it's possible to sell the call at one point in time before the contract expires, and also have the option to sell the put if the price made sense to do so at a later time. Thanks again! Jimmy
Read a basic options book before you try anything. Then try option butterflys which cap the risk, instead of risky straddles which aren't for beginners.
There are pros and cons to any trading any S&P 500 product. I trade the /ES because I like the ability to trade almost 23 hours a day. With newsworthy events happening around the world I don't necessarily want to wait until 9:30 AM (ET) to start my trading day. Nor do I want to be limited in my trading in the evening. I also like the tax advantage that the /ES options offer. The /ES contracts are taxed as an IRS Section 1256 contracts and enjoy lower 60/40 capital gains tax rates, summary tax reporting, and easier mark-to-market (MTM) accounting. Here are some links that you may enjoy. Some links to tasttrade and recorded segments touching on the /ES, SPY and SPX and how they differ and the pros and cons of each. /ES SPY SPX tastytrade segments https://www.tastytrade.com/tt/shows...es/converting-to-es-scaling-up-spy-02-10-2017 https://www.tastytrade.com/tt/shows/futures-measures/episodes/equating-spy-to-spoos-es-06-06-2017 https://www.tastytrade.com/tt/shows...des/basics-pros-cons-of-spx-spy-es-05-18-2016 https://www.tastytrade.com/tt/shows...odes/sp-comparables-spx-spy-and-es-06-05-2015 IRS Sec 1256 Articles https://www.forbes.com/sites/greats...56-contracts-has-tax-advantages/#364de0651f80 https://greentradertax.com/trader-tax-center/tax-treatment/section-1256-contracts/ Best