Options on futures

Discussion in 'Options' started by shortskirt, Jul 9, 2007.

  1. Can anyone point me to a good source of information related to using options on index futures as a risk management method?

  2. Bump
  3. MTE


  4. Suppose you have a $75,000.00 portfolio of stocks with a similiar beta to the S&P 500 cash index. Now, suppose I want to protect against any downward market movement. I would probably buy one S&P 500 emini put near-or at-the-money with expiration anywhere from three months to a year out. How do I arrive at buying only one? Each S&P 500 emini's notional value, at the current time, is about $75000.00. That is 1500 (where the S&P 500 emini current market price is <approximately>) times the multiplier, which is 50. If you have a bigger portfolio to protect, then just divide the portfolio value by the current notional value of the S&P 500 emini contract to get the number of puts to buy. I typically would round-down, for you do not want to overhedge. You are simply buying insurance. This is how I do it. Some people buy puts that are 2-4% out of the money. Just some food for thought.
  5. Options Market Making by Baird...

    If you don't have time to read the book, then I also suggest CME.