Put spread translation

Discussion in 'Options' started by doublechin, Apr 5, 2011.

  1. I have little knowledge of options, not my bag, but would like to decipher this. I have been told by someone he has done a 99-98.50 eurodollar put spread and "paid 3 for 400" a few days ago. That future contract month seems to be trading at 99.43 at present.
    I assume this is 3c on the spread, which has now gone to 6 apparently? What is his risk on this trade, $12k?
    Can some explain this in layman terms and also tell me where I can look these spread rates up on the Bloomberg terminal.
    I assume 0.01 in the spread equals $25 and you take the difference between the 0.xxx when you buy the 99 put and the 0.xxx when you sell the 98.50 multiplied by $25 for the risk? Or is that completely wrong? Thanks
  2. 1) The maximum risk, if the spread declines from 3-to-zero, is 3 (ticks) times 400(contracts) times $25 per tick equals?......$30,000. His profit currently is $30,000 on the advance from 3-to-6.
    2) A "tick", 0.01, is $25 per contract.
    3) Ideally for your "friend", the eurodollar futures contract he's trading can get below 98.50 quickly.
    4) The spread's highest potential value is 50, as defined by the difference between the strike prices, i.e. 99.00 minus 98.50. :cool:
  3. Thanks for that, he told me to get on board last Friday when he did but I didn't understand it clearly enough, he showed me his statement of the execution on the Monday but I was still uncertain how it played out and had moved to 6 by then anyway.
    He must have said 1200 tic risk where I thought was $12,000.
    I looked at this example over the weekend
    which seemed similar so giving the $25 per 0.01 which is why I asked for clarity. On the friday didn't even get what "3 for 400" was about especially when I asked which month and he gave me the floor hand signal for it -whatever
    Anyway, it's Dec11 eurodollar on view that ecb will continue in a series of hikes and fed will follow. I've traded outrights for a living since '02, so about time I cottoned on to some basic option trades! Although that size is too rich for me, would have been worth a smaller punt. Live and learn, Thanks for the clarity.