Question about next weeks Exp. date.

Discussion in 'Index Futures' started by jgold310, Mar 10, 2010.

  1. jgold310


    I am short the 1155 calls on the ES.

    I decided if ES crosses 1155 I'll buy the futures instead of covering the calls.

    My question is:

    Do I buy the jun futures or the may futures? May futures expire next Friday w/ the options.

    That's when I get a little confused because let's say the ES closes at 1156 (may futures) on next Friday's expiration. The option I sold would be in the money by 1 point.
    But since the june futures trades at about 5 points less my option would then be out of the money.

    Can someone please explain? I never had this happened to me before.
  2. 1) Which contract month are your call-options in?.....March?
    2) The futures trade on a quarterly-cycle, i.e. March, June, September and December. There are no May futures.
    3) Offset the option or let it expire. Don't combine it with a futures contract. Your position then becomes a "bad" covered-call that can get you into additional trouble. :( :)
  3. jgold310


    Sorry I made a mistake when I wrote may futures, it is march.

    I am short the march 1155 call

    The march futures also expire on the same say.

    When does the march futures stops trading, at the open or at the close on march 19th?
  4. They both expire on the opening. I'd strongly suggest you cover with March. If you're not familiar with the inherent basis risk of SET, then read up. It's perfectly conceivable-and not uncommon-for March to settle +11pts and Sept to only trade +3.

  5. jgold310


    OK, great. Since it is the open my problem is solved.

    Thanks for your help.
  6. jgold310


    Actually I still have a question.

    I know that when the options expire on friday at the end of the day the settlement is a position in the futures contract.

    Is it the same type of settlement in the morning?
  7. The options on futures settle in cash, at the current future contract which in your case is March. If I was in your place I would consider three things:

    1: I would buy back those calls
    2: Buy back 1155s and then sell 1175s calls
    3: You can also roll them to the next month, at 1190

    My overall opinion on your strategy is that I would not trade like that (Naked Strangle might be a better way)
  8. March is futures expiration as well, so I believe the March futures options will be settled in cash to the index.

    Be very clear on your understanding of what is going to happen and when the cash/positions will be assigned. It can get very hairy around expiration, especially quarterly expiration.

    When I started trading futures, it was very confusing and I got in over my head.
  9. jgold310


    3: roll them to the next month

    That is an excellent idea!!

    I did a credit spread: sold march 1155 calls and bought the 1170 calls. It is a very small position so I am not too worried.

    It's the first time I have the futures and options expiring on the same day. That's what's getting me confused.
  10. 3: You can also roll them to the next month, at 1190
    What I have meant is buy to close March 1155s and sell to open April 1190s. This does not fix your problem if the market goes against you. Again my overall opinion on your strategy is that I would not trade like that (Naked Strangle might be a better way)

    “The Short Strangle allows an investor to be neutral of the market. The investor seeks a neutral position, and expecting volatility to decrease.” (There are three variations of this strategy, according to the market conditions; delta neutral, delta negative and delta positive which I do not recommend)
    #10     Mar 12, 2010