Question on settlement of Index Futs options

Discussion in 'Options' started by traderwald, Jun 24, 2020.

  1. Hi guys,

    Question on settlement of Index Futs options:

    What would be the net position on opt. last date for the below open positions:

    ES: buy at 3100

    Buy Put on ES: 3100

    ES price on Close on Opt. last date: 3050.

    What would be the net position after close: would it be net 0 position (i.e. closes both Fut and opt. ?) with the price of the put buy being the only expense ?

    Or would it simply sell the put for profit while keeping the underlying as open ?

    Thank you
     
  2. xandman

    xandman

    ES Options are automatically exercised and the two will be netted out.

    Depends if you want to be flat or be long at the next open. There is a substantial change in your risk level and margin requirement (5-10x at least) going from hedged to unhedged after the option expiration.

    If you're looking for simplicity, you may be better off buying just a call @3100 which is the synthetic equivalent.
     
    Last edited: Jun 25, 2020
  3. Thank you for the reply above !

    yup, I understand the margin requirement will change. However, on this point you made: "Depends if you want to be flat or be long at the next open" - it would not be up to the trader correct ? I mean the trade will be closed per the standard process and does not depend on whether one wants to be flat or long ?

    As in, it would be as below ?

    i.e. the position is net 0 ?
     
  4. xandman

    xandman

    Yes. Up to the trader. Net 0 as discussed.
     
  5. If the trader does not do anything - what is the standard process ? Will it make net 0 ?
     
  6. xandman

    xandman

    Net 0. Yes.
     

  7. Huh? No.

    If the puts are 50 points itm they will be auto exercised given capital and risk permission limits.

    If his limits do not permit exercise? Then what? Thats the relevant question
     
  8. But why would there be capital and risk permission as the trade has underlying as the component. So would it not simply close the underlying to exercise the option ?