Let me give you a scenario, and I have a quick question. Suppose eur / usd spot ( cash ) is now 1.2210, and I sell 10 contract of sept call strike 1.2250, and I am long 10 contract also @1.2210 ( to cover the sold call position ). Then the next day spot reaches 1.2240â¦( still not in the money ..not obligated to deliver the sold option ). Can I take the profit generated from my long position ( sell the 10 contract ( had bought it @1.2210 .. now sell it @ its current spot 1.2240 , take profit, and then buy back 10 contract inorder to cover the sold call that will remain there ( since I will be naked by doing what I just described ) I understand that I will be loosing the spot spread of 3 pips of course⦠In other words by me selling the long position to take profit, I will be naked for few seconds , âtill I buy back to go long to cover the sold call. Same applies for sold put. If I had sold put 1.2200, and go short @ 1.2210 and the price goes to 1.2202, then can I cover my short to take profit ..and sell short real quick to cover the sold put. Even in the case of the sold call or put being in the money but the person who bought it from me did not exercise it, can I still take profit quickly, and by back ( or sell back ) to cover the sold option.
What you are describing is dynamic hedging. As with any other strategy, you can earn or lose money by doing that. BTW what is your question? If it's : "have I found the perfect strategy?" the answer is no.
yeah but my question is am I allowed to sell to take profit that is my main point ( question ) will the broker allow to sell the long position because i will be naked momentarily 'till i buy again to cover it.. reason to sell is i need the 30 pip profit...eur went up 30 pips. still holding the obligation ( sold call )
Of course you can keep a naked option, as long as you have enough money in your account. You just have to keep an eye on the margin requirements.
assuming i am only allowed to sell covered options. i will be naked for few seconds.....actualy not even 4 seconds.. because i will sell ( to take profit ), buy back to cover the naked position right away loosing the spread ofcourse.. I am thinking that they are tied together...meaning that if i sell the long position the broker will automaticaly close the sold option position .. or do i have 24 hrs to cover the sold option ?
I assume this would be done at Saxo. Your assumption that you'll have a profit net of edge is where it goes wrong. You're giving up 5pips in edge on every transaction. 40 or 50pips of direction yields less than 10pips in net delta-gain on the atm call spread. You're alluding to gains from the 12210/12250 call spread > the loss of edge from the entry/exit of the call spread. It's simply not going to work that way. You'll lose 20 pips net on the vertical bull spread from execution in attempting to capture the 5-7pips in gains from ThVal. I realize this doesn't answer the question posed, but it's already been answered. You can hold a naked short call[or put] as long as you've enough cash to cover the 2% weekend margin. It's not an arbitrary time limit, it's about the money. You're best-served in reading some intro-texts on vanilla options before trading any further. You should be confident in your answers to these questions before writing that first option ticket.
thank you for the reply. I did not say that this is my whole strategy at all. selling calls and put is a way to make money ...hoping they expire. the ONLY quesion I have is IF I am only allowed to sell covered calls.. I mean I need $24220 ( 2% of 1.2110 X 10 contracts 100k per contract ) in a naked situation vs I need only $12110 using 1:100 leverage to cover the sold option with no risk of it moving way way up to be caught up naked ! the only risk i have here is eur going down ! ( just like going long on eur ) and i only paied 12110 as oppose to 24220 and am still naked !!!
futures 125000 per contract.. spot 100000 per contract... either way , bottom line is given amount ... sorry for the confusion
so in other words.. 8 contract equals 1 million of cme .. and the stike price would be euro currency futures price