straddling gold - is this calculation correct?

Discussion in 'Metal Futures' started by Batman28, May 20, 2006.

  1. is this correct?

    golds been fluctuating in $20 ranges almost daily

    u can buy gold options on COMEX.

    right now:
    spot rate = $657an anouce

    right now, June call strike at 650 = $14.90 for 100 ounce. put at 665 = $14.90

    straddle with 20 puts + 20 calls = $596

    potential profit at least $14,000

    am i calculating something wrong? it sort of sounds too good to be true
     
  2. garbo

    garbo

    My first thought was that you need to look at the expiration date of the options. June ZG options (ECBOT) expire this Thursday, May 25.
     
  3. garbo

    garbo

    Second thought:

    Your calculations are off.

    You are looking at a 650/665 guts straddle. Premium is $29.80 (your quote). Multiply that by 100 oz. and then by 20.

    Total premium = $59600

    The guts straddle will have an intrinsic value of $15 (= 665 - 650) * 100 * 20 = $30000 if gold stays between 650 and 665.

    If there is a big move (>680 or <635), you will profit. Otherwise you can lose up to half your premium.

    Gold straddles have done well lately, but check the expirations date of those options. You might just consider buying a plain straddle at 655 or 660. Or perhaps a strangle.
     
  4. garbo,

    I don't get it why is my premium so high? why did u multiply the options by 100? the options settle at 100 oz. you multiplied it by 100, but why did u multipliy it by 20 again?

    i was lookin at 650-665, as quoted on NYMEX.

    each option contract settles for 100oz, so I it should work just like stocks settling for 100stocks. correct?

    so for a call, if hits the strike at 650 gets $700, correct? (657-650)x100.

    check the June call/put quotes:

    http://futures.tradingcharts.com/marketquotes/index.php3?market=GC
     
  5. P.S. im not lookin at gold contracts on anywhere else except COMEX. its the only place u can get options on gold futurers.

    if my calculations r right, i'd put all i got on this straddle but the thing is I haven't found any online broker that gives access to COMEX/NYMEX - and when they do, they don't trade the gold options. strange.
     
  6. rosy

    rosy

    if you want tighter option quotes on CBOT gold then IM me on yahoo chat. I will try to post a better bid or offer for you to hit.

    My ID is "makebidoffer"
     
  7. Futures options are not priced the same way equity options are. You can't just multiply the premium by 100. Futures options are priced by tick value.

    E.g.

    COMEX Gold minimum price fluctuation is $0.10 per troy ounce and $10 tick per contract. The June's expire in less than a week, so let's look at the july 660 straddle.

    660 call last traded 30.60
    660 put last traded 26.40

    staddle premium 57.00 divide by the tick 0.10 and multiply by the tick $ value which =$5,700.

    ok, you can get away with x100 for gold, but for something like copper the price is div x .05 multi. x 12.50.
     
  8. garbo

    garbo

    Batman28,

    There have been electronic options on gold (ZG) since 2 months or so. See http://www.ecbot.com/cbot/pub/cont_detail/0,3206,1014+36080,00.html

    You can trade them with Interactive Brokers. Spreads are relatively tight for options and there seems to be a good bit of activity. I have been getting trades done between the spread a good bit of the time. You can hedge your position electronically too with ZG.

    I don't know much about Comex Gold but you might want to check ECBOT out.