I have thought a few times about things that would be interesting to see added to the world of options and I thought a nice weekend like this would be a fun time to write them down and see what people think. This is really just for fun, please don't take it too seriously - I am not saying I would even want some of these "features", but some might be interesting Of course, there would have to be alot of extra options education around considering all the issues people seem to have with understanding the basics of options already! 1. Options on True penny stocks - I don't mean stocks that fall like C and then are low valued - I don't think we are supposed to talk pennies much on ET, but I mean a stock like CBAI.OB just as an example - full disclosure - I don't own or short CBAI at the moment - I played with it a bit in the past. CBAI is around .0057 right now - obviously an option would have to represent 100K or even 1 million shares instead of 100! The IVs on these would be pretty extreme, especially in some cases. I know a person can just buy the stock obviously when it's that low, but it makes it harder to play the downside also to not have puts available, plus there would be SOME leverage. Options on Penny stocks would IMO lead to alot of large gains, and some really bad losses for people. 2. Options on Options - I have never heard anyone else think of this, so this might be a JJacks original. For example, Stock at $50 - call Strike 50 3 months costs $250. If stock goes to $60 at expiration, call is now worth $1000 for a 4 fold. However, what if you could have bought a "250 strike" on that option for say $100 - now that would be worth $750 for a 7.5 fold - more leverage for the buyers - more risk and IV for the sellers! Each Option on Option would represent 100 option contracts instead of 100 shares! In theory, you could do Calls on Calls, Puts on Calls, Calls on Puts and Puts on Puts! How the semantics of doing the trades would work, I don't know, but there could be a lot of interesting things to try with this! To really push leverage, I don't know that Options on Options on Options would be impossible! 3. For more traded stocks at least, I would like to see all of the next 6 months available, with every other month after that for the next year or 2. For example, right now DE has MAR options, but no FEB or APR options - sometimes this means you have to compromise with exactly the month you would like to use. I realize of course there wouldn't be a huge premium difference in that example, but it would make it easier to setup a strategy just the way you want it. I will include in this that I wouldn't mind seeing SUPER-LEAPS that would go 3-4, or even 5 years, even though I'm not sure they would work very good (bid / ask spreads, etc.) 4. Daily options especially for high-flyer, popular stocks (i.e. AAPL). If on a Monday for example AAPL was at $319.50 and you wanted to bet it would stay below $320 that day you could do the 320/330 call credit spread and either take your profits or your loss that day - not have to consider doing a spread where you will have 4 more after market days and 4 more market days for things to happen. I have done some spread like this on Fridays, but it would be nice to at least have the ability to do this any day. 5. This wouldn't be something I would care much for, but I thought about it - what if there were options that were basically not affected by volatility (I know, I know) - the idea would be that it would end where people buy a call the day before earnings, the stock goes up the next day and the call goes down, which confuses some people. For example if a stock is at $52 and you buy a 50 call for $300, the next day the stock reports earnings in the morning and just goes to $52.50 - the option would then go to $350 or whatever. In reality of course, the option could actually fall because of IV collapse. I guess to do this, the MMs would have to hedge somehow and there would have to be a guaranteed gain on the options per the gain on the stock for example. Again, I don't know that I would even use these or like them, but some people might. Of these choices, my personal favorites would be options on true penny (including sub-penny) stocks and Options on Options, and I guess Options on Options on penny stocks! Anyone else have things they would like to see added to the "World of Options"? JJacksET4
However many levels you go out, the last level has to be a binary option where if you're right, you win all the money in the world, and if you're wrong, you lose it all. The ultimate leverage. But who would take the other side of that trade?
Probably a practical idea: How about popularising of OFS (Options on Futures Spreads)? http://www.futuresindustry.org/fi-magazine-home.asp?iss=151&a=1019 " The New York Board of Trade has developed a new instrument to serve its traditional âsoftâ commodity marketsâoptions on futures spreads (OFS). This specialized contract, which has been in the planning stages for several years, will be rolled out early in 2005, starting with sugar No. 11, Nybotâs largest market, and continuing with cotton and coffee later in the year. In order to clear this product, Nybot has been working with the Chicago Mercantile Exchange on an innovative application of the SPAN margining system. "
I am becoming more interested in Options on Futures. I would like to hear about, specifically vertical spreads on futures.
" https://www.theice.com/publicdocs/futures_us/exchange_notices/exnot062810CCKCcso.pdf Calendar Spread Options on Coffee âCâ® and Cocoa Futures To Be Listed For Trading Effective with the start of trading on July 30, 2010, Calendar Spread Option (or âCSOâ) contracts on Coffee âCâ and Cocoa futures contracts will be listed for trading. At launch the new contracts will trade via open outcry on the ICE Futures U.S. trading floor only; they will become available for trading on the ICE electronic trading platform at a later date. The terms of the new contracts â which track the terms of the existing CSO contracts (also known as Options on Futures Spreads or âOFSâ contracts) on Sugar No. 11® and Cotton No. 2® futures contracts â allow traders to buy and sell an option to establish a spread position between two futures contracts, at a stated price differential that is equal to the strike price of the option. Buyers of a CSO Call option have the right to establish a spread position of long the front month in the spread pair and short the back month in the pair. Buyers of a CSO Put option have the right to establish a spread position of short the front month in the spread pair and long the back month in the pair. " http://services.cftc.gov/strikeprice/StrikePriceFormat.aspx
What I want is a series of options that automatically go to 0 immediately after I sell them regardless of what the underlying does. Your idea of options on subpenny stocks makes a lot of sense. I can see where it could be hugely profitable selling puts on a stock that is trading at .0057. Can I buy an option on the crack that you are smoking is tainted?
I also have been exploring options on futures but cant see to get anyone to tell me what a reasonable commission is... Very interested in daily options. I know the AEX has had them for 2 years. Looks like CBOE is interested as well.... http://online.wsj.com/article/BT-CO-20100910-708968.html I wonder what kind of volume there would be though.
Thanks for the link - I didn't realize that. I can't say for sure of course, but I tend to think there would be at least as much volume for something like daily options on AAPL, AMZN, GOOG, etc as there is for some lightly traded stocks that are still optionable. Also, I think sometimes if volumes are thin for new products, the people in charge need to give them time for people to learn about them, get used to them, etc. Next stop after daily options - Hourlys! And btw I would be willing to bet there would be some people who would be willing to take the other side in either case (there always seems to be someone wanting to sell and be "the casino"). One more thing for a previous poster - If there were done right, I would also be willing to bet there would be more volume on options on very active penny stocks then there currently is on some barely traded optionable stocks. In any event, this was supposed to be for fun. JJacksET4
todays options r designed so that one is bound to loose 90 to 95 % of their money and if they are not playing spread is too big in those options... winning chances are (50 - IV)/50