I definitely thought about that. Am I missing something? I read up on the most recent reports. There is a concern about Roya but that comes up every year and is usually over blown. I figured if there is an issue, KC may spike up maybe 50 - 70 points. We are talking way out of the money at 300 vs 145.
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Just about every trade done has someone on the other side thinking you are wrong and they are right.
Not everyone that is buying options is looking to make money on them. Some are just buying them for insurance in case something happens. They actually hope they don't make money on them.
If you buy flood insurance you hope you never have to collect on it.
Or some are buying to remove the unlimited risk of selling lower strikes and make their frightened brokers happy.
A year ago today Sep KC was 177.30. The 300 call was 0.20 and OI for it was 4889. The highest settlement for the futures after that was 188.95. But OI for the 300 call had grown to 7,408 on June 25th.
The call got up to 0.31 and OI that day was 7,137 but OI barely dropped after that (to 7,048) and finished on expiration day at 7,253. So very few of those buyers of calls tried to take the profit offered to them. Instead they rode to expiration.
Sep 2012 KC futures were 151.05 on 6/14/12 and the 300 call was 0.13.
On 7/19/12 the futures were 188.95 but the 300 call was at 0.06. Futures went up by 25% but you made money on the call in that time frame because they were so far OTM and they were close to expiration.
Last edited by ron99; May 8th, 2013 at 03:37 PM.
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I used to have a spreadsheet linked to my data provider. I would list on the spreadsheet the contracts that I would trade. I would then have a column that compared the bid to the prior day settlement. It would factor in the amount that futures were up or down times the delta. It would turn the font green if the bid was higher than the factored price. I would then just have to look for green font to see what looks good.
I quit doing that because it was just too unwieldy to have that many contracts on a spreadsheet and to keep changing the contracts to be linked. I may start to do it again if I have time to set it up. But someone could still do that if they wanted to.