Karen sticks just with the index options --- SPX, NDX, and RUT-- I think reason being is for every contract you sell at least on the SPX its at a 1:1 ration; for example if the SPX value is at 1 then every contract you are going to get will get you 100 however for the /ES its at 0.5 : 1 so you will only be getting 1/2 the value therefore you have to sell more contracts.
The margin requirement however you have to request thru your broker; like Ron i was wondering how she can get her returns if you are putting up 135K ? But, if you have a PORTFOLIO MARGIN requirement then its significantly less. Example right now im looking on TOS at the SPX 1440 Put quarterly's that expire in 60 days at strike of 1.00 for me to sell 10 contracts my buying power will only be reduced by roughly 16K
hope it helps
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SPX comes in stock options AND futures options. Your margin is likely a naked stock option quote rather than a futures option. SPX stock options have 100 multiplier so 1350 x 100 = $135000 naked risk. Whereas SPX futures is the big daddy of ES emini and has $250/point value against the ES's $50/point. So SPX futures is equal to 5 x ES contracts and options have a 250 multiplier.
Last edited by britkid99; August 2nd, 2013 at 04:54 AM.
I have found very similar results with CL. When down to the last 30 days there is so little premium left
it is no longer worth waiting to expiry. In fact I have closed out every position prior to expiry but that has
a lot to do with IB's margins and the declining ROI received if waiting till expiry.
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Actually I think karen's method of selling .01-.02 Delta is not accurate. If you listen she says she does about 95% probaility of selling out of the money puts and 90% prob of out of money calls. These basically equate to a Delta of .05 and .1 respectively,
If you go to the Oct SPX option table and look at the 1485 strike for puts it has a delta of .05; one contract will net you roughly $265 and on a portfolio margin your buying power will be reduced by $2726
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Ah, I think I see the cause of confusion now. IB uses the single ticker SPX for the index, the futures and FOP via CME or Globex and the Stock options via CBOE. So if Karen is using IB as her broker, she could be trading SPX FOP's at least as IB and maybe other brokers refers to them. This would explain how she can strangle without incurring massive margins. See screen shot.
Last edited by britkid99; August 3rd, 2013 at 08:22 AM.