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Selling Options on Futures?
Started:July 19th, 2011 (06:16 PM) by ron99 Views / Replies:568,052 / 5,727
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Selling Options on Futures?

Old September 22nd, 2014, 08:48 PM   #3661 (permalink)
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Hummingbird, the most you can lose when you buy an option is the cost of the option.


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Old September 22nd, 2014, 09:04 PM   #3662 (permalink)
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Thanks for the response, but that doesn't answer my question. I know that part about not loosing more than the call is worth, but what about the part when I sell to close my call a week before expiry when the price of the underlying instrument went against my position by more than the price of the call? Will I just loose part of its' time value or all of it?

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Old September 22nd, 2014, 09:09 PM   #3663 (permalink)
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hummingbird View Post
I am a newbie to options and hope someone can help me with a question. I have read a few books and am still unsure how much money I can loose if the trade goes against me. Let's say I buy a call for 75 cents and the trade goes against me by a $1.50, but there is still one week to expiry when I scratch the trade. Will I loose the entire 75 cents or just the time value. Hope this makes sense.

This thread is options on futures. A question about options on stocks needs to be placed in a different thread.

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Old September 22nd, 2014, 09:21 PM   #3664 (permalink)
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Then I guess you don't know the answer

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Old September 23rd, 2014, 12:12 AM   #3665 (permalink)
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hummingbird View Post
Thanks for the response, but that doesn't answer my question. I know that part about not loosing more than the call is worth, but what about the part when I sell to close my call a week before expiry when the price of the underlying instrument went against my position by more than the price of the call? Will I just loose part of its' time value or all of it?

An exchange-traded option, in or out of the money, stock or futures, is going to have *some* time value right up to the moment of expiration, and if you want to be really precise, you could say it will also expire with one tick (smallest price increment) of time value. An OTM option is worthless at that point, but if you look at an option matrix with closing prices on expiration day (might depend on product or data vendor) you'll see all the OTM options closing with 1 tick of value.

The second thing you asked about was "how much of its time value have I lost?" If the volatility has been steady or declining, you've held the option for several weeks or more, and you're selling it a week before expiration, then you've lost most of the time value that existed when you purchased the option. Even with an out of the money option, it's possible for a fair amount of time value to remain with one week to expiration, but that's only going to happen if the volatility increased since you bought it. That's a generalization - it can get a lot more complicated depending on how close to the money your about to expire option is and the skew (shape of the implied volatility curve).


Last edited by CafeGrande; September 23rd, 2014 at 12:33 AM.
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Old September 23rd, 2014, 12:38 AM   #3666 (permalink)
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Thanks for the reply. So let me see if I can get this straight. I purchased a monthly call for 75 cents, price goes against my position by $5, I have a week to expiry and I sell to close my call. Will this call have any value at all or have I just lost the full purchase price of that call?

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Old September 23rd, 2014, 12:52 AM   #3667 (permalink)
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hummingbird View Post
Thanks for the reply. So let me see if I can get this straight. I purchased a monthly call for 75 cents, price goes against my position by $5, I have a week to expiry and I sell to close my call. Will this call have any value at all or have I just lost the full purchase price of that call?

Yes, it will have some value. It's time value or extrinsic value. If you're talking about a US stock option that trades in nickle increments, it might only be worth a few nickles (or less). Sometimes, again it's the same with futures or stock options, you sell it while it still has some value, as long as commissions don't make it a wash (or a loss)

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Old September 23rd, 2014, 01:15 AM   #3668 (permalink)
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Thanks for your answer. It probably seemed like a stupid question, but it wasn't clear in the books I read. By the way, I didn't know you could trade futures using options, that's interesting. I always thought, for example, that if you wanted to buy options in say the emini s&p 500, you would buy them in the spy.

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Old September 23rd, 2014, 11:48 AM   #3669 (permalink)
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hummingbird View Post
Thanks for your answer. It probably seemed like a stupid question, but it wasn't clear in the books I read. By the way, I didn't know you could trade futures using options, that's interesting. I always thought, for example, that if you wanted to buy options in say the emini s&p 500, you would buy them in the spy.

You need to learn much more before you buy or sell anything. (Constructive advice.)

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Old September 23rd, 2014, 12:51 PM   #3670 (permalink)
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That's good advice, thank you. I mostly scalp the Emini S&P 500 but would like swing trade other instruments on hourly and daily time frames using options to limit my risk. I have never traded with options and don't know much about them, so I thought I would stop by this forum and ask a few questions.

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