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Options on the 6E


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Options on the 6E

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  #1 (permalink)
Chattanooga, TN/ USA
 
Experience: Intermediate
Platform: Ninjatrader
Trading: 6E
 
Posts: 51 since Jun 2016
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I've never bought options on currency futures before but would like to start. I took a course on Institutional trading where the instructor said the banks will for example Buy the 6E and Buy a Put option at the same time to hedge themselves. Sometimes the Put is bought ATM and sometimes its OTM. They like to do this when they think Volatility is about to increase. My question is how expensive can these OTM Puts be? For example, if you buy a Put that's 50 ticks OTM will it be too expensive? In other words, can you justify the cost of it with your trade? I looked on an option website, cant remember which one, and it showed very expensive Call and Put options. Breakeven was something like 150 ticks away from the Strike.

Has anyone tried this before? He said this was a poor man's way to Gamma Scalp.

Appreciate the help.

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  #3 (permalink)
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Buying the underlying and a put is buying a synthetic call. If the put is OTM then the synthetic call will be ITM. Why would you want to pay double commissions and slippage for the same risk profile when you can just buy the call?

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  #4 (permalink)
Chattanooga, TN/ USA
 
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Sorry for the late response. I was out of state for awhile. This trade is simply a proxy for Gamma Scalping. That is why you would buy the 6E and buy a "cheap" OTM Put. The Put also acts as a Hedge. Your trying as best you can to trade like a Prop desk trader; like an Institution. But since you don't have the account size that an Institution has this is the next best thing. You also don't need to be at your computer All day everyday like a Gamma Scalper to trade the swings. It is much much cheaper than buying Calls and Puts. Instead of buying a Call and a Put your buying just one option and your buying the underlying which is a lot cheaper considering there is no time decay with the underlying. Obviously the best time to do this is when Volatility is cheap because your in essence Buying Volatility. I was trying to see if anyone has done this on this forum.

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  #5 (permalink)
Chattanooga, TN/ USA
 
Experience: Intermediate
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Another thing to keep in mind is an increase in OTM Puts from the prior day. If you see them increasing substantially look for price to move up very soon. This is a hint that their Long Accumulation will soon be complete and that they will be moving the price up.

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  #6 (permalink)
Legendary Market Wizard
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As @Bookworm said "Buying the underlying and a put is the same as buying a synthetic call. "

You can talk about Delta, Gamma, Time Decay, Hedging, Scalping and Volatility as much as you like but it doesn't change that fact.

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  #7 (permalink)
Chattanooga, TN/ USA
 
Experience: Intermediate
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It also doesn't change the fact that this is a credible strategy. I didn't ask for your approval. Your obviously Not the right person to answer this sort of question. You don't have the experience. In most Institutions, taking a position without Hedging that position IS a sackable offense. If not sacked they would at least give you a severe verbal flogging. You don't like that? Oh well. Deal with it! One should treat their own capital with the same respect. You ask me how I know this? Because he told me so. He has been an Institutional trader for 30+ years. So when he says this strategy is a suitable proxy for gamma scalping then its a suitable proxy for gamma scalping. Now there are other ways to Hedge your position but this is the way I prefer. Carley Garner also teaches this. You may not like her either but oh well...

All I wanted to know is if there are people out there who have tried this.

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