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The Option Selling Video Overview by Michael Gross
We will test option data for E-mini and SPY to confirm the equity option drawbacks by M. Gross:
Disadvantage-1: Low Premium
Disadvantage-3: Selling close ATM (Depth)
You may always check the option data for yourself:
E-Mini (futures) Options: http://www.barchart.com/commodityfutures/E-Mini_S%26P_500_Futures/options/ES
SPY (equity) Options: http://finance.yahoo.com/q/op?s=SPY+Options
We are performing this test on May 23'15 for June 19 Expiration for E-mini (futures) and SPY (equity). Option chains are presented for both below.
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Data Tests for ...
Emini = 2,124.50, -3.50, -0.16% on May 23'15
SPY = 212.99 -0.51,-0.24% on May 23'15
Test 1: ... SPY Low Premium - Disadvantage1
How to compare two different instruments? Let's find their prices for options ATM, where ATM - At The Money
1.1 in Emini Option chain below find Premium ($) on the line closest to E-mini = 2,124.50
2125C = 24 and Premium = $1,200 which you get 24 * $50 = $1,200
2125P = 24.5 and Premium = $1,225 which you get 24.5 * $50 = $1,225
1.2 in SPY Option chain below find Premium ($) on the line closest to SPY = 212.99
213C = 2.31 and Premium = $231 which you get 2.31 * 100 = $231
213P = 2.98 and Premium = $2,98 which you get 2.98 * 100 = $298
CONCLUSION: E-mini has immensely larger Premiums than SPY
Test 2: ... equities margins are too high
Let's find for the SPY and E-mini:
How much margin money we have to commit to sell the above OOM Calls and Puts? OOM - Out of Money
Term 'margins' is exchanged by 'BP" - Buying Power in TOS (Think Or Swim)
On OptionXpress platform in the Account Overview we find a line 'Option Buying Power'
Right down the number BEFORE the Sell of SPY options and AFTER. I've got result = $58,987.60
On TOS platform do the same for /ES and check the BP Effect: I've got result = $37,879
CONCLUSION: SPY has lower margin than E-mini and the difference gets larger with farther away OOM options
Test 3: ... SPY and E-mini Depth - Disadvantage3
How far away we may go to get meaningful Sell Price?
Let's analyse '3 units' in both instruments:
3.1 in Emini Option chain find Premium$ for 2125 + 3*10 = 2,155 and 2125 - 3*10 = 2095:
2155C = 9 and Premium = $450 which you get 9 * $50 = $450
2095 = 15 and Premium = $750 which you get 15 * $50 = $750
3.2 in SPY Option chain below find Premium ($) on the line closest to SPY = 212.99+3 and 212.99-3
216C = 0.85 and Premium = $85 which you get 0.85 * 100 = $85
213P = 1.83 and Premium = $183 which you get 1.83 * 100 = $183
Now the Question remains - how far we may go on E-mini option chain to repeat $85 of SPY Call premium and $183 of Spy Put?
on Call side: 2190C = 1.6 * 50 = 80, so we found that 2190C is the closest
on Put side: the last visible here is 2060P = 8 * 50 = 400 (too high), so we have to open PDF page => 2000P = 3.6 * 50 = 180, so 2000P is the closest
CONCLUSION: E-mini has immensely larger Depth than SPY
Test 2: How much margin money we have to commit to sell the above OOM Calls and Puts? OOM - Out of Money
...
Do you know the answer?
We will leave it for now at this point for you to make your own homework.
We will discuss it later privately.
E-mini
Emini = 2,124.50, -3.50, -0.16% on May 23'15
June 19 Expiration for E-mini
Excerpt of the Option Chain:
Strike Open High Low Current Change Volume Date Premium ($)
Strike Open High Low Current Change Volume Date Premium ($)
SPY
SPY = 212.99 -0.51,-0.24% on May 23'15
June 19 Expiration for SPY
Excerpt of the Option Chain:
Last Change Change% Volume Open Interest Strike Last Change Change% Volume Open Interest
Last Change Change% Volume Open Interest Strike Last Change Change% Volume Open Interest
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