36 lines
2.8 KiB
Plaintext
36 lines
2.8 KiB
Plaintext
516 Part V: Index Options and Futures
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futures options are unworthy of the strategist's time and effort. In fact, just the oppo
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site may be true - the lack of general information may produce some inefficiencies
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that the strategist can benefit from.
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One factor concerning the trading of futures options can be of major concern
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to many customers and salesmen. Salesmen who are registered to sell stocks are not
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necessarily registered to sell futures - an additional test must be passed in order to
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sell many types of futures options. Similarly, many customers - primarily institutions
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- have received approval from their constituents to trade in stock options, but would
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need further approvals to trade futures or futures options. Neither of these things
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should stand in the way of the strategist - if there are opportunities in futures
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options, then the customer should find a broker who can trade them. Also if the
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strategist finds that he requires certain approvals from within his own institution
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before he can trade futures, then he should obtain those approvals.
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STANDARD OPTIONS STRATEGIES USING INDEX OPTIONS
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The stock option strategies described in all of the preceding chapters of this book can
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be established with index options as well. The concepts are normally the same for
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index options as they would be for stock options. If one buys a call at one strike and
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sells a call at a higher strike, that is a bullish spread; if one sells both a put and a call
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at the same strike (a straddle), that is a neutral strategy. One uses deltas to determine
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how many options to sell against the ones that he buys in order to establish a delta
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neutral strategy. Likewise, he uses the deltas to tell, along the way, how his position
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is progressing and how to adjust it to keep it delta neutral.
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We will not describe these same strategies over again. They have already been
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described in detail. The risk of early assignment removing one side of a position can
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alter some strategies. In some cases there are particular advantages or disadvantages
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with index options and futures. Thus, we will briefly go over some major option
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strategies, giving details pertaining to their usage as index option strategies.
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OPTION BUYING
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The most common reason for wanting to buy index options is to take advantage of the
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diversification that they provide, in addition to the normal advantages that option
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purchasing provides: leverage and limited dollar risk. Many people feel that it is eas
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ier to predict the general market direction than it is to predict an individual stock's
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direction. This feeling, can, of course, be put to good advantage by buying index
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options. However, sometimes it is not better to buy the index options. In such cases,
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it may actually be smarter to purchase a package of individual stock options. |