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Reduce your margin by 70% - is this right?


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So i was just reading the forum and saw that this post had been promoted. You can see it here.

The link which it directs too talks about an oil trade. As we all know margin on oil is 10%, so for a quid a point you'd be looking at about £550 to bet on oils move. But this link under where is says 'Oil daily options trade idea' talks about using a daily option which moves one for one with the change in the oil price, and there is an example of 167 points as a premium. That means that for £167 you can trade this option price rather than the regular spot market. 

As the article says "If the market were to rally, a long call option premium would likely increase. In the case of delta 1 options they’d move 1 for 1 with the underlying oil price, so a 40 point move (for example) in the underlying would cause that premium to go up (to 207.1) or down (to 127.1)."

I'm going to see how that works today on the FTSE. The 7210 has a premium of 190 at the moment and a spread of a point so should be exactly the same as trading the spread bet, but only needing £190 rather than £370 to open the trade....

thats right, right?

cheers

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I think your right...... however

1) You would have to pay (half?) the spread every time you re-opened the position.

2) You would miss out on any price action between the option expiring and opening a new daily option.

I guess we could fire up the demo account, buy a call every morning, see what the return is after one month vs holding a long spreadbet position.

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So as if options weren't complicated enough already now there's this ... hahaha ... remember the adage the brokers have in the City, 'The secret to big profit is to sell the most sophisticated products to the least sophisticated investors.'

Edited by dmedin
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22 hours ago, Bopperz said:

1) You would have to pay (half?) the spread every time you re-opened the position.

yes good spot. this isn't for the long trade, but would be great for 'intraday' trading. Or trading over announcements or key macro events. 

22 hours ago, Bopperz said:

2) You would miss out on any price action between the option expiring and opening a new daily option.

also true. there seems to be about 30 minutes on the FTSe trade i did when the Daily was closed and i couldn't get in and out. I guess this is to settle and set up the next day or something. 

20 hours ago, Kodiak said:

For "buy and hold" Barrier options maybe better?

(For those that have access to them)

I dont have these? How did you get? How do they work?

19 hours ago, dmedin said:

So as if options weren't complicated enough already now there's this ... hahaha ... remember the adage the brokers have in the City, 'The secret to big profit is to sell the most sophisticated products to the least sophisticated investors.'

well technically these are the easiest way to trade options right? It moves 1-for-1 with the market such as the FTSE, there is hardly any time value because of it being a daily expiry, there is less future implied volatility as well (likely), and there is no variable delta. So you can work out profit and loss very easily.

Of course you must understand what you're doing first of course. but i think that goes without saying. and of course the delta of the option is always going to be variable so that can change if there is a big move against you. 

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1 minute ago, trade247 said:

well technically these are the easiest way to trade options right? It moves 1-for-1 with the market such as the FTSE, there is hardly any time value because of it being a daily expiry, there is less future implied volatility as well (likely), and there is no variable delta. So you can work out profit and loss very easily.

Of course you must understand what you're doing first of course. but i think that goes without saying. and of course the delta of the option is always going to be variable so that can change if there is a big move against you. 

So that totally goes against what I understand as the advantage of using an option, which is to give you not only a limited loss but to keep your position open long enough for the price to turn in your favour.  What you're proposing, I have no idea about - sounds like binary or knockout options and doesn't seem all that different from SB or CFD.  The major disadvantage of which is that once your stop is hit you're out, with no opportuntiy to wait for price to move back in your favour unless you enter a new trade (and pay a new commission, and potentially get stopped out again.)  Fking horrible situation.

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19 hours ago, dmedin said:

So that totally goes against what I understand as the advantage of using an option, which is to give you not only a limited loss but to keep your position open long enough for the price to turn in your favour.  What you're proposing, I have no idea about - sounds like binary or knockout options and doesn't seem all that different from SB or CFD.  The major disadvantage of which is that once your stop is hit you're out, with no opportuntiy to wait for price to move back in your favour unless you enter a new trade (and pay a new commission, and potentially get stopped out again.)  Fking horrible situation.

But that's what I'm saying. I'm not saying "lets use options", im saying "look - you can use a daily option for intraday trading, and gear it specifically to act like a regular spread bet, but reduce your margin by 70%" or whatever. 

There are loads of reasons to use options for the benefits they offer, but if you're going to trade instraday on FX or indices then there is no reason what-so-ever to not use this. 

FTSE spread bet margin - £370

FTSE daily option margin - £190 (given the top example i said)

Also in regards to what you said about the market moving against you. On the option if the market tanked the option effective max loss DOESNT act as a stop. If the market was to come back then it would be profitable again. The regular spread bet however would be stopped out. Like it says here https://www.ig.com/uk/options-trading/daily-options

image.thumb.png.bad3cc57a89a805fb7bbd40e620ee4aa.png

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