Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Yes, I sold the CLZ C58 and bought the CLZ C68 as protection. I consider the risk of a unforeseen huge move upwards in CL in case of a catastrophe as significantly larger than for other commodities.
Is there a way to calculate the risk with that type of spread?
Currently those two options are about 0,1 apart.
Is it reasonable to say that the max risk (while both options are still OTM) would be $ 100 per spread?
In this case there was resistance just above the high, and I intended to sell there. But unfortunately the price did not get there.
Other criteria are:
I do not sell options which are too cheap because of spread and fees.
There is a clear resistance / support where I would like to place my stop loss. In this case I choose the entry price in a way to meet my risk criteria.
At times when I use a significant part of my account as margin I only enter trades that fulfil all my criteria strictly. This is currently the case.
In case it is a trade I consider as safe I tend to be more generous and make sure I can enter the trade. In case of a more risky trade - eg. the NGX C4 - I am more conservative.
Maximum risk at expiry is $10,000 per spread. But if the price explosion would be today risk would be much smaller than $10,000. There is software available to calculate the value of options under all circumstances. Using the protection I want to make sure that my account is not blown up because of this trade.
The current value of these options is $300 and $40, respectively.
Excuse me for being dumb but I don't really understand spreads. Are you selling a C58 an C68, or buying one an selling another? I have thought about this for sometime an can see many different ways.
In Myrrdin's spread above one sells the lower strike option to make money, and buys the higher strike option for risk protection. The risk is now limited (as opposed to unlimited with naked options).
Other spreads have different purposes. E.g. calendar spreads are more about volatility changes.
The spreads in different commidities are often done with the futures (not the options).
Carley GArnes book Higher Commodity trading has a good overview.