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Introducing Index Options Interactive Brokers Webcast Peter B. Lusk CBOE Options Institute
Introducing Index Options Interactive Brokers Webcast
Peter B. Lusk CBOE Options Institute
2CBOE OPTIONS INSTITUTE
Disclosure
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606 or at www.theocc.com. The information in this presentation is provided for general education and information purposes only. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available by contacting CBOE at www.cboe.com/Contact. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation or solicitation to buy or sell securities. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Investors should consult their tax advisor as to how taxes affect the outcome of contemplated options transactions. Multiple leg strategies involve multiple commission charges. Past performance is not indicative of future results. CBOE® and Chicago Board Options Exchange® are registered trademarks and Weeklys and CBOE Options Institute are service marks of Chicago Board Options Exchange, Incorporated (CBOE). S&P® and S&P 500® are trademarks of Standard & Poor's Financial Services, LLC and have been licensed for use by CBOE. All other trademarks and service marks are the property of their respective owners. CBOE is not affiliated with Interactive Brokers. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-CBOE product or service described in this presentation.
© 2017 Chicago Board Options Exchange, Inc. All rights reserved.
3CBOE OPTIONS INSTITUTE
CBOE Electronic Pits of Today
4CBOE OPTIONS INSTITUTE
Introducing Index Options
Outline
Index Option vs. ETF Options SPX OptionsRUT OptionsTrading Examples
5CBOE OPTIONS INSTITUTE
Index Options
Index vs. ETF
Comparison
Size SPX and RUT 10x SPY and IWM
Settlement Index = Cash / ETF = Physical
Expirations Several Available for Both
SPX and RUT 10x SPY and IWM
Index = Cash / ETF = Physical
Several Available for Both
6CBOE OPTIONS INSTITUTE
Index Options
Fed Trade
Tuesday September 20, 2016 – day before fed announcement Bullish on the reaction (because when Janet speaks the market rallies)
S&P 500 at 2139.75
Buy 1 SPX Sep 21st 2100 Call at 41.00
Time Value of 1.25
7CBOE OPTIONS INSTITUTE
Index Options
Fed Trade
Long 1 SPX Sep 21st 2100 Call at 41.00
-60
-40
-20
0
20
40
60
80
2100 2125 2150 2175
SPX @ 2139.75
9/21 Close2163.12
Net Profit = 63.12 – 41.00 = 22.12
8CBOE OPTIONS INSTITUTE
Index Options
Fed Trade
You can also reduce your option cost by selling another optionTuesday September 20, 2016 – day before fed announcement Bullish on the reaction (because when Janet speaks the market rallies)
S&P 500 at 2139.75
Buy 1 SPX Sep 21st 2100 Call at 41.00Sell 1 SPX Sep 21st 2165 Call at 3.00
Net Cost = 38.00
9CBOE OPTIONS INSTITUTE
-50
-40
-30
-20
-10
0
10
20
30
40
2100 2125 2150 2175
Index Options
Fed Trade
Long 1 SPX Sep 21st 2100 Call at 41.00 + Short 2165 Call at 3.00
SPX @ 2139.75
9/21 Close2163.12
Net Profit = 63.12 – 38.00 = 25.12
10CBOE OPTIONS INSTITUTE
Index Options
Fed Trade Number 2
Tuesday March 15th
SPX @ 2015Bullish on SPX into FOMC
Buy 1 SPX Mar 16th 2015 Call at 9.00Sell 1 SPX Mar 16th 2025 Call at 4.60
Net Cost = 4.40
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Index Options
Fed Trade Number 2
Long SPX 2015 Call + Short SPX 2025 Call
-10
-5
0
5
10
2000 2005 2010 2015 2020 2025 2030 2035 2040
SPX @ 2015
SPX 3/16Close = 2027.22
+5.60
-4.40
12CBOE OPTIONS INSTITUTE
Index Options
Fed Trade Number 3
FOMC Minutes Trade –
About 12:00 April 6th
SPX at 2058Bullish into FOMC Minutes
Buy SPX Apr 6th 2055 Put at 1.80Sell SPX Apr 6th 2060 Put at 3.90
Credit = 2.10
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Index Options
Fed Trade Number 3
Payoff Diagram –
-20
-15
-10
-5
0
5
10
15
20
2045 2050 2055 2060 2065 2070
SPX @2058
SPX Close2066
14CBOE OPTIONS INSTITUTE
Index Options
Short Term Bull Put Spread
January 14, 2015 – RUT at 1177
Sell RUT Jan 23rd 1070 Put @ 1.15Buy RUT Jan 23rd 1060 Put @ 1.00
Net Credit = 0.15
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Index Options
Historical Context
Rolling RUT Performance
Number of Periods
Down More than 9% Percent
5 Days 3782 39 1.03%6 Days 3782 51 1.35%
Data Source: Bloomberg
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-10
-8
-6
-4
-2
0
2
1040 1070 1100 1130 1160
Index Options
Short Term Bull Put Spread
Payoff Diagram –
RUT @ 1177
+0.15
-9.85
Down ≈ 9%
17CBOE OPTIONS INSTITUTE
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Summary
Option traders need a 3- part forecast: Underlying Price, Time and Implied Volatility
RUT volatility higher than SPX creating different opportunities
Thank you for attending!
