Options
The Advantages & Disadvantages of Selling Naked GLD & SLV Options Relative to GC & SI Op
BigRick
Posts: 1,334
Advantages of Trading GLD & SLV Option vs. Trading GC or SI Options:
1. The allow you to trade on smaller amounts of underlying
- i.e. 1 GLD option is 100 shares of GLD (which are each equal to 1/10th ounce of gold) which equates to 10 ounces of gold & similarly, 1 SLV option is 100 shares of SLV (each of which equals 10 ounces of silver) which equates to 1000 ounces of silver.
2. They allow you to trade in smaller increments of underlying (see #1 above) - i.e. in 10 of ounces of gold & in 1000 ounce increments of silver.
3. They can be traded in a securities account.
Disadvantages of Trading GLD & SLV Option vs. Trading GC or SI Options:
1. The minimum margin for short naked options are approximately 40-75x that of GC/SI -
CME Minimum Performance Bond (i.e. Margin) Requirements For Gold, Silver, & Copper Futures Options - i.e. the SOM (or short option minimium (initial) margin on GC & SI options is as low as $40 per contract & the mainainance margin as low as $30 per contract.
Compare this with the minimum on GLD & SLV short options of 10% of the total value of the underlying (or 100 shares) -
CBOE GLD / SLV Margin Requirements
"Margin: Uncovered writers must deposit 100% of the options proceeds plus 15% of the aggregate contract value (current ETF or HOLDRs price multiplied by $100) minus the amount by which the option is out-of-the-money, if any. Minimum margin is 100% of the option proceeds plus 10% of the aggregate contract value."
e.g. With a price on GLD of $160 the minimum margin would be $1,600 (or approx 40:1 vs. GC). With a price of SLV of $300, the minimum would be $3,000 compared to $40 for SI.
THIS ALONE SHOULD MAKE PEOPLE GO RUNNING & SCREAMING FROM SELLING NAKED GLD/SLV OPTIONS IN FAVOR OF GC & SI OPTIONS INSTEAD!!!
2. The transaction costs are approximately 5-10x greater FOR AN EQUAL AMOUNT OF UNDERLYING.
3. The trading hours are fewer.
4. The slippage is higher due to the greater number of contracts needed to make an apples to apples comparison.
5. The minimum required account equity is higher.
6. Trades can trigger pattern day trader rules.
7. Trades are subject to the wash sale rule.
--------- OR ---------- TO ---------- FLIP ---------- THINGS ---------- AROUND ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Advantages of Trading GC & SI Option vs. Trading GLD or SLV Options:
1. The minimum margin for short naked options are approximately 1/40th-1/75th that of GLD/SLV! (This alone should make people go running & screaming TO selling THESE options instead of GLD & SI options).
2. The transaction costs are approximately 80-90% lower. (Even this should be enough in & of itself to convince people these are a better deal).
3. The trading hours are much greater.
4. The slippage is lower.
5. The minimum required account equity is lower.
6. Trades trigger no day trader rules.
7. Trades are not subject to the wash sale rule.
Dsidvantages of Trading GC & SI Option vs. Trading GLD or SLV Options:
1. They require you to trade on larger amounts of underlying - i.e. 100 ounces of gold & 5,000 ounces of silver.
2. They require you to trade in larger increments of underlying (see #1 above).
3. GC & SI options can only be traded in a commodities account (but in reality this is really an advantage due to the fact that a commodities account provides MUCH more flexibility & leverage than a securities account).
In short, overall, GLD & SLV options are a far less efficient way in the options arena of the net short end of the metals market.
... more to be added
1. The allow you to trade on smaller amounts of underlying
- i.e. 1 GLD option is 100 shares of GLD (which are each equal to 1/10th ounce of gold) which equates to 10 ounces of gold & similarly, 1 SLV option is 100 shares of SLV (each of which equals 10 ounces of silver) which equates to 1000 ounces of silver.
2. They allow you to trade in smaller increments of underlying (see #1 above) - i.e. in 10 of ounces of gold & in 1000 ounce increments of silver.
3. They can be traded in a securities account.
Disadvantages of Trading GLD & SLV Option vs. Trading GC or SI Options:
1. The minimum margin for short naked options are approximately 40-75x that of GC/SI -
CME Minimum Performance Bond (i.e. Margin) Requirements For Gold, Silver, & Copper Futures Options - i.e. the SOM (or short option minimium (initial) margin on GC & SI options is as low as $40 per contract & the mainainance margin as low as $30 per contract.
Compare this with the minimum on GLD & SLV short options of 10% of the total value of the underlying (or 100 shares) -
CBOE GLD / SLV Margin Requirements
"Margin: Uncovered writers must deposit 100% of the options proceeds plus 15% of the aggregate contract value (current ETF or HOLDRs price multiplied by $100) minus the amount by which the option is out-of-the-money, if any. Minimum margin is 100% of the option proceeds plus 10% of the aggregate contract value."
e.g. With a price on GLD of $160 the minimum margin would be $1,600 (or approx 40:1 vs. GC). With a price of SLV of $300, the minimum would be $3,000 compared to $40 for SI.
THIS ALONE SHOULD MAKE PEOPLE GO RUNNING & SCREAMING FROM SELLING NAKED GLD/SLV OPTIONS IN FAVOR OF GC & SI OPTIONS INSTEAD!!!
2. The transaction costs are approximately 5-10x greater FOR AN EQUAL AMOUNT OF UNDERLYING.
3. The trading hours are fewer.
4. The slippage is higher due to the greater number of contracts needed to make an apples to apples comparison.
5. The minimum required account equity is higher.
6. Trades can trigger pattern day trader rules.
7. Trades are subject to the wash sale rule.
--------- OR ---------- TO ---------- FLIP ---------- THINGS ---------- AROUND ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Advantages of Trading GC & SI Option vs. Trading GLD or SLV Options:
1. The minimum margin for short naked options are approximately 1/40th-1/75th that of GLD/SLV! (This alone should make people go running & screaming TO selling THESE options instead of GLD & SI options).
2. The transaction costs are approximately 80-90% lower. (Even this should be enough in & of itself to convince people these are a better deal).
3. The trading hours are much greater.
4. The slippage is lower.
5. The minimum required account equity is lower.
6. Trades trigger no day trader rules.
7. Trades are not subject to the wash sale rule.
Dsidvantages of Trading GC & SI Option vs. Trading GLD or SLV Options:
1. They require you to trade on larger amounts of underlying - i.e. 100 ounces of gold & 5,000 ounces of silver.
2. They require you to trade in larger increments of underlying (see #1 above).
3. GC & SI options can only be traded in a commodities account (but in reality this is really an advantage due to the fact that a commodities account provides MUCH more flexibility & leverage than a securities account).
In short, overall, GLD & SLV options are a far less efficient way in the options arena of the net short end of the metals market.
... more to be added
0
Comments
In the MFGlobal scenario weren't the GC and SI at more risk where commodity traders ultimately took 30% haircuts on their money? Would this have applied to GLD and SLV as well?
MFG declared bankruptcy as a securities rather than a commodities broker. Was that more beneficial to the GLD and SLV positions?
To trade ETFs all an individual needs is an online account such as Scottrade and money in the account.
Give Me Liberty or Give Me Debt
I'm not really sure.
"...Ease of trade, trading hours to include before and aftermarket hours and cheap trades if dealing with a discount online broker point me towards the GLD and SLV ETFs..."
DB,
As far as the "ease of trade" I tend to agree but TRUST ME, you pay for that "ease" & thru the nose if I might add (but that said, it's just as "easy" to trade GC/SI options).
Perhaps the definition of "easy" (as you used it) might should be examined a bit more closely.
Your reference to "extended" trading hours for the options is not accurate in that GLD & SLV options DO NOT trade pre-market or after hours and are only open from 8:45a(8:30???)-3p CST M-F for a total of 46.25 hours:
Click Link Near Bottom For GLD & SLV Option Trading Hours under the heading "Trading Hours for Options on ETFs & HOLDRS:"
Contrast that with GC & SLV which only close for 45 minutes each day (from 4:15p-5p CST Mon-Thur) & are open in total from 5p Sunday Until 4:15p Friday - 116.25 hours in total (I'm pretty sure GLD/SLV are open barely half of those hours) - except for the 3 hours in total they are closed (i.e. from 4:15p-5p Monday thru Thursday).
As for "cheap trades" if you're paying something near Schwab, Fidelity, OptionsXpress rates you're getting TOTALLY ripped off. If you're paying near 25-75 cents per contract with no minimum you're doing well (enough) though.
So basically, every reason noted above as to why selling naked GLD/SLV options are better than selling naked GC/SLV options is fallacious except perhaps the one based on whatever your definition of "easy" is (which might simply be someone else's definition of "lazy" or "ignorant" - and I mean that in the best possible light and not as an insult).
Give Me Liberty or Give Me Debt
But I was ONLY talking about in this thread selling naked options & am just trying to point out the tremendous advantages of doing so via GC/SI vs. GLD/SLV.