Nov 26, 2014
Options Bootcamp 50: Futures Options vs. Equity Options
Basic Training: Futures Options vs. Equity Options
We’ve talked about how to use options to mitigate your portfolio risk, but many traders also rely on commodities diversification as a way to mitigate portfolio risk.
Futures options strategies: All of the options strategies we’ve discussed on this program in the past are applicable to futures options as well with a few exceptions
Covered call & protective puts both require underlying futures positions - something most traders prefer to avoid.
Most traders looking for diversification typically want bullish exposure to the underlying. Some great options strategies for this include:
- Stock/futures replacement strategy
- Vertical call spread
- Spreads with wings
Futures are useful for traders who want to establish sizable positions with a minimum of outlay
Options on futures can be useful for traders and asset managers who want exposure to alternative asset classes but can’t or won’t trade futures. You’ll need a futures account to trade futures options - but if you use risk mitigated strategies such as spreads and don’t get net short units and close out positions near expiration you don’t have to worry about dealing with the underlying.
Mail Call: Listener questions and comments
- Question from Jim Horn: Hey boot campers! I keep hearing about a spread called a onebytwo. What the heck is that? Am I even saying it right? Great show. Thanks for educating poor slobs like me.
- Question from Tom Evans, St. Louis, MO: What does more volume futures or options? Also does one do more electronically than the other? If I’m looking to dive into one am I better off going with the futures or the options? Lastly can you clarify the difference between CBOE and CME and CBOT? They all sound the same to me.
- Question from Anon: On several of your programs you mention that it is important to understand the VIX cash level at a given SPX level. Can you please explain this further? As an example, what are the implications of a 12 VIX at 1800 vs. a 9 VIX at 1800? Likewise, how does a 15 VIX at 1800 compare?