Yeah no argument there. I think the most important advantage of OTC options is that you can adjust the strike and expiration. That is similar to the same advantage spot traders have over currency futures.

The only thing I find frustrating about OTC options is that OTM options can be tricky. How is that for you at Saxo these days? Specifically, assume that you wanted to sell a bunch of cheap delta on the EUR/USD, will they fill the orders or are they reluctant to do that when you are way out of the money? I know that this is a problem with two of the dealers offering FX spot options but I am not sure about Saxo.

Well, just recently I sold 2 far far OTM's on the USDJPY and there was not even a blink of rejection, may be baecause of my position sizing(max 25.000), but it worked well. I have not had any problems with execution on any of my trades so far. Let's hope it stays that way, otherwise I will have to look for other options. Do you think a bigger position size is more likely to create a rejection??

Hi guys,

Don't mean to jump into the middle of your discussion but I have been
with Saxo for about a year using one of their white label partners.

I consider it a bit of a love/hate relatioship. I love their plaftorm
because of the ability to trade spot and option positions using a combined
margin calucaltion..I hate the customer service. Every problem has to
be resolved by their European desk and no matter obvisouy "wrong" they
may be, they simply stonewall you with apat answers...maninly about margin
calcuations etc.

I also tested IKON. Their spreads were more competive than Saxo in terms
of the premums you recived for selling calls, in some cases by as much as 10 pips for a contract expiring in 1 week or as much 25 pips on a contraact expring
in a month, this was for the USD/CAD..things might have chagned since.


What I find trustraing is that the autoecection funtion advertised by Saxo
for say 10 standard contracts of a major pair is not hononured even in non
volatile trading...What you will see is a spread widen as soon as you ask
for "live price"...lately the spreads are just horrible...I realzie that not everyone trades 10 standard contracts but the lack of apparent liquidity for such a paltry (elatively speaking in the forex) is kind of odd...I also wonder whether Saxo offers different spreads to direct customers and those customers acesssing their platform through a white label partner.

John, I listened to your video presentation on selling fx options and enjoyed it but one question I had was your remarks about options being cash settled in the fx option market...I presume that is the case with exchange traded fx options but not with OTC? I can recall being given a position in the spot market on the exercie date when I held OTC optoins through Saxo on the expiration date (if I did not have an offsetting existing position)...Also,
you may have mentioned this beefore, but I prssuem that exchagne traded fx options are American style options vs the OTC/European style options?


As far as selling options, i see that the risk management technizes mentioned
above are simialr to what I do...my difficulty becomse when I take a long position in the spot to become "covered" and then of course, the spot reverses course and I would have been better off just waiting for expiry..but again, I do not have a crystal ball.

Thanks for letting me vent...and please excuse the typos.

Rob

Ali,

I am interested in your use of delta hedging. I see that Saxo
has the capability in the platform to provide all the various
"greeks" for options, but I confess it really is greek to me.

One thing that I have not been able to easily master is the
margin calculation used by Saxo when one sells naked FX options.

I presuem it is a function of the volatility calculation for
each option pair? OFr the exchange traded options, is the margin
a competley differnt animal?

Hi Rob,

well I will get straight to your questionto understand how the platform works just imagine you only and only would have a single position open at this given time.)

1. Margin calculation, or more estimation as I would call it is dependent on a few different parameters when selling options, therefore the margin of a sold option changes all the time and needs frequent monitoring if you are planning to consistantly hedge your positions.

the dependent factors are delta in the first line as this gives you the amount of your position at the current given time (if you go the same amount in the other direction on the spot market of what the delta is currently then you will remain delta neutral( on the Saxo platform you see it reflected on the margin utilisation area and it would show as 0 if you were fully hedged((will never happen), (!!!by the way,it shows it converted in the currency your "account" is opened,very important to know,cause if you are trading the pound yen and your account is in USD, then dont be mislead if the calculations don't work out cause the value of delta will always show as USD in the margin utilization area)
or it would show you the full amount of the current delta if you were not hedged at all.

the gamma measure describes how the delta of the option changes when the underlying asset changes, that meaning the pips or price you see on the gamma figure will be added or subtracted from your current delta when the spot price is moving and therefore effecting the volatility.
Hence, the gamma also describes how much you would have to add or subtract from the delta each time the spot moves by 1% from current price and how much you should change your hedge accordingly to remain delta neutral when the spot moves.

Now if that is not to complicated then here is another one :What happens when the spot moves???:This variable is mainly concentrating around the "VALUE" of your position
Vega( a wannabe greek but never was and will be,it's a modern greek married into the greek society in a big fat greek wedding I guess!)

this one is probably the most unpredictable as it reflects the change of value of the current position(means how much is your option currently worth if you would exercise it at the current time) according to:

>how fast the market is moving,means how big are the swings in the market currently.

>where you currently are with your strike price compared to the spot(meaning are you at the money or far out, or far in the money

>how far your expiration date is.

>and how friendly the Saxobank helpline is, just joking eyyy...

these four factors will have an influence in how rapid your delta changes as the volatility is built in these factors, and when the markets go nuts like recently, that only means it is worth watching the delta carefully to take action when needed (all provided you really want to stay delta neutral for the sake of it which you don't have to always do really)in fact sometimes it is worth reevaluating where the market is currently going before you decide to further hedge or maybe wait a little longer.

O.K. where were we?

in conclusion it is not that easy to understand the whole complexity of the greeks but worth knowing the basics in my opinion and I just tried to give an overview and maybe somewhere out there somebody is reading this, but hey Rob if you open 10 standard contracts at a time then you should give me some advise,I only open small positions like a tenth of that at a time and play around with it until I beat and bleed the beast to give me some money.

Seriously I am happy to explain if any details should not be understood or if there is something else you ask in specific.

By the way thanks, I will check out what IKON has on offer regarding spreads and premiums,I think it's time for change.

keep it cool(the Brain),

Ali

kurnaz24 wrote:
[quote]Hi Rob,

well I will get straight to your questionto understand how the platform works just imagine you only and only would have a single position open at this given time.)

1. Margin calculation, or more estimation as I would call it is dependent on a few different parameters when selling options, therefore the margin of a sold option changes all the time and needs frequent monitoring if you are planning to consistantly hedge your positions.

the dependent factors are delta in the first line as this gives you the amount of your position at the current given time (if you go the same amount in the other direction on the spot market of what the delta is currently then you will remain delta neutral( on the Saxo platform you see it reflected on the margin utilisation area and it would show as 0 if you were fully hedged((will never happen), (!!!by the way,it shows it converted in the currency your "account" is opened,very important to know,cause if you are trading the pound yen and your account is in USD, then dont be mislead if the calculations don't work out cause the value of delta will always show as USD in the margin utilization area)
or it would show you the full amount of the current delta if you were not hedged at all.

the gamma measure describes how the delta of the option changes when the underlying asset changes, that meaning the pips or price you see on the gamma figure will be added or subtracted from your current delta when the spot price is moving and therefore effecting the volatility.
Hence, the gamma also describes how much you would have to add or subtract from the delta each time the spot moves by 1% from current price and how much you should change your hedge accordingly to remain delta neutral when the spot moves.

Now if that is not to complicated then here is another one :What happens when the spot moves???:This variable is mainly concentrating around the "VALUE" of your position
Vega( a wannabe greek but never was and will be,it's a modern greek married into the greek society in a big fat greek wedding I guess!)

this one is probably the most unpredictable as it reflects the change of value of the current position(means how much is your option currently worth if you would exercise it at the current time) according to:

>how fast the market is moving,means how big are the swings in the market currently.

>where you currently are with your strike price compared to the spot(meaning are you at the money or far out, or far in the money

>how far your expiration date is.

>and how friendly the Saxobank helpline is, just joking eyyy...

these four factors will have an influence in how rapid your delta changes as the volatility is built in these factors, and when the markets go nuts like recently, that only means it is worth watching the delta carefully to take action when needed (all provided you really want to stay delta neutral for the sake of it which you don't have to always do really)in fact sometimes it is worth reevaluating where the market is currently going before you decide to further hedge or maybe wait a little longer.

O.K. where were we?

in conclusion it is not that easy to understand the whole complexity of the greeks but worth knowing the basics in my opinion and I just tried to give an overview and maybe somewhere out there somebody is reading this, but hey Rob if you open 10 standard contracts at a time then you should give me some advise,I only open small positions like a tenth of that at a time and play around with it until I beat and bleed the beast to give me some money.

Seriously I am happy to explain if any details should not be understood or if there is something else you ask in specific.

By the way thanks, I will check out what IKON has on offer regarding spreads and premiums,I think it's time for change.
________________________________________________________________________________

Hi Alie,

Please forgive me for not respoding earlier, ti took some time for me to digest what you had written and my "day job" got a little busier than usual so I had to take a break from the markets.

Your explanation fo the greeks was very helpful to me..though I have been trading options (mainly in sotcks) for years, I never studied them in depth.

I did find some time to correlate the margin utilisation calculatios used by saxo when putting on option trades etc...my account is in USD and my trades were primarily usd/cad and eur/usd...i note that saxo has (at least in its demo version) provided a margin calcuation in the forex option trade panel that tells you exactly how much margin will be used in a pending maring transaction....

Did you have a chance to check out IKON at all?

As for my order size, it is NOT proporational to my sucess rate..lol...I only wish it was...what i try to do is sell some fairly out of the money calls on pairs that are in prounenced downtrends without getting shipsawed, yes, I know easier said than done..just looking for 1.5-2.% return per month on capital...sounds easy but the market has a way of putting me in my place..

Rob