Options Corner
Options Corner Daily options and how to use them to your advantage. One of the attractive offerings within the option spreadbetting arena and that is not actually offered in the underlying options market itself (certainly in the UK & Europe) is the facilitation of daily options that one can trade — typically in the FTSE 100 and US indices — primarily the Dow Jones & S&P. In reality, it is similar to the quick-fire area of binary betting. If, for example, you were long the FTSE 100, say in the amount of £10 per point at 5500, and the market rallied to 5600 during the day handing you a nice £1000 profit, you could construct what is in effect a ‘box’ position for the balance of that day and so lock the profit without the risk of having to close the underlying position. You might, for instance, believe that the FTSE is unlikely to push on further that particular day, but you do not want to lose the position which might be medium term in nature.
58 | www.financial-spread-betting.com | June 2012
What you could do is sell a 5600 Daily Call at say 10, and buy a 5590 Daily Put also at say 10 — both in an amount of £10 per point. In this instance, you have taken in exactly the same premium that you have paid out and so the net cost to you is zero. The net effect for the remainder of the day is that should the FTSE rise above 5600, you will lose £10 for each point, but of course, on your long FTSE position, you will make £10 per point and therefore you are perfectly hedged. Similarly, if the FTSE falls below 5590, then you will make £10 per point on your Put position, and below the 5590 level you will be perfectly hedged against the £10 per point losses on the FTSE long position. You are indifferent to the market movement for the remainder of that day.