INFO ON SELLING OPTIONS AND MARGINS

Below is an email with some info that I sent to some producers who like do work with options; this also helps give a better under standing of neautral nick and his goals.

FYI – been doing some research on deep out of the money calls and more importantly looking at what can one do to limit margin exposure/risk

Below is a margin example for wheat

This was as of yesterday

For july options in wheat……….basically 85 days to expire………..

Selling 1 WN11 $10 call @ 11 cents  initial 1720, maint 1491 – collect 550 net out of pocket margin 1170 – return 47%; 85/365 = 4.29 * 47% = 201.63%

Selling 1 WN11 $6.10 put @ 10 cents  initial 1648, maint 1408 – collect 500 net out of pocket margin 1148 – return 43 % 85/365 = 4.29 *43%  =  184.47 %

TOGETHER - Initial 1986, maint 1794 – net collection 1050 – net out of pocket margin $936 – return 1.12 % * 4.29 = 480.48 % annualized

I guess just wanted to show you and really focus on the margin difference between each single deep otm option by self versus together; SPAN margin change but perhaps this shows how one can actually lower margins via adding positions……….the difference in the above is aprox $200-250 less via adding a position versus on by self