An Introduction to CBOE Mini Options

Transcription

1 Interactive Brokers Webcast An Introduction to CBOE Mini Options April 29, 2013 Presented by Peter B. Lusk Senior Instructor

2 Disclosure CBOE Disclosure Statement Options involve risks and are not suitable for all investors. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS, or from The Options Clearing Corporation at Any strategies discussed, including examples using actual securities, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Multiple-leg strategies involve multiple commission charges. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. CBOE, Chicago Board Options Exchange, FLEX and LEAPS are registered trademarks and Execute Success, Quarterlys, The Options Institute and Weeklys are service marks of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is not affiliated with Interactive Brokers. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. Copyright 2013 CBOE. All rights reserved. CBOE OPTIONS INSTITUTE 2

3 Overview Option volume in the US exceeded 4 billion contracts in 2012 This marked the second highest volume year ever 2012 was the second year in a row in excess of 4 billion contracts So why add a new type of option? Because investors asked! CBOE OPTIONS INSTITUTE 3

4 Existing Products 2,700 different stocks with options 500 exchange traded funds with options 78 market indexes with listed options LEAPS Weeklys SM Extended Weeklys Quarterlys SM FLEX Options CBOE OPTIONS INSTITUTE 4

5 Individual Objections to an Option Trade The price of the underlying market is too high to take a position Options listed on stocks with high prices have high premiums and are too expensive An investor does not have enough shares to trade a standard option contract If only there were a smaller contract CBOE OPTIONS INSTITUTE 5

6 Overview CBOE Mini options began trading on March 18, The new Mini options represent contracts that are 1/10 th the size of standard listed options Mini options represent a deliverable of 10 shares of an underlying security standard options represent 100 shares Mini options are (currently) listed on only five securities CBOE OPTIONS INSTITUTE 6

7 Current Listings Stock Amazon.com Inc. Apple Inc. Google Inc. SPDR Gold Trust SPDR S&P 500 Trust Stock Symbol AMZN AAPL GOOG GLD SPY Mini Symbol AMZN7 AAPL7 GOOG7 GLD7 SPY7 CBOE OPTIONS INSTITUTE 7

8 The Basics Nothing Changed Buyer Seller Call Right to Buy Obligation to Sell Put Right to Sell Obligation to Buy CBOE OPTIONS INSTITUTE 8

9 The Basics Something Changed GLD Jun Represents 100 Shares Dollar Cost = $500 (5.00 x 100) GLD7 Jun Represents 10 Shares Dollar Cost = $50 (5.00 x 10) CBOE OPTIONS INSTITUTE 9

10 Side by Side Comparison Standard GOOG Call Option Mini GOOG7 Call Option Deliverable Shares Strike Price Bid x Ask x x Premium Multiplier Total Value of Shares Total Contract Cost $77,500 $7,750 $1,750 $175 CBOE OPTIONS INSTITUTE 10

11 Covered Call Example Long a stock + short call option against shares of the stock Also referred to as a buy-write, if the stock is purchased at the same time as the call options are sold Considered a neutral to slightly bullish strategy Often the trade is initiated when there is a willingness to sell shares at a certain price level CBOE OPTIONS INSTITUTE 11

12 Covered Call Example Long Would be willing to sell AAPL 41 at May expiration Sell 6 AAPL7 May 410 Calls at 1 Covered Call Position Long Short 6 AAPL7 May CBOE OPTIONS INSTITUTE 12

13 Covered Call Example Long Short 6 AAPL7 May AAPL AAPL Stock P/L (2) (1) AAPL7 410 Calls (1) (2) Option Income Profit / Loss (1) CBOE OPTIONS INSTITUTE 13

14 Covered Call Example Long Short 6 AAPL7 May Break Even Shares Called Away Effective Price = 420 Call Option Expires Retain Shares + 1 for Options CBOE OPTIONS INSTITUTE 14

15 Protective Put Example Long Concerned about near-term downside into May expiration Buy 4 AMZN7 Apr Protective Put Position Long Long 4 AMZN Apr CBOE OPTIONS INSTITUTE 15

16 Protective Put Example Long Long 4 AMZN7 Apr AMZN AMZN Stock P/L (2) (1) AMZN7 250 Puts 1 Option Cost (5.00) (5.00) (5.00) (5.00) (5.00) (5.00) Profit / Loss (15.00) (15.00) (5.00) CBOE OPTIONS INSTITUTE 16

17 Protective Put Example Long Long 4 AMZN7 Apr Break Even Maximum Loss = CBOE OPTIONS INSTITUTE 17

18 Collar Example Long Slightly bullish but a bit nervous about the price of gold Decide to initiate a collar Buy 5 GLD7 May Sell 5 GLD7 May Full Collar Position Long Long 5 GLD7 May Short 5 GLD7 May CBOE OPTIONS INSTITUTE 18

19 Collar Example Long GLD7 May 130 / 140 GLD AMZN Stock P/L (10.50) (5.50) (0.50) GLD7 130 Puts 5.00 GLD7 140 Calls Profit / Loss (5.50) (5.50) (0.50) 4.50 (5.00) 4.50 CBOE OPTIONS INSTITUTE 19

20 Collar Example Long GLD7 May 130 / Shares Called Shares 13 Options Expire Shares Kept -6 CBOE OPTIONS INSTITUTE 20

21 Summary Currently five securities (AAPL, AMZN, GOOG, GLD, SPY) Option premium = 10 times quoted price (10 x 3.50 = $35) Same PM settlement as standard option contracts All Minis are American style options Same bid x ask spread differential No Minis will be introduced on stocks under $9 More Info CBOE OPTIONS INSTITUTE 21