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Commodities Trading / Re: The Options Advantage
« on: April 26, 2016, 12:18:58 pm »
Got a question, received via email, from Jim:
You stressed the importance taking less risk deep out of the money options to taking more risky deep in the money options for more money (premium). You made an example of the premium of $1200 on the deep in the money option, and maybe four options at $285 each for a lesser risk (deep out of the money options) - which added together still comes to almost $1200 that you get from the more risky option.
My question to this way of thinking: how much margin will you have to put aside for one option that has the potential of giving you $1200? And also how much margin will you need to put aside for four options that are less a risk, and has the potential of giving you about &1200 all combined? Will the margin be the same.
Wont the exchange demand a bigger margin for less risky four options - because they are four? Please explain.
You stressed the importance taking less risk deep out of the money options to taking more risky deep in the money options for more money (premium). You made an example of the premium of $1200 on the deep in the money option, and maybe four options at $285 each for a lesser risk (deep out of the money options) - which added together still comes to almost $1200 that you get from the more risky option.
My question to this way of thinking: how much margin will you have to put aside for one option that has the potential of giving you $1200? And also how much margin will you need to put aside for four options that are less a risk, and has the potential of giving you about &1200 all combined? Will the margin be the same.
Wont the exchange demand a bigger margin for less risky four options - because they are four? Please explain.