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Options and Futures is a Numbers Game. Understand the Numbers.
Thursday, September 09, 2010

by Fred Oltarsh of Options Strategy Network

Options and Futures is a Numbers Game. Understand the Numbers.

Compiling information which can help traders initiate options and futures positions is a difficult task. However, many experienced traders look at the same information on a daily basis. My goal is to share the options and futures information which traders find useful with those who don’t ordinarily know where to look. The chart below provides daily settlement information which helps traders understand historical and implied volatility, skew, options settlement information and statistics regarding average trading range, relative strength, volume and open interest and other useful information.

Wheat was the most volatile commodity today. It moved down 3.30%. The implied volatility of wheat, however, remained below both its 30 and 60 day historical volatility. I’m sure Wheat won’t trade below its historical volatility forever, but its trading at a discount now and not to consider putting on a long vega, long gamma options position would be a shame. If you don’t have a market bias in Wheat, comparatively cheap options can provide interesting trading opportunities with the purchase of straddles or strangles. If you’ve never traded a long gamma position, it is potentially quite entertaining and profitable. Call me to discuss the possibilities.

On a nightly basis, Libanman Futures analyzes the information contained in the chart below and is able to use that information to help clients establish the best positions possible to meet their trading goals. All options traders should understand the importance of implied volatility as it relates to historical volatility. They must understand the subtleties of each futures contract and the leverage it provides. Trading options contracts without the appropriate information and knowledge puts the trader at a distinct disadvantage. The Chart below is designed to provide information that options traders need. I used this information as an options market-maker and as Head of Risk at NYBOT/ICE Futures. If you have any questions pertaining to how to use this Chart or would like to discuss certain market opinions, please feel free to call me at 347-949-4546 or 212-383-9453 or contact me by email at fred.oltarsh@libanman.com.

				Today's	Today's	Today's	Today's	20-Day	20-Day
Sym	Last	Net	Pct Chg	HI	LOW	RNGE	$-Range	ATR	$ATR	RSI
KC	19455	225	1.17	19680	18960	720	2700	576	2,159	72.59
SU	2078	(18)	-0.86	2162	2127	35	392	65	733	70.85
CC	2736	14	0.51	2754	2693	61	610	59	591	36.04
CT	9056	(62)	-0.68	9168	9045	123	615	142	712	81.22
OJ	13805	(50)	-0.36	13830	13760	70	105	273	410	44.96
DX	82895	(244)	-0.29	82945	82380	565	565	675	675	48.07
CL	7791	44	0.57	7539	7375	164	1640	190	1,899	49.23
HO	20817	104	0.49	21010	20647	363	1524.6	478	2,007	58.13
RB	19481	71	0.37	19598	19203	395	1659	479	2,012	57.96
NG	4351	(36)	-0.82	3875	3795	80	800	147	1,472	36.40
GC	12575	(18)	-0.14	12647	12546	101	1010	1277	12,767	74.13
SI	20009	95	0.48	20180	19885	295	1475	37	183	79.72
S	10486	(32)	-0.31	10562	10470	92	460	161	804	66.76
SM	3048	(19)	-0.62	3083	3030	53	530	54	539	64.57
C	4624	(36)	-0.80	4682	4616	66	330	100	499	73.71
W	7110	(242)	-3.30	7340	7100	240	1200	228	1,141	50.60
LC	9970	100	0.93	9742.5	9642.5	100	400	113	454	47.99
LH	7425	70	0.93	7665	7590	75	300	131	522	51.74
SP	109525	75	0.74	110300	109250	1050	2625	1786	4,466	60.24
ND	187500	2000	1.08	188900	186200	2700	2700	3446	3,446	65.26
DF	10326	54	0.52	10420	10350	70	700	145	1,450	59.07
EU	12718	21	0.17	12763	12671	92	1150	115	1,435	44.41
	Today's	MGN on		MGN As	MGN On
Sym	$-Move	His+Imp	CON VAL	%CV	Imp Vol	OI	VOL	SKEW	Contract
KC	844	3572	72,956	4.90%	4061	147694	18255	Call	Coffee
SU	-202	1251	23,274	5.37%	1287	673082	142783	Call	Sugar
CC	140	888	27,360	3.25%	1157	124407	15440	Bell	Cocoa
CT	-310	1249	45,280	2.76%	1892	226242	20088	Call	Cotton
OJ	-75	792	20,708	3.82%	1138	23797	965	Call	Orange Juice
DX	-244	968	82,895	1.17%	1101	24239	36949	Call	Dollar Index
CL	440	3048	77,910	3.91%	3352	1347231	838172	Put	Crude Oil
HO	437	3164	87,431	3.62%	3706	316852	114898	Put	Heating Oil
RB	298	3066	81,820	3.75%	3786	239555	134047	Put	Gasoline
NG	-360	2322	43,510	5.34%	2458	826922	251796	Call	Natural Gas
GC	-180	1909	125,750	1.52%	1803	581338	118503	Bell	Gold
SI	475	3235	100,045	3.23%	4227	139522	37773	None	Silver
S	-160	1376	52,430	2.63%	1705	527472	113996	Call	Soybeans
SM	-190	847	30,480	2.78%	918	213073	46745	Call	Soybean Meal
C	-180	946	23,120	4.09%	1164	1381018	315783	Call	Corn
W	-1210	2289	35,550	6.44%	1942	477770	57179	Call	Wheat
LC	400	760	39,880	1.91%	910	350095	62119	Put	Live Cattle
LH	280	872	74,250	1.18%	903	220867	38806	Put	Lean Hogs
SP	188	7990	273,813	2.92%	8705	338583	56944	Put	S&P
ND	2000	5444	187,500	2.90%	6140	24940	548	Put	Nasdaq
DF	540	2685	103,260	2.60%	2958	10096	473	Put	Dow Futures
EU	79	2387	158,975	1.50%	2600	257788	476862	Put	Euro
Sym	OPT DTE	Call Delta	Theta	Vega	IV Chg.	S. Call	S. Put	10-D His	30-D His	60-D His	Avg IV	30-D Dif	60-D Dif
KC	65	53	-0.10	0.33	0.80	1311	1356	27.91	38.42	36.22	40.72	2.30	4.49
SU	160	55	-0.01	0.05	-0.40	222	219	40.51	38.83	37.44	40.44	1.61	3.00
CC	58	51	-1.16	4.35	0.27	128	142	17.81	20.91	25.34	30.94	10.03	5.59
CT	65	51	-0.04	0.15	-0.72	446	490	17.32	16.11	16.68	30.57	14.46	13.89
OJ	37	48	-0.10	0.18	-0.90	625	820	25.39	22.79	23.52	40.19	17.40	16.67
DX	86	50	-0.01	0.16	0.21	1515	1620	7.53	8.64	8.27	9.71	1.07	1.44
CL	69	53	-0.03	0.13	-0.19	421	430	30.11	26.44	26.44	31.47	5.03	5.03
HO	78	53	0.00	0.00	0.52	1222	1210	23.02	25.46	26.39	31.00	5.54	4.61
RB	78	53	0.00	0.00	0.54	1204	1223	24.21	25.66	25.92	33.85	8.19	7.92
NG	76	54	0.00	0.01	-0.78	327	326	43.73	34.15	36.91	41.33	7.18	4.42
GC	76	52	-0.26	2.28	-0.26	4080	3830	6.64	7.22	13.24	17.31	10.09	4.07
SI	76	53	-0.74	3.63	0.49	1117	1108	19.38	20.04	24.28	30.91	10.86	6.63
S	44	51	-0.39	1.45	0.65	340	352	18.72	17.09	17.20	23.79	6.70	6.59
SM	79	52	-0.08	0.56	1.04	635	425	18.86	18.92	21.52	22.03	3.11	0.51
C	79	55	-0.20	0.85	0.18	325	301	23.54	26.97	32.45	36.83	9.86	4.39
W	79	54	-0.33	1.31	-1.40	530		43.96	57.54	46.98	39.96	(17.59)	(7.03)
LC	86	50	-0.02	0.19	-0.30	305	335	14.08	13.27	11.76	16.69	3.42	4.93
LH	97	53	-0.02	0.15	0.03	353	328	20.19	23.02	20.51	22.24	(0.79)	1.73
SP	99	52	-0.27	2.27	0.02	5270	5330	22.52	19.37	20.24	23.26	3.89	3.02
ND	99	53	-0.47	3.88	0.30	9650	9150	21.06	19.12	20.82	23.96	4.84	3.13
DF	100	53	-2.26	21.47	0.10	4660	4400	20.32	16.70	18.10	20.96	4.26	2.86
EU	86	52	0.00	0.00	-0.05	3060	2880	10.27	10.98	10.72	11.96	0.98	1.24

Here’s an explanation of some of the lesser known columns: There is the 20-Day Average Trading Range and its $ Value followed by the Relative Strength Index, a measure of overbought or oversold situations. Mgn on His and Imp represents our calculation of reasonable margins based on the average of the 10, 30, 60 day historical volatility and the implied volatility. Con Val is the current value of the contract and %CV is the margin as a percentage of the contract value. MGN on Imp Vol is a margin calculation based on just implied volatility. (These margins are our own estimate of reasonable margins and should be used for analytical purposes only, they are not Exchange Margins. Margin estimates are always too high or too low, but are interesting for risk analysis purposes.) Skew represents the direction of the options skew in the market. OPT DTE is Options Days to Expiration. S. Call and S. Put are the settlement price of the at-the-money strike. 30 and 60 Day Dif is the difference between the Implied Volatility and the 30 and 60 Day Historical Volatilities.

FUTURES AND OPTIONS TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. INFORMATION IS OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT IS IN NO WAY GUARANTEED. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS.

About the author

Fred Oltarsh is a Proprietary Trader for a New York City Futures and Options Group specializing in Options Trading. He was an options market-maker on the floor of NYBOT/NYMEX for more than fifteen years and Head of Risk Management at NYBOT/ICE Futures for seven years.

In addition to his Proprietary Trading, Fred has developed the Options Strategy Network a website geared towards Options and Futures Education and Training. The site provides access to Individual and Group Tutoring from Options and Futures experts with significant trading and risk management experience.

Traders putting their money on the line can benefit from the knowledge and trading skills that we convey in the Options Traders' Essential Outline. For more information, please call me at 917-656-1767 or email me at info@optionsstrategynetwork.com.

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