The Options Floor

With all my experience at Pit and poker, I felt I was ready to tackle the Chicago Board of Trade. Two things dissuaded me. First was the cost. In the early 1980s, it cost about half a million dollars to be a floor trader. Trading stock options was much cheaper. You could rent a seat for only a few hundred dollars in slow summer months when traders wanted to take vacations, and even buy one for an affordable sum. You did have to come up with $50,000 for clearing margin ($25,000 if you closed out your positions every day). This money was deposited with your clearing firm (you had to find one willing to take you). This firm was responsible financially for all your trading. At the end of each session, it canceled out all your offsetting buys and sells, paying or receiving the net cash from the clearinghouse. The $50,000 was to make sure you could meet your losses.

For example, suppose you bought 10 GM June $50 calls at $5.00, later sold 15 of the same contract at $6.00, then bought another 10 at $5.50. At the end of the day, you own 5 of the calls. You owe $5,000 (each contract is for 100 shares) on the first transaction, are owed $9,000 on the second, and owe $5,500 on the third. Net, you owe $1,500 to the clearinghouse. That doesn't mean you lost money-that depends on the closing value of your 5 remaining calls. If they're over $3, you made money for the day on these trades. The clearing firm took care of all these details.

The second reason to prefer options is that I didn't know anything about agricultural commodities-or any commodities. That's not necessarily a disadvantage; you don't need to know much about something to find profitable trading strategies for it. I didn't know much about stocks, either. But because public options trading was so much newer (introduced only in 1973) and so mathematical, I thought there was more chance of succeeding there. The downside was that I would never get to yell "I corner the market on Wheat!"

I don't have any trading records for those days, but to illustrate the game, I'm going to use some recent quotes. These are real quotes, not a made-up example. The options market is much more efficient than it used to be, partly as a result of actions by the Securities and Exchange Commission and partly due to improved trading technology. In the 1980s the opportunities were both larger and more common.

This table shows prices for options on Morgan Stanley stock (MWD), for settlement on August 24, 2005. At the time of these quotes, the underlying stock was selling for $52.29 per share. For example, the upper left of the table tells us that you could buy a call option on MWD at $45 per share that expired on September 16, for $7.40 per share. If you bought that option, you would have the right, but not the obligation, to buy one share of the stock at any time up to September 16, for a price of $45. Normally you would wait until September 16, and if the stock was selling for under $45 per share, you would let the option expire worthless, but if the stock was selling for more than $45 per share, you would exercise the option and buy it. Note that you buy the stock even if the profit is less than the $7.40 you paid for the call. You don't get that money back whatever happens. So if the stock is selling for $46, you buy it for $45. Your $1 profit offsets some of the $7.40 you paid for the option. You're sorry you paid $7.40 for the option, but you still want whatever profit you can get out of it.

A retail customer might buy this option if she was planning to buy MWD but was afraid of some short-term bad news. If she buys the option and then exercises it, she pays a total of $52.40 ($45 to exercise plus $7.40 for the option) per share, $0.11 more than the $52.29 for buying the stock directly. She gets two things for that $0.11. First is the interest she can earn on $45 for a month, because with the option she doesn't have to pay that amount until September 16. That might be about $0.08 of it. Second is the limited loss if something bad happens to MWD over the next month. If the stock dropped to $30 or even zero, she would lose only the $7.40 she paid for the option, not the $22.29 or $52.40 she could lose from owning the stock. Of course, the chance of this occurring is pretty small, which is why she can buy the insurance for only about $0.03.

The put options give the right to sell instead of buy. For $0.15 you can buy the right to sell a share of MWD for $45 anytime before September 21. Instead of buying the call option, our retail customer could buy the stock, then pay $0.15 to buy the put to get the same insurance as the call. Obviously, the call is a better deal. All a retail customer has to do is find the cheapest way to accomplish her strategy. As traders, we're looking for opportunities to guarantee profit.

Дата добавления: 2015-10-26