hello everyone,
just curious, other than doing short guts on stocks and ETFs, anyone tried to do it on commodity and futures?
the returns seemed to be better than equities right?

rgds
ky

I also like to sell options on commodities, but most of them do not have options in IB. Those with options, I do not find enough liquidity. Eugene said commodities trading is more popular on floor rather than online.

I do not know about xpresstrade or other commodities software. Anyone knows about it?

Have a good weekend.

Hanz

That's correct. For commodities there are some using electronic trading which IB have (all the Eminis are electronic traded ) but many others are pit traded. Yes the premiums for options on commodities are much much better than stocks. Due to the margin, its' not possible to trade 'short guts' on these commodities esp on IB. U have to find a proper US futures broker. Which commodities are you eyeing?

Eugene Tan

i am looking at GC and CL (gold and crude oil). they exist in IB. but whats the difference between pit traded and electronic traded? dont quite understand the terms used here.

yes, i do find the liquidity not there and the spread is not too good.

short guts not possible with them?? care to explain more on this? thank you.

ky

What you see in IB is electronic trading quotes, IB mentioned somewhere in their site they do only electronic trading (not pit trading.) Pit trading is the outcry system where brokers put up their hands and signals and this type of trading is offered by certain futures brokers who will state in their website. I don't trade commodities so the above is what i read or ask people about. What you are asking is basically futures trading which is different from stock trading. I said it's not possible because the margin for short guts on gold or crude oil is as high or higher than the margin for Emini S&P500 (if I am not wrong) You can check it out.

thanx eugene for your reply. ok, things are clearer now.

yup, hope you can understand. but it will become clearer when you actually trade future options. for those who trade stock options, the margin held by the broker is somewhat fixed but not for future options. the margin can double overnight leading to margin call. that why i said its very difficult to trade short guts on options on futures

Good discussion and mutual support here. S$0.20 for both of you!

yup, agree on it. recently, i also try to contact HK ADMIS www.admis.com.hk, they said is not possible to trade "short gut" on commodities coz the margin involved too much, and they said wat if one leg broken?? they said tis consider naked too unless one can bank in 100K if not they dont accept order.

Hi NDtrader,

Interesting! I wanted to ask them and you asked for me. What do they mean by 'and they said what if one leg broken"? Does it mean if I sell a call and a put, suddenly one leg is taken out by them, or one leg is not transmitted?

Thanks for that!

Hanz

the one leg broken means the short we have open either on put or call become at/in the money and someone exercise it then become "broken".....

i guess so?? correct me if i were wrong.

if one leg broken, means the other side of short become totally naked.... risky as wat they think!

hi everyone,

one leg is broken means your order is not properly transmitted. for example, you wanted to sell one put and sell one call, and the short call is not honoured after transmitting the short put, you are in a naked call position.

If both call and put get transmitted, but one leg gets assignment, it has no impact on the direction. If the short put is assigned before short call, you will long the underlying, and a short call. This is called covered call selling. Sun called it ITM covered call writing, I guess. Right, Sun?

Probably the online software/broker of commodities trading is not that well developed as Eugene said commodities are traditionally floor based trading. I hope it won't happen to stock/index. So far I do not have such problem..touch wood.

JK

one leg is broken what does it mean?

When you are doing a short guts you are in a naked position (both call and put), it doesn't matter if 1 leg is filled or both leg is filled, the setup itself is in naked position. Of course if only 1 leg is fill then margin will be higher as compare to both leg is filled.

One leg is broken refer to market goes beyond your short call or short put. This is different from selling a strangle (OTM call and put). Strangle is easier to understand. Anyway back to short guts, when your market is above your short call (your short call will expire worthless or lesser in value since it is no long ITM but OTM) you are left with a very high risk naked put position which is now very deep deep ITM (margin will be extremely high now) most broker will not take this kind of trade unless your account have sufficient margin. When you have both leg which is ITM the losses on 1 side is offset by the gain on the other side so at least you are protected in the zone. But when 1 side is broken you are left with 1 side that is deep deep ITM.

that is my understanding of 1 leg is broken, ADMIS HK is definetly not margin friendly in this scenario and best to avoid them. you never know when your 1 leg is broken