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At PowerOptions, we receive a lot of really good related questions from our customers. Eskazole a question we recently received related to our newsletter service was "can i trade your iron condors for just the same as for ?"
american vs. European
The underlying for options for and are based on the same index, the S&P 100. However, options for the are American style and options for the are European style. American style options may be exercised early and European style options may not be exercised early.
For the Iron Condor positions we trade for the Optium and Chromium newsletters, we select positions which are initially significantly out-of-the-money and avoid allowing positions to go . In this case, the or options may be used in a similar manner, as the likely-hood of an out-of-the-money option being exercised early is remote.
However, the option prices for and will often differ. Additionally, the liquidity for the is much higher than for the . Typically, there is significantly more open interest and volume for the options than for the options.
For example, consider an Iron Condor that was successfully traded for the Optium newsletter and was initially [eskazole
] entered on 11/30/2009. The options entered for this position were the DEC 455/465 s and the DEC 545/555 s. We were able to receive a net credit of $0. 60 for this position which represented a return of 6. 4%. The net credit of $0. 60 was received for the midpoint between the bid/ask for all of the options. For the options on the same day, it appears it would have only been possible to receive a net credit of $0. 40, which represents a potential return of 4. 2% which is significantly less than the 6. 4% return experienced for the position.
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For certain strategies the difference between and with respect to American versus European style should be considered. For example, traders of Butterfly spreads which have two s at-the-money should probably only enter positions for the index, as the s may not be exercised for the European style index. With a Butterfly spread there is a high probability that one of the s will move which could result in the option being exercised and forcing a trader to compensate for the early exercise.
» return goal > 2% / month
» works in any market
Investors trading out-of-the-money s, Iron Condor for example, for the S&P 100 can trade either or , however in most cases the potential returns possible will be greater for the than for the . However, traders seeking to trade short S&P 100 s which are at-the-money or should consider trading as opposed to in order to prevent an early exercise from occurring.
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[tags] OEX, XEO, European style, American style, out-of-the-money, at-the-money eskazole
, Butterfly spread, $OEX, S&P 100 Index, $XEO, S&P 100 Index - Euro. Style [/tags] ?? 2008-2016 Legit Express Chemist.