Please only use these examples for educational purposes. Paper trade them.
I was doing my search for option inconsistencies and here is what I found.
I am looking at how much an option costs per day compared to an option from a different month in the same futures market.
I am doing the at the money options. I will buy an at the money farther month call and put and sell the at the money closer month call and put.
March T-Bond futures contract closed at 117-26 (January & February options follow the March futures)
Jan. T-Bond options have 22 days left until expiration. Feb. T-Bond options have 57 days left until expiration.
Jan. T-Bond 118 Call options settled at 1-14 (78 ticks). Feb. T-Bond 118 Call options settled at 1-56 (120 ticks).
The Feb. 118 Call is 1.5 times more expensive than The Jan. 118 Call, but it HAS 2.6 times more time left.
Jan. T-Bond 118 Put options settled at 1-26 (90 ticks). Feb. T-Bond 118 Put options settled at 2-04 (132 ticks).
The Feb. 118 Put is 1.5 times more expensive than The Jan. 118 Put, but it HAS 2.6 times more time left.
When putting on any calendar spread, buy the cheaper cost per day options and sell the more expensive.
Even if you are not putting on a spread, this is a great way to choose which option to buy or sell.
The above trade is a typical calendar spread. I also can show you how to find option price per day trades using reverse calendar spreads. For the out of the money options, the front months can be better suited to buy and the farther months to sell. It depends on the strike prices of the options. The further out of the money the option is, the better in terms of price per day to buy the front month compared to the back months.
David has traded futures & options for one of the largest cash trading firms in the world. He currently owns and runs the following websites:
Futures Options Simulated trading
Futures Options
Price and Time trading
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