Let's Trade Options

Not all of my trades are high priced. I seldom go over $30K in a trade, but I have no problem putting in $10K-$20K to double it, because I only trade positions I have a very high confidence in. And all the stocks I even look at are high priced, big movement stocks, so option price tends to move a great deal. I don't even look at any stocks that trade below $25/share, with 80% of the pool being $100 and above.

Do I lose? Every once in a while, but I know I can make that up quickly. I don't consider what I do gambling because I have a high confidence the stock price is going to do just what I expect it to do. I think the worst thing a person can do when they get in a trade is "hope".....because for me, if I'm not very confident in the trade I'm about to enter, I just don't enter. For me, that is a very important money management skill.

I do, however, understand what you are saying, and fully agree. My trades can make money with about 10 contracts or greater, so a person needn't put out the cost of 100 contracts, I just do because I like to make as much money as possible as quickly as possible.

I will take your advice and learn the other methods of option trading. I just never bothered because PUTS/CALLS always worked for me.. But I suppose you can't have too many tools in the tool box....

sure, money, lots of options traders will look at straight put/call buying as the wrong way to trade options. I lean that way but I wouldn't quite go there all the way. Bottom line, if you are making money consistently with whatever method, why change it?

I frequently have high returns on spread trades, but I lose alot of them also. But when I lose, I only lose a little. Another basic fact of life for traders: win a lot, lose just a little - and you will likely survive.

50c hit on the 11c put cal. I think the original DC was 22c...

Good job!!

I think one of the things that helps me a lot is, say I have a PUT that looks really good...., I don't always get in at the end of the day, but may look at futures the next morning. If futures are down before the open, I'll get in at the open. But if I have time, like the Oct5 PUTS for ITW and SWK, I may even add to a position if it doesn't move right away. The way I determine when it is ready to move may be slightly off by a day or so (so I don't trade those after a Wednesday of the expiration week), but it very nearly always does what is expected, so the money is there. I guess that's why I never bothered to delve into the other methods.

Your methods seem to work well for you, so keep doing what you're doing!

I just hate losing money. I rarely risk more than 25c on a trade and usually the spread trades I do will have r:r potential of 4x or better. Flys and calendars can give back 20x....

The TSLA put fly noted above is grinding toward a perfect finish at $300, I think that would pay over $2 on a 14c risk....

These two (ITW and SWK) still look good with 2 weeks to go. In addition to them, two more look like moneymakers:

OSK Oct19 75 PUT @$1.50 or better

WBA Oct5 73 PUT @$1.05 or better

TF, what option method would allow capitalization on a downward movement of say, WBA, in the next week other than the purchase of a straight PUT? I have some option books and DVDs in storage I'm going to get this afternoon, but that is what I would be looking for....I've gotten pretty good at predicting directional movement of a stock over a relatively short time frame, so I would want to be able to use that to my advantage with other option methods.

Trading directionally is ok when you are right. Doing it with options a very dicey way to do it, tho. Losses on long calls or puts can be large. So mitigate that with spreads. Also, you can use time spreads - diagonals and calendars - to get into position with long options at lower cost. If you are good at picking directions then get good at predicting when directional moves will occur. Then buy some big trucks to haul home all that moneyyy...

you know WBA has earnings out 10/11 right?

I would consider myself pretty accurate at calling the move within a 1-5 day window. I seem to recall that the calendar spreads were for longer term movements rather than just a few days, but I might be mistaken. I'll have to review the material when I get it from storage. Would be nice for another method to be available. I've sold naked PUTS/CALLS, and they worked as a very good income producer, as all I had to do was sell the opposite direction of my indications. But I have to get back up to $250K in the account to really make decent money, so it will be a little bit.

I saw WBA had earnings before the open on the 11th, but with the contract only out to the 5th, I felt that was not going to be an issue.

DAILY chart of WBA, showing last few earnings cycles. The blue line is front month atm options implied volatility. IV determines options price, so if you buy options now, as iv is rising, you are paying a premium.

There are a lot of strategies around trading stock options around their earnings release. One is to sell the front week pre-ER options and buy the back post-ER options - a calendar spread. You might see the front option expire worthless and that sets you up in the long option that could catch a big move in the share price on the ER.

The earlier you do that, the better price you can get on the spread. I often do this with puts and calls both - a double calendar....so as to catch a move in either direction.

whether you know it or not, when you trade options you are trading implied volatility. The general rule "buy low, sell high" applies. Sell options at high iv and buy when iv is low.

While it is hard or impossible to predict price movement, it is quite possible to predict moves in iv.

I understand implied volatility, and while I know it is a consideration for trading certain methods in options, it isn't so much with the method I use, because when the price is getting ready to move and you're looking at a potential trade, IV is what it is, and you just have to factor the price of the option in your decision as to whether the option is worth purchasing.

I have found that I can, with a high confidence level, predict price movement for my purposes, as I only look at extremely overbought/oversold conditions and short term moves. I don't have that high confidence level when I try to predict a few months out instead of a few days out.

still looking at EWZ....General elections in Brazil on Oct 8, with runoff elections Oct 28, if necessary....chains show iv elevated >50% in Nov, falling off in Dec & Jan .... a recipe for cheap calendars: sell the expensive front month and buy the cheap back month.....the front month iv elevated relative to uncertainty over the elections....classic

...it's a rare gift

How long are your trades typically held when you enter them, say with the EWZ calendar example above? Are the weeklies considered or do you just deal with straight monthly expiration dates?

I am mixing things up with exposure but I am usually in trades for 1 week to 4 weeks or so. Some event trades I get in for just a day or so and some things I set up for 9 months or more.

I just post a few samples of the trades I do here.....

EWZ double calendar I might buy

So, if I'm reading this correctly, this double calendar will cost you $520 to execute?

The trade P/L will look like this on 11/20 if nothing is closed and the short options are expired. So you would be in long $25 puts and long $40 calls til Jan 18 yes for 50-60 cents total. I rather think EWZ will rally after the elections....

Update on these two:

OSK Oct19 75 PUT up to $2.40 from $1.10

WBA Oct5 73 PUT up to $1.60 from $0.90

Nice little profit....