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Let's Trade Options

  • #15,881
  • Sep 24, 2018 6:37pm Sep 24, 2018 6:37pm
Quoting moneymaker2
{quote} 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....
So you paid 90c for the WBA puts which means you are 90c in the hole plus comms. And now the puts are worth $1.60? Meaning they have come up 70c? How is that a profit? Aren't you still 20c plus in the hole?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,882
  • Edited 7:26pm Sep 24, 2018 7:12pm | Edited 7:26pm
No. When you buy straight PUTS/CALLS, that money you paid is not lost, but basically riding on the trade since you still own the PUT/CALL.

Let's say I bought 100 CALLS at $0.90, that's $9K (plus commissions and fees). Now let's say I screwed up and meant to buy PUTS, so I immediately sell my 100 CALLS for $0.90....I get back $9K (minus commissions and fees). So I buy 100 PUTS for $0.90, again that's $9K (plus commissions and fees) debited to my account... …..the stock drops so now my PUTS are worth $1.60 and I decide to sell. So now I get $16K (minus commissions and fees) credited to my account. That's $7K profit (minus commissions and fees).

Since commissions and fees are a fixed cost for every contract in and out, I don't even really use them when determining potential profit since for 100 contracts they are about $150 both ways which allows me to basically say that for 100 contracts, a $0.10 move in the option price is ~$1000 profit ($850 in reality, but $1000 makes for quick, on the fly calculations).

Whatever the PUTS/CALLS are worth, that is what you get back into your account. The difference between what you paid and what you sold them at is your profit (or loss). So if they've come up $4.20, that's $42K on 100 contracts ($21K on 50 contracts, and so on). If I see it is not going to go my way, I get rid of the options. I can't remember the last time I let options expire worthless....
  • #15,883
  • Sep 24, 2018 7:26pm Sep 24, 2018 7:26pm
Sure.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,884
  • Sep 25, 2018 8:22am Sep 25, 2018 8:22am
https://thewire.in/world/hate-or-hop...s-for-its-soul

https://www.economist.com/leaders/20...-latest-menace

If Brazil elects a fascist president, will its stocks tank? Seems to be shaping up to a binary event for EWZ.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,885
  • Sep 25, 2018 9:40am Sep 25, 2018 9:40am
Quoting moneymaker2
ITW Oct5 145 PUT @$1.95 or better SWK Oct5 149 PUT @$1.75 or better

Update:

ITW Oct5 145 PUT up to $2.40 from $1.10

SWK Oct5 149 PUT up to $1.30 from $1.10

More downward play available for SWK, but the bid/ask spread on the weeklies has grown to $0.85, so that's way too large to hold on. The ASK price may go to $3.00, but if the BID is only $1.50, it is hard to split the bid/ask price with that big of a delta between the two. So just get out, take your profit and look for something else.
  • #15,886
  • Sep 25, 2018 12:26pm Sep 25, 2018 12:26pm
Yep I generally avoid thin options with their ridiculous spreads - there would have to be a clear & compelling reason to try them....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,887
  • Sep 25, 2018 12:28pm Sep 25, 2018 12:28pm
I have noticed when trading weeklies that the spread may be fine one week and then get wide the next. Not really sure why that occurs, most likely having to do with the fact some brokers don't offer weeklies so there is a change in volatility, but it is definitely something to watch or it could trap you pretty easily.
  • #15,888
  • Sep 25, 2018 12:30pm Sep 25, 2018 12:30pm
I am loading some of the EWZ spreads noted above - filled a Nov2/Nov16 $25 put calendar for 7c, waiting on a variety of call setups...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,889
  • Sep 25, 2018 3:49pm Sep 25, 2018 3:49pm
So, with the calendars at strike prices of 25 and 40 as per the chart you posted, you make the MOST money if the stock price hits either strike exactly at expiration, but start making money at around $30 going down and $35 going up, but you don't want it to just range between $30-$35, is that correct? Do you always hold until expiration or do you close positions early, if say $40 was hit mid-October?
  • #15,890
  • Sep 25, 2018 4:07pm Sep 25, 2018 4:07pm
Quoting moneymaker2
So, with the calendars at strike prices of 25 and 40 as per the chart you posted, you make the MOST money if the stock price hits either strike exactly at expiration, but start making money at around $30 going down and $35 going up, but you don't want it to just range between $30-$35, is that correct? Do you always hold until expiration or do you close positions early, if say $40 was hit mid-October?
calendar profits at the strikes get better as the trade approaches expiry. The wider the time gap between front/back options, the larger the profit potential. With a wide time gap, you might see nice (>2-3x) profit well in advance of the expiry date. You can make good money with a perfect finish, or you can hold the long options to see if they go into good profit. Or do both if you have good numbers on the trade.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,891
  • Sep 25, 2018 7:02pm Sep 25, 2018 7:02pm
Yeah, I don't have the confidence level predicting out for enough to use a calendar spread. My stock picks normally run their course in less than a week, usually just a few days. That's why I'm kinda limited on buying straight PUTS/CALLS or selling them when the account is big enough. If you know something else I could be doing for that time frame, please point me in the right direction....
  • #15,892
  • Sep 25, 2018 7:13pm Sep 25, 2018 7:13pm
WELL, I guess you can go all in with your directional conviction. This is a common practice and it's called "super bull (or bear)" - i.e., you are in a directional long position with long calls, and you sell puts (or a put spread for credit) on the other end. Anything you can do to lower your cost basis. Of course, that's riskier though...

You are trading larger accounts than me - I use spreads to get in some numbers, but I rarely have trades bigger than 20 contracts or so.

You can use time spreads to lower your cost basis, but you'd have to be looking at front week/back week - so at least 3-4 days to hold, I'd guess. I often do SPY calendars for about that long, as they come in 3 weeklies - lots of flexibility there.

At least, if your conviction is apparently not panning out, if you enter with a calendar, you can prolly save some money if you are wrong.

As I've said tho, money, if you are winning and getting richer consistently - why change anything?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,893
  • Sep 25, 2018 7:18pm Sep 25, 2018 7:18pm
Show me your next target and we will set up some spread approaches for comparison. Just tell me the stock name, when you want to enter, how much you want to put at risk, etc...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #15,894
  • Sep 25, 2018 7:55pm Sep 25, 2018 7:55pm
Quoting moneymaker2
{quote} Update: ITW Oct5 145 PUT up to $2.40 from $1.10 SWK Oct5 149 PUT up to $1.30 from $1.10 More downward play available for SWK, but the bid/ask spread on the weeklies has grown to $0.85, so that's way too large to hold on. The ASK price may go to $3.00, but if the BID is only $1.50, it is hard to split the bid/ask price with that big of a delta between the two. So just get out, take your profit and look for something else.
Dear moneymaker2,

Are the upcoming earning for ITW oct 25th going to affect your current position?
"Work hard, put in the effort, and follow your dreams..." -Me
  • #15,895
  • Sep 25, 2018 8:05pm Sep 25, 2018 8:05pm
Thanks, TF, I do appreciate it.

Here is a good, cheap one that should make money with a close expiration:

SBUX Oct5 57 PUT @ $0.60 or better

In reality, I would look at the futures before the open to see if they were up or down. If they were up, I'd wait to see what it opened at and see if I couldn't save a nickel, but for ease of this, say I just bought at the open tomorrow 100 contracts at $0.60/share ($6K). Knowing I'll have $300 in commissions/fees round trip, lets not compute that until the trade is completed. I would expect to make about $14K-$15K profit, selling the 100 contracts at $2.00/share or better, meaning stock price dropping to about $55.50/share or lower.
  • #15,896
  • Sep 25, 2018 8:10pm Sep 25, 2018 8:10pm
Quoting moneymaker2
I don't know the complexity of the different option trading techniques, like spreads and butterflies and such. I just trade overbought/oversold conditions strictly with PUTS and CALLS
Dear The Fool and moneymaker2,

I want to share a free resource that I have found and will be using to support learning all the different techniques. It is limited to Australian stocks options only and I do apologies for that, but it is still worth taking a look at as the visual layout seems helpful and descriptive.

https://optionsgame.com.au/

There is a "Options Cookbook" button, when clicked it displays many combinations (up to 4 legs), and when clicked will automatically add the combination to be executed. If this is inappropriate for your thread please let me know and I will edit/ delete this post.

Hope this helps,
Kind Regards,
Tzamo
"Work hard, put in the effort, and follow your dreams..." -Me
  • #15,897
  • Sep 25, 2018 8:16pm Sep 25, 2018 8:16pm
Quoting tzamo
{quote} Are the upcoming earning for ITW oct 25th going to affect your current position?
I do not hold positions long, usually a few days to possibly a week, never to expiration. I make sure I am out of any position where earnings are coming up. I just take the profit and get out. You have to watch the overall market and what the stock is doing to help you decide when to leave a trade. I know I might leave money on the table at times, but my motto is "You won't go broke taking a profit!"
  • #15,898
  • Sep 25, 2018 8:23pm Sep 25, 2018 8:23pm
Quoting The Fool
As I've said tho, money, if you are winning and getting richer consistently - why change anything?
Well, that's pretty much the reason I've been trading like this; I haven't found anything that works better, but I'm all about risking as little as possible for the maximum gains, so I've always had an open mind.
  • #15,899
  • Sep 25, 2018 10:16pm Sep 25, 2018 10:16pm
Quoting moneymaker2
No. When you buy straight PUTS/CALLS, that money you paid is not lost, but basically riding on the trade since you still own the PUT/CALL. Let's say I bought 100 CALLS at $0.90, that's $9K (plus commissions and fees). Now let's say I screwed up and meant to buy PUTS, so I immediately sell my 100 CALLS for $0.90....I get back $9K (minus commissions and fees). So I buy 100 PUTS for $0.90, again that's $9K (plus commissions and fees) debited to my account... …..the stock drops so now my PUTS are worth $1.60 and I decide to sell. So now I get $16K (minus...
When do you get rid of bought options? Is in terms of time or price? What do you consider a good stoploss if your trade goes wrong.
Practice makes a person perfect
  • #15,900
  • Sep 25, 2018 10:56pm Sep 25, 2018 10:56pm
Quoting simnz
{quote} When do you get rid of bought options? Is in terms of time or price? What do you consider a good stoploss if your trade goes wrong.
Sort of a mixture of the two: price is always the most important, but if price still has the ability to go my way more and there is sufficient time, I may hold longer. I do not just let nature takes its course with a 'set it and forget it' approach, because if I have $19K in a trade, you can bet I am at my computer with my phone, and can close the trade with either if necessary.

Depending on the instrument (stock or index option), I normally get out of a trade with a $5K loss for stock, or a $10K loss with OEX options and the parameters I watch actually changing. If the parameters I watch remain the same, I'll just let the trade breathe until it makes its move. Since I only deal with extreme overbought/oversold stocks, and don't trade with earnings close and watch the futures in the morning, I have a high confidence in a trade before I enter it.
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