Let's Trade Options

trading options can be whatever you want it to be, but in reality, it's all about trading volatility. Because options are priced on their implied volatilities. This makes options trading easy, if you are patient - because it is easy to predict when options iv's will rise/fall, in general.

Individual stock options iv's will rise before their earnings announcements, and fall right after that.

The iv's of the entire stock indices will rise ahead of binary events like big elections, and to a lesser extent, ahead of FOMC announcements - and then usually crash after the binary event is settled.

Rate hikes are a special consideration, because, at some point, it becomes more attractive to settle for the 'guaranteed" low return of bonds vs. gambling on a higher return from equities.

Not saying trading options directionally based on TA is "wrong" - whatever you are doing is "right" if it's repeatable and if you're making money doing it. Maybe just be careful reading those TA signals right in front of a big vol-inducing event, that's all...

Trading straight PUTS/CALLS like I do on extremely overbought/oversold stocks, the options are more priced on intrinsic value and time value, as 99.99% of the time I close the trade well before expiration. If a stock is ready to move up, calculating the best time to get in based on IV never really had a benefit; Black-Scholes is useless to my method, as it is for expiration pricing, and the binomial pricing is too cumbersome to try to save $0.10 on an option while it is moving.

IV is inherently priced into the option. I don't shop for cheap options, I shop for stocks that are ready to move. If I want to trade that move, I pay what the market says the option is worth. Now, I can save a little at certain times of the day, like the little reversal around 10:00 or at lunch, but my goal is to own the option before the big move occurs. Then intrinsic value takes over more than time value, as I seldom hold an option more than a few days. So while IV is used for nearly every other option strategy looking for cheap options, it is already factored into the price the way I trade since the nature of my trades are high volatility moves (i.e. big swings in price).

I certainly agree with you, big events are something to be wary of. Like the mid-term elections, I didn't trade until after. I don't think Apple will actually be affected by any tariffs soon, as they have been exempted so far. I think the President was doing a little sabre rattling before the meeting later this week to show what he would be willing to do if no agreements were made. I don't think he should have used iPhone by name, as that would be implied if he added another $230B+ in tariffs, but based on the stocks response today, it didn't hurt it too badly.

I agree IV can be seen in option pricing:

Close of AAPL yesterday: $174.62 Ask price of Dec14 185 CALL: $1.49

Close of AAPL today :$174.24 Ask price of Dec14 185 CALL: $1.25

That's why it is always beneficial to close the position while the stock is still moving a little. You leave a little on the table, but if you wait for things to settle, you may leave more!

HFT and tweets rule the markets anymore. The tweets come out of nowhere and are impossible to anticipate. They are not in the data on the left range of the charts.

Out of:

AAPL Dec14 185 CALL up to $2.50 from $1.18

Will be looking for a drop to see if it is worth getting back into.....

....This from a week ago, re: a QQQ $166/168/171 call fly, in for 8c, worth 32c now, with QQQ trading at $167.......4bag looks good and I am on the trigger but waiting another day could be ok....

Be careful about waiting. Likely to see a pullback from a jump that happened this fast....

Good Job!

Not bad advice. Market pop obviously off of Fed Head Powell's dovish comments. If Trump can deliver some good news on China trade then we will see more hot bull breakout.

I don't know if anyone knows for sure, but I have read that as much as 70% of the volume in equity trading is now HFT. The HFT bots are programmed to read (or listen to) the Fed's comments and react with actual trades within nanoseconds of picking up on any dovish or bearish signals - signals that are boiled down to single words or phrases, deviations from prior statements, etc. HFT trades lasting seconds or maybe minutes at most. It's not your grandpappy's market anymore.... Lot of richer bots strutting around today with the naz up >2% in a couple hours...

Funny you should mention that...I was reading something from one of the Najarian brothers about algorithms trading more than humans now just the other day. This move seemed pretty mechanical, too. The DIA went up almost exactly 2.00 in six minutes...and in the second minute, from the open to the low was 0.16, on the third minutes from the open to the low was 0.17 and on the fourth minute from the open to the low was 0.18...maybe just a coincidence, maybe a programing feature....

good trade

QQQ closing pretty close to the $168 sweet spot...I put a 60c tp on this 8c trade, will reassess Thursday

hoping to not lose money on this SPX diag, which went on for a 10c credit. sexy SPX, underlying so big, can deliver huge profits or huge losses, this one underwater now but I will ride it to next week

SPX so big and juicy and sexy. A savvy spreader could really bank some change with a little luck. Hey, much better odds than playing the lotto.

Combo trade below is a Dec21/24 2945/2950 call diagonal with a Dec21 2940/2950 bull call vertical for upside protection. Diag a scratch entry, vert a 25c debit. Margin needed is $500 per unit. Risk is $200 as shown and best finish at expiry is over $11,500.

A bet on a strong Santa rally but hey the spoos was up >50 today. MaxP 200 away and it could get there in a week at this rate.

b/e at expiry around 2850...

in the recent vol rush I shopped UVXY and VXX spreads, the VXX put calndr shown one of a few I bot - 7c to net >50c, if I get a chance at 30c net I'd be happy

mo

SO maybe the bull market will never die. The Fed turns dove maybe even skips the Dec hike, and the spoos rallys >3,000 into the new year. Combo shown one of many you can try for safe 1:40.

1226.50 now. I might scalp this to 1224 area

1224.80 done. If go up will try again

Back into AAPL:

AAPL Dec18 190 CALL @ $1.65

Should be good for a little money down the road....

the fly worth 46c now as QQQ sits on the exact sweet spot @$168....trigger finger very itchy...I need the margin on the broke wing and can not sneeze at near 6 bag