Let's Trade Options

MM2

I use what I call the 1% rule to help select an option strike price.

The 1% rule says to limit the time value portion of the option to less than 1% of the stock
price. If you limit the time value portion of an option to 1%, the stock price only
has to move up or down 1% for the call or put to breakeven and start profiting, with time
decay on your side and a high delta as well as volume being high.

Its good for the mind I find to think like this.

I have a calculator and database queries to calculate the time value portion of an option and the
percentage.

As long as the mix of being in the money and expiry days is right and is less than 1 %
of the stock price it is a candidate for a long call or put.

So the example of Agilent A attached is to find this mix less than $120 after the query finds
the ticker.

Make say 1/3 of the premium paid as a stop loss and when BEP is reached take half off and
leave the rest to run until we see signs of weakness in the underlying or time decay really kicks in.

Simple I think and there are so many candidates for trades its mind blowing at times.

HTH

SE,

Thanks for the explanation. Your method is simple to you but would definitely be a paradigm shift for me....as mine might be for you. I think that is the great thing about trading, there are many ways to make the money in a million different comfort zones.

MM2

Here is one for A ticker ... fails the 34 day rule but you will get the idea

In the following:

AAPL Mar12 125 CALL @ $3.00

I should have been watching it yesterday, could have gotten it WAYYYYY cheaper!!...but by that logic, I should have been born rich, so......

I don't normally trade off the Weekly or Monthly charts, because 3-4 candles on a Monthly chart is a full quarter, and a lot can happen in that time plus i just don't like to wait that long.

That being said, I have found the charts to typically be correct, and the Monthly chart of A ticker shows it is getting ready for a drop after this week. Your attachment appears to be vetting the CALL options....how do you chose which side to investigate (PUT or CALL)?

Its all about perception I suppose

The technical or volume driven signals on AAPL are getting ready but it is not ready for any engagement from my perspective.

Shake Out + Spring + Test + Stopping Volume are in the bar at 20210223 which is very very strong but we need confirmation.

It has reached what some folks called oversold area but I do not believe in that term .. Probably a few days too early for turn.

Also that option strike and series fails on DTE 18 which is too short and the 1% rule fails as well and delta is too low (needs to at least 80% IMO)

Its why there is a market I suppose

I trade off daily data and sometimes a helicopter view of custom weekly data for a look see

That trade for A was in and out over 5 days call side only from the reasons on the annotated chart . Volume Analysis which showed Call was the only way to go.

AAPL is setting up for a call only but not ready to take out of the oven yet

SE

Yeah, I like the shorter time to expiration, it makes the options cheaper. As long as I have about 7 days minimum, I'm good. As I mentioned, I like to trade the near-the-money options and since the strike price has to be fairly deep in-the-money for >0.8 Delta, that's too rich for my blood, especially with the 34 day rule....that's a $16.40 bid price right now. I used to only trade in-the-money, but found the way I trade, I actually get more bang for the buck slightly out when the stock moves.

Sounds like you have a good strategy that you have a lot of confidence in, and I believe that is the key. Lot's of traders lack that confidence level when they trade, and that can be detrimental because it make them second guess their trades...."did I get in at the right time", "should I get out now", "will it do what I expect"......stuff like that will drive you completely bonkers!!

Keep making money, boss!!

MM2

MM

I actually use this whole thing as a proxy for the stock with the options leverage .. strike is always > 80% of ticker price

Its solid

Direction and tops and bottoms all flow nicely from the volume profile I have spent years perfecting

1000 ways to skin this pussy cat for sure

Out of the following:

KAR Mar19 15 CALL @ $0.60 up form $0.45

Not a lot, but stock volume started drying up yesterday, so I'll take it....

Out of the following:

AAPL Mar12 125 CALL @ $4.20 up from $3.00

Looking to get back in if price drops enough.....

I have a few Hail Mary bids out, but spreads are wide today. Maybe I'll get some surprises, though.....sometimes a bid or ask gets hit when it doesn't even show on the Level II quotes.....

Back into Apple with the following:

AAPL Mar12 123 CALL @ $3.50

The 125 strike was only ~$0.75 less, so I lowered the strike by $2 and it cost me <$1. I'm good with that....

In the following:

WMT Mar12 133 CALL @ $2.21 average

this one was looking good until today....still, if SPX will regain a little bit tomorrow, it will come off for a profit.

In a bull market I generally put these on Mon or Tuesday for a Friday/Monday time spread, do it 4 x a month, try to put it on for close to scratch, maybe will go 40c. Good winners are 10 baggers, occasionally I roll for a small loss, directionally wrong eats the initial debit. Has been a good money maker in the neverending bull grind, I wonder if that will be changing now?.....nah....

Added to the following:

WMT Mar12 133 CALL @ $1.50, bringing the average cost to $1.85

Sounds solid. Next time you get in a trade, put it on here real time so we can have a sense of what it looks like....

MM

Your thinking behind a call on WMT twists my logic somewhat

What technical analysis led you to that position ?