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Let's Trade Options

  • #18,461
  • Feb 7, 2023 7:23pm Feb 7, 2023 7:23pm
The options markets are transparent & you can see trades as they come through the exchanges in real time (see Time and Sales)...today's volume in TLT was good. Somebody bought the following bull call vert - 429 x Sep 130/140 for an 83c debit, as shown. A $35k debit that stands a good chance of returning 5-10:1, imo....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,462
  • Edited 10:45am Feb 8, 2023 9:44am | Edited 10:45am
Quoting The Fool
I sold SPX vert calls Feb10 4270/4300, for $1.10 in the last minutes. I have those hedged with SPY Feb10 $420/426 bull vert calls, entered Monday for 40c debit. Plan to take profit from both, we'll see...
...will manage out of the call vert for 20c debit, net 90c credit, which will pay for the SPY hedge with leftover profit. The SPY bull vert will break even at around $415 tomorrow, won't surprise me to see a reversal...I also have SPX put calendars, Feb10/13 $3950, will get something back out of those, especially if we continue to slide this week. The latter will profit below 4,100 by early Friday.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,463
  • Feb 8, 2023 11:55am Feb 8, 2023 11:55am
Quoting The Fool
{quote} ...will manage out of the call vert for 20c debit, net 90c credit, which will pay for the SPY hedge with leftover profit.
...all gone for a 15c debit, now I won't have to fight them in a reversal tomorrow.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,464
  • Feb 8, 2023 4:16pm Feb 8, 2023 4:16pm
I smell a chop mess coming, 4,100-4,200 til CIP next week.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,465
  • Feb 8, 2023 9:14pm Feb 8, 2023 9:14pm
Quoting The Fool
{quote} ...will manage out of the call vert for 20c debit, net 90c credit, which will pay for the SPY hedge with leftover profit. The SPY bull vert will break even at around $415 tomorrow, won't surprise me to see a reversal...I also have SPX put calendars, Feb10/13 $3950, will get something back out of those, especially if we continue to slide this week. The latter will profit below 4,100 by early Friday.
...A run to $420 in the next day or so will get me a decent week. I'll roll the SPX puts somehow or just bag em for the loss. Anyway we likely outta gas til the CPI, that's what I'm looking to catch a move from...

I hadda chance to buy out the top end of the SPY vert for a penny late today, spaced it out....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,466
  • Feb 9, 2023 6:22am Feb 9, 2023 6:22am
The post-Covid rally is intact and no amount of Fed action or talk can stop it. But, again, the 900 ton gorilla in the room is the Russia-Ukraine war on Europe's back doorstep. And that's about to blow up into Year 2. What will happen when Putin's Blitzkrieg threatens to overwhelm Ukraine? US has invested >$100 billion in Ukraine in the last year - what will it do to escalate that when it is really needed....next week?

https://www.nytimes.com/2023/02/01/w...offensive.html
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,467
  • Feb 9, 2023 6:48am Feb 9, 2023 6:48am
Quoting The Fool
The post-Covid rally is intact and no amount of Fed action or talk can stop it. But, again, the 900 ton gorilla in the room is the Russia-Ukraine war on Europe's back doorstep. And that's about to blow up into Year 2. What will happen when Putin's Blitzkrieg threatens to overwhelm Ukraine? US has invested >$100 billion in Ukraine in the last year - what will it do to escalate that when it is really needed....next week? https://www.nytimes.com/2023/02/01/w...offensive.html
When the bombs start falling, buy everything.
I think its even more true after next week….With inflation mostly peaked, and the narrative shifting to disinflation, war becomes bullish
  • #18,468
  • Feb 10, 2023 2:55pm Feb 10, 2023 2:55pm
a slow week. The funding IC paid 90-95% and the spreads were total losses. A little less than be. For CPI week, something like the below for SPX...
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....2/17 extreme targets @ 3,850 and 4,250, will re-assess 2/13, look for similar combo @ RUT. I think risk is to the south, CPI will come in a bit hot, and the Fed team will be on the squawk...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,469
  • Feb 11, 2023 12:14am Feb 11, 2023 12:14am
Have learned a few things about trading these combos:

1) Use the euro-style credit spreads to fund other low/no margin profit spreads. Been doing that, but the change is to move the euro short verts out at least a week past the front spreads. This relates to how the brokers increase margin requirements on the euro spreads as they get within a week of expiry. Getting those cash calls and having to close or roll profitable trades early is a drag.
2) Don't worry about the euro credit spreads going itm, but still try to place them out of range. Manage as any other ICs.
3) Have the net credit at least 20% over the debit required for the profit spreads.
4) Map the P/L's corresponding gains/losses in the tail of the credit spread, so you can always mitigate the tail risk.

An example, in RUT/IWM, just the put side, but the calls are similar. RUT IC entered as such, not legged-in, not possible to lose money on these....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,470
  • Edited 1:42pm Feb 11, 2023 1:24pm | Edited 1:42pm
Quoting The Fool
....This relates to how the brokers increase margin requirements on the euro spreads as they get within a week of expiry....
They won't just come out and tell or show you how they are changing margin requirements on the fly. You can wade thru Reg T and the CBOE manual, or whatever, but they will just do what they want and don't have to tell you why. I need them, can't trade on margin without them, but they suck.

Anyway, the main takeaway is to have more free bp than you think you will ever need. In other words, have an account plenty big enough for your risk appetite.

I still like the short vert/calendar/long vert combo - when these manage just right the profit potential is uuuge.

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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,471
  • Feb 11, 2023 2:15pm Feb 11, 2023 2:15pm
Quoting The Fool
{quote} I still like the short vert/calendar/long vert combo - when these manage just right the profit potential is uuuge. {image}
I'm popping my head in again. I jotted down the ultimate unlimited profit options trading strategy the other day. Apropos to your efforts here. The thread is here: https://www.forexfactory.com/thread/...ptions-trading
  • #18,472
  • Feb 11, 2023 3:43pm Feb 11, 2023 3:43pm
Quoting costos
I'm popping my head in again. I jotted down the ultimate unlimited profit options trading strategy the other day. Apropos to your efforts here. The thread is here: https://www.forexfactory.com/thread/...ptions-trading
Sure, ok. If you ever have any actual trades to talk about, feel free to post here. They can be paper trades, I don't care. I am narrating real-money trades in real-time, before, during, after...week in, week out...and, not much interest. FOMC week I had a 30+% account jack, on 0.6% of actual equity risked.... no applause. I could care less. I am narrating these euro style options combos mostly because I have a mentee that tunes in. They are not allowed to post, and hopefully, soon they won't need me.

Anyway, idk what happened to FF. Picture a tumbleweed blowing across a barren waste. Somebody told me it was because the "social" sites - Twitter, FB, etc - that's where all the traders are now. Again, I care not. I keep the financial press constant squawk turned down to a murmur. Trading has always been for me a solitary pursuit. The goal is for it to become consistently ridiculously lucrative and too boring to warrant discussion.

Cheers costos, good luck with the thread and everything else.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,473
  • Feb 11, 2023 4:23pm Feb 11, 2023 4:23pm
Does the options market swing the stock markets? Yes, sometimes. Monthly opex is one of those times. I like to note where large trades have been set, where large volumes and open interest numbers are. In the Feb17 SPY options, the largest options volumes are in the puts. You could say that's where they are mostly, usually, as SPY share holders use SPY puts to hedge their positions. The Feb17 375 puts have the largest vol & oi. On Friday, somebody sold the following put spread though (a bullish trade).....for March opex - Mar17:

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SPY short vert puts, $388/$386 - x 28,777. The trade needed $5.76MM in margin, has a max loss potential of $4.63MM, and will net $1.22MM if the $388 puts expire otm on 3/17.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,474
  • Edited 5:00pm Feb 11, 2023 4:37pm | Edited 5:00pm
Anyway, as I've noted above, I think the risk for CPI week is to the downside. The bear scenario I imagine: CPI data is not supportive of the Goldilocks myth that has taken root in the markets. There will be no good news about inflation (think Jany NFP blowout.) Mix in some Fed jawboning and watch the bottom drop out of the suckers January rally.

Is SPY $375 a valid target? Look at the post-CPI move from Aug & Sep 2022. Sep 12-14 SPY dropped from $412 to $357. When I look at that I think I don't want any bull put action for this CP, think about going super-bear.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,475
  • Feb 11, 2023 4:57pm Feb 11, 2023 4:57pm
super-bear = use bear call credit spreads to fund your lotto ticket put spreads, as below. I trade mostly in two accounts & sometimes I will go super-bear in one & super-bull in the other....

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if the calendar's long put runs into the following week, the door opens to superbear joy...

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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,476
  • Feb 11, 2023 10:23pm Feb 11, 2023 10:23pm
bull side for the week following CPI week
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,477
  • Feb 13, 2023 10:21am Feb 13, 2023 10:21am
SPX set for the CPI week, altho not yet filled the call calendar at that price

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...if I let some run to next week, I need <3,950 or >4,250 to make money. Need an unambiguous CPI result. might be a tall order, but I am bearish, nonetheless.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,478
  • Feb 14, 2023 6:07am Feb 14, 2023 6:07am
No shock from the CPI. Will have to see what the Fed heads say. Prob they lean into the hawk talk, but not sure if that will be enough to stop the bulls. I need SPX under 4,000 or over 4,150 by Friday to make any money on the double calendar. Sideways chop helps the Mar13 IC.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,479
  • Feb 14, 2023 9:44am Feb 14, 2023 9:44am
Quoting The Fool
No shock from the CPI. Will have to see what the Fed heads say. Prob they lean into the hawk talk, but not sure if that will be enough to stop the bulls. I need SPX under 4,000 or over 4,150 by Friday to make any money on the double calendar. Sideways chop helps the Mar13 IC.
Looks like chop country setting up. BE's for the dbl calendar by Friday are 4075 and 4180. The Mar13 IC funded all but ~$250 of the calendars. This is looking like a dud, but we'll see.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #18,480
  • Feb 15, 2023 9:51am Feb 15, 2023 9:51am
Quoting The Fool
Looks like chop country setting up. BE's for the dbl calendar by Friday are 4075 and 4180. The Mar13 IC funded all but ~$250 of the calendars. This is looking like a dud, but we'll see.
...BEs 4,200 & 4,0750 now. The calendar BEs always move out as iv's decrease in the options, which they do if the underlying price increases. This is a shortcoming of calendars, generally. You want to buy them when iv's are low, and target an expiry date when their iv's have increased. Not so much a problem for the puts, problem for the calls. Sometimes using a bull call vert may be a better choice...
"If The Fool persists in his Folly he will become wise." - William Blake
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