Any Option Traders?

Does anyone here trade options

yes ME

I trade vanila binary options...

are you familar with the straddle strategy? as this was originally made for options but i use it in currencies

please post that strategy here....

i personally do not trade options but i was wondering if anyone on here uses this strategy

If you buy a straddle then you are assuming the underlying will make a large unpredicted move that is not already priced in. Buying a straddle on a stock going into earnings announcement is dangerous because the cost of the straddle is the expected move of the stock.

For example:

XYZ is at $100. The call is $3 and the put is $3. Total cost of the straddle is $6. That means the market expects this stock to move $6 between now and expiration. If the stock moves to $106, then you made $3 on the call and lost $3 on the put, with a net result of $0. The stock needs to move to $106.10 for you to start making money.

Traders will sometimes sell straddles on biotech stocks going into an FDA announcement because the IV will be really high 200% - 400% and they believe the stock will not move that much and when the IV crashes after then announcement they make a profit if the stock stays within the range.

New traders tend to think a straddle is a win win scenario. The fact is, when the stock doesn't move, both the calls and puts lose money.

I have been trying to learn about options, but beyond the basics it gets a bit confusing when talking about greeks and deltas etc.
Internet is rather slow at the mo, so I haven't checked out the video in post #5.

I have now downloaded a demo platform to try to learn a bit more and practice some.
I would think that any sort of simple straddle would be pretty much hit and miss. After all the quotes are worked out carefully and I would think that they take into account the likelyhood of straddle traders.
Initially, I thought that a straddle may be possible with cashing out the winning position, before expiration, when it more than covers the costs of both trades. Problem is that the option will not always move in step with the underlying instrument.
Eg. you may may buy a call option on EURUSD at 1.3100. If price moves up to 1.3200, you may find that the cash out value has only increased by 120 pips or even less.

And your being charged for commissions on both sides, and another if you want to hold one side and buy back another. You really need a violent move that keeps going in only one direction that has to happen many times for your account to grow. Personally, I haven't purchased an option in years. I've been selling options outright uncovered or for credit spreads. My account has moved into a totally different direction during since I started selling some years back; from positive to considerably positive. Don't let selling options scare you off. There are safe ways to do this.

http://www.vadertrader.net

Palmer,

Thanks for sharing your thought, would you able share what are the underlying you trade and method.

As i am also picking up using IC and selling Vertical on commodities.

Cheer

sk:

For the year I have been actively writing options on gold, silver, wheat, and crude oil. Crude is a very good market to trade because of the high volume, OI, and there are monthly options. Fills are pretty much exactly where you want them to be. I may give up on silver, didn't lose money but that market can be kind of thin. One thing to consider is the seasonal tendencies of the market. For instance, the wheat market historically likes to establish a bottom around July or so and move up from there. Logic would tell you to start looking at puts to sell in Aug, or Sept then sell calls when the seasonal high is put in. Same thing in crude, the 'driving season' where demand is higher in April May June so inventories can get low pushing prices higher = sell puts then the winter demand tapers off and time to sell calls. Lot's of seasonal chart websites out there to get a quick glance at how things 'should' move during the year. Take all that and then look check out your daily charts to see what is happening now along with current support and resistance and whatever indy's you like to get your market direction, wait for a setup where you would have gone long the future but instead of doing that look at puts to sell or calls per the opposite market direction.

HOWEVER...

My methods are a little different versus some of the things that you might have read such as selling options that have about 100 days or so until expiration for at least $300 each because of the time value built up. I look to sell options that have less than 50 days to go that might only be $30 each but I will sell a lot more than one at a time. Yes, there is a commission for each one sold but I don't feel like tying up margin for 100 days either. I'd rather let them expire worthless and just not have to buy them back at all. There are many ways to sell options as far as how far out, % profit from the sale targets, etc. Whatever method works best for you is the best method. One MAJOR thing to thing about is margin. If a position moves against you, and it will per the normal movements of the market, so to will your margin requirement for each option that you have sold. I sell futures options uncovered. Yes, one of the most dangerous things to do as far as trading goes but I do it conservatively...Sell with less than two months until expiration, at least about about 20 to 40 % away from the current price, if the premium doubles, get out. It is very tempting to see all those option premiums out there just waiting to be sold and you must have the discipline to know what your account can handle. Things can blow up on you big time so you have to keep that in mind. You must have a lot of free cash on hand to handle the ups and downs of the market. The trades I know usually have at least 50% of the account set aside in cash for margin swings..some 60%, that's what I use. In other words if you have a $100,000 account then $60,000 is just sitting there for margin use and $40,000 is used to initiate the margins needed for trades. Different brokers have different margin requirements. OptionsXpress has very low margin rates per option sold, sometimes they only charge the current premium of the option sold plus a few hundred bucks. Volatility up or down will increase or reduce margin also. RJO will charge you the full margin per the futures contract for each option sold, huge difference. The further away from the underlying you are and with less days until option expiration the margin rates should be lower. OX is good at this. I use them for futures options and have an account with TOS also for stock, index, and ETF option spreads becuase the commissions there are a lot lower for those but the commission at OX for futures options are lower with them.

I only recently started writing credit spreads on the indexes and stocks. That is a little different because I'm looking at less than two weeks out with those (for those stocks and indices that have weekly options) so you really have to know your charts and the overall health of the market. I use the SP500 as a current overall indicator then go from there.

I am in the process of beefing up the website with more of this information as stated above along with some video links. I have not updated it in about a month, been very busy on the home front here, but it will be fully loaded by the end of June.

Hope some of this helps and...'I'll be back.".....

I noticed that I made an error in my previous post

It should, of course, have been If price moves up to 1.3300.

With my minimal experience with options on a demo account, it is not as easy as you may imagine. Problem with the Saxo demo account is that it expires after 20 days, so it's not really possible to trade any long term positions.
Does anybody know of a demo platform that doesn't expire?

Interesting posts Palmer. I don't know if I would be able to sell puts and calls because I imagine that the possible loss is unlimited, whereas profit is capped? I will certainly investigate seasonal highs and lows on commodities as you suggest. It makes sense

Yes, losses are unlimited (unless selling puts because something can only go as ow as zero) and the profit is capped at the premium you sold the option for. Selling options is one of the most boring ways to trade because you might have to wait 20 or 30 days just to see a $30 gain if only one option is sold. Again, I am selling in more than one market with different expiration dates and more than one option. On the other hand, it is also a higher probability trading method but it must be watched closely.

www.vadertrader.net

Well as I have very limited experience and knowledge about trading options and have found it difficult to make money. it does make sense to consider selling calls and puts

Palmer,

Thank you for the indepth write up with your trade plan, ineffect we have the common by doing selling risk...haha is the most boring method for trading option.

Selling by Naked is no no for me, is open to full risk and the margin is much higher than doing bear call / bull put. I do agreed as long we are comfortable with the risk and reward.

As you mention selling those expiration 50days or less, the premium may very thin as compare those 90 days and above and diffeculty to get contact fill if the open interest dry out.

Nevertheless we are most happy by selling risk and collecting premium by doing month by month.

Safe trading to all.

sk:

Yes, agree 100%...especially the part about it being a 'watching paint dry' method. I'm a very patient person so I have no problem doing this. Selling risk is a different mindset and it is doable. Crude oil is a very good market to sell options in, especially puts. When selling with less than 50 days left the premiums can still be $40 - $60 or so and the underlying can be $20 away. For instance, right now the 76 August puts (expire on July 17) in crude closed at $50 per and Aug crude is at 96.27. What would cause a drop of $20 in 27 trading days? Now, anything can happen and I do put a lot more thought and analysis into a trade than just this. The main caveat that has to be tattooed into an option seller's brain, especially when writing option uncovered, is that the margin will fluctuate from day to day. If these puts were sold and the market does trickle down then your margin requirement will go up. A violent move down (increased volatility) and the margin requirement can really go up even if you are still $15 away from the underlying. This is where the cash on hand, cash in your account that you specifically do not trade with to cover the margin swings is so important. And of course, not over-positioning yourself with too many uncovered options with too small an account.

I've recently opened another account with TOS (that options platform is crazy good) to start writing option credit spreads on stocks, indices, and some ETF's. The weekly options sometimes present a good opportunity to fill that void of waiting 30 days for a position to expire in the futures options. Many, many, years ago I stopped thinking that I always had to be in a trade just because I had an account open. Remember those days? The thinking now is...I just like to make money in the markets.

I'll continue to stop by here from time to time if anyone has any questions or whatevs. I made (have) a lot of friends in Phillips Nel's 4 hour Forex method thread but the time aspect of trading Forex was taking too much away from everything else. Options, even though I monitor positions every day, do not have as much of a time constraint so it fits well. Especially on those days when the trout and redfish are on the flats!

Palmer:

You are on the right track! Tom Sosnoff, the developer of the thinkorswim platform has an educational website "tastytrade" that is designed to teach any trader with any size account how to effectively trade American style options. If you study his presentations and pay attention to the details, it will be well worth the time. Here is the "proof in the pudding" example of one of TD Ameritrade's retail clients who has done very well using Tom's TOS platform: . BTW, she does it selling "Necked" Puts and Calls and "keeping it simple".

I saw this video a couple of months back. Every trader, no matter what your method of trading is, should watch this.

It can be done.

Hi, leor. I trade options.
Can you write your questions in details so that when we see the thread we can undertand its purpose.
just a suggestion, thanks

Up just under 28% for the year per the end of June:

http://www.vadertrader.net/results.html

Hello everyone and thanks to the creator of this thread as i am interested in binary options. I am presently practicing on some systems for rise and fall or call and put for short time frames like from 5mins to 4hrs. Is there anyone with experience of such? Please share. Thanks in advance