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Let's Trade Options

  • #961
  • Jul 4, 2013 2:12am Jul 4, 2013 2:12am
Quoting Rufus
HEY FOOL and neighbor. Just found your thread. Will be following along. I used to trade options quite a bit on futures. Been thinking about getting back with it.
Hey Buddy,

Hope you are doing well & in the green - by all means stop in anytime to talk about trades.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #962
  • Jul 4, 2013 6:13am Jul 4, 2013 6:13am
Quoting The Fool
{quote} nope not on the brokers' chains - you see Oct & Nov expiries on yours?
not had chance to look as i'm away and using another pc, if you can't see them ask your broker for prices he/she will have them , i too have had this issue previously
  • #963
  • Jul 4, 2013 6:56am Jul 4, 2013 6:56am
Quoting Cecil Gee
T.F. IN THE MOST ACTIVE options someone has taking a big position on FXE $116 september puts, is the euro heading below 118 by september?

interesting .....
  • #964
  • Jul 4, 2013 7:21am Jul 4, 2013 7:21am
Quoting Cecil Gee
T.F. IN THE MOST ACTIVE options someone has taking a big position on FXE $116 september puts, is the euro heading below 118 by september?
I must be missing something, isnt it true that the euro has to go below 116 in order for a 116 put to work out well? wouldnt a ~ 121 put work out better if price didnt go below 116 by september 20th?
  • #965
  • Jul 4, 2013 8:54am Jul 4, 2013 8:54am
Quoting The Fool
yep, could be, lots of possibilities. just was scratching around on FXE bear spreads, could sell the Aug 123 puts for $0.28 and buy Sep 121 for $0.38 for a $0.10 net debit. My accounts are too small though, so I'm very margin limited re: selling puts, not worth looking at when its a high priced item. More news of sovereign debt trouble out of the EU may hasten E/U drop but I had thought there might be a Jackson Hole effect, too, so would maybe look at Dec '13 puts. (odd jump there Sep to Dec no Oct, Nov expiries - wtf?)
Hi there,
I'd suggest that you try to familiarize yourself with vertical spreads (bear/bull spreads as you refer to them). You should approach options as multidimensional instruments, and not purely on the basis of risk control and tax purposes as you wrote in the first post. Unless you’re exceptional at picking market direction as well as precise in market timing, then trading long Calls and Puts is simply the wrong option strategy as it fails to take into account other Greeks. By being long Calls or Puts, you're relying solely on Delta to make you profitable (there are exceptions when IV can jack the premiums), and you're throwing lots of money down the drain.

You could justify using Long Calls under the following expectations/criteria; Direction - Up, Magnitude- Large, Velocity- Rapid, Timing Precision - Very good, Current IV - very cheap to fair, expected IV levels - Steady and preferably raising (that's unlikely). Your risk would be the underlying going down or sideways, or declining IV as well as the time decay working against you. If you buy a Call and the IV drops, then the premium evaporates unless you've bought an option that's deep In The Money.

Generally buying Calls is bad strategy because if you buy on a pullback then the IV will be higher, and once the underlying starts to rally the IV drops (not always, but as a rule of thumb). If you buy deep In The Money Option in order to have higher Delta and to reduce the extrinsic value, then the bid/ask spreads are higher. By the way if you buy At The Money option, and you're correct on the direction and your long option becomes deep In The Money, then you'll also face the wide bid/ask spread once you need to get out.

Buying just Puts is generally better than just buying Calls, providing you buy the tops of the markets when IV is low, so a drop in the underlying will jack up the IV and so not only the Delta will work in your favour, but so will the Vega, and so the negative Theta will be easier overcome than in the case with long Calls.

Nevertheless, I think Vertical spreads is much better strategy for directional trading than are long options, Vertical spreads as are much more forgiving. Depending on how you construct the Vertical Spread, you could actually take advantage of the Theta and have time decay working in your favour, and make money even if the underlying sit stills. Plus adjusting the position would be much easier. By the way once you master Verticals, then you're on your way to becoming an options trader because apart from time spreads, Verticals are components of all options spreads. Verticals are the most versatile spreads and are essential spread to master if you aspire to become an options trader. Trading long options is a crap shoot though very appealing because it is perceived by many beginners as limited risk with unlimited profit potential.

By the way if you’re margin limited, then you could eventually consider trading options on futures through CBOT or CME as they use SPAN margin instead of the CBOE margin system that you’re familiar with. But given that you’re not experienced options trader, I would not recommend it at this stage because the huge available leverage would blow you out of the water if you make a mistake.

BTW, the Nattenberg’s book is very good, read it over and over , it is definitely much better than McMillan’s book. Charles Cottle has an outstanding book on options which I'd highly recommend if you're serious about options.

I wish you all the best
  • #966
  • Jul 4, 2013 9:07am Jul 4, 2013 9:07am
Quoting Starry
{quote} I must be missing something, isnt it true that the euro has to go below 116 in order for a 116 put to work out well? wouldnt a ~ 121 put work out better if price didnt go below 116 by september 20th?

This may all be simply part of a spread people are putting on. For instance buy the 123 and sell the 116 to help offset the cost. If the euro was under 123 before expiration you may still be in profit when you unwind the spread
Illegitimi non carborundum - Noli pati a scelestis opprimi.
  • #967
  • Jul 4, 2013 11:05am Jul 4, 2013 11:05am
Quoting Rufus
{quote} This may all be simply part of a spread people are putting on. For instance buy the 123 and sell the 116 to help offset the cost. If the euro was under 123 before expiration you may still be in profit when you unwind the spread
hmm thanks i will have to read up on spreads i am not familiar with that!
  • #968
  • Jul 4, 2013 12:26pm Jul 4, 2013 12:26pm
Next planned trade. IF SLW gets to around $22 by july 20, then I will buy a $18-strike jan 2015 put in order to ride the next short wave down to ~11 or so. I may wait a bit till price action confirms a bearish bias, but probably not ..... Its my equivalent of being able to short the stock.....
  • #969
  • Edited 1:54pm Jul 4, 2013 12:47pm | Edited 1:54pm
Quoting moneyflow2me
{quote} Hi there, I'd suggest that you try to familiarize yourself with vertical spreads ... I wish you all the best
I appreciate your advice. I know that simple put/call directional options tades are scorned by "real" options traders. I of course desire to be a real options trader with full understanding of all the various complex ways options can be used for risk management. I am working into using vertical spreads more and more.

I'm limited trading from IRA accounts, though - margin limited - I can't trade fx and futures or options on futures and I'm limited somewhat in how I can trade stock/index options - can't sell calls, for instance. Also, I'm up against the pattern daytrading limitations on some of my accounts because they are under the $25k minimum. So, often I will just simply long call or put because of these limitations. That will change over time.

Anyway, I've explained all this before so this will be the last time I do so in the thread. Bottom line, I need to make money. In some instances a simple long call/put may be the best way to do that and I prolly won't ever look down my nose on those.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #970
  • Jul 4, 2013 1:39pm Jul 4, 2013 1:39pm
Quoting Starry
{quote} I must be missing something, isnt it true that the euro has to go below 116 in order for a 116 put to work out well? wouldnt a ~ 121 put work out better if price didnt go below 116 by september 20th?
A far otm (out of the money) option will increase in value as the underlying moves towards its strike price. If that happens quickly on a high-priced option, then the otm option value can go up very well. Watch the values of some of the volatile, high-priced options at the otm strikes over a week or so and see what happens.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #971
  • Jul 4, 2013 2:13pm Jul 4, 2013 2:13pm
I would also recommend vertical spreads for beginners. If you understand verticals you can branch out to IC, Butterflies, and so on.

My personal favorite is selling selling strangles with with 4+ SD on high IV underlying. My current trade is going to generate return on margin of 90% in 6.5 months or about 240% annualized. Strangles are direction neutral trades but it involves tinkering and leaving yourself with enough margin to ride through tough times.
  • #972
  • Jul 4, 2013 3:57pm Jul 4, 2013 3:57pm
Quoting mister_doodi
I would also recommend vertical spreads for beginners. If you understand verticals you can branch out to IC, Butterflies, and so on. My personal favorite is selling selling strangles with with 4+ SD on high IV underlying. My current trade is going to generate return on margin of 90% in 6.5 months or about 240% annualized. Strangles are direction neutral trades but it involves tinkering and leaving yourself with enough margin to ride through tough times.
it'd be cool to see that in action if you're interested in sharing
"If The Fool persists in his Folly he will become wise." - William Blake
  • #973
  • Jul 4, 2013 7:42pm Jul 4, 2013 7:42pm
Quoting The Fool
{quote} I appreciate your advice. I know that simple put/call directional options tades are scorned by "real" options traders. I of course desire to be a real options trader with full understanding of all the various complex ways options can be used for risk management. I am working into using vertical spreads more and more. I'm limited trading from IRA accounts, though - margin limited - I can't trade fx and futures or options on futures and I'm limited somewhat in how I can trade stock/index options - can't sell calls, for instance. Also, I'm...
T.F. lots and lots of advice floating around, for me pick a strategy that suits you and learn and trade it until it becomes second nature.

simplicity simplicity simplicity you be surprised at what $100 can do in options
  • #974
  • Edited 9:07pm Jul 4, 2013 8:52pm | Edited 9:07pm
Quoting Cecil Gee
{quote} T.F. lots and lots of advice floating around, for me pick a strategy that suits you and learn and trade it until it becomes second nature. simplicity simplicity simplicity you be surprised at what $100 can do in options

I hear ya CG. Bottom line I've got an open mind but I'm for whatever makes money. If it's simple and it makes money, no complaints.

Looking at a Aug USO bear spread, sell $32 puts on the bottom, will consider entry tomorrow. Otherwise just waiting for the NFP show.

... maybe sell Aug $32 puts @ $0.19 buy Sep $32 puts @ $0.38 - $0.19 net debit
"If The Fool persists in his Folly he will become wise." - William Blake
  • #975
  • Jul 4, 2013 9:18pm Jul 4, 2013 9:18pm
Quoting Cecil Gee
T.F. IN THE MOST ACTIVE options someone has taking a big position on FXE $116 september puts, is the euro heading below 118 by september?
Will wait and see on any euro-related options trades. I still think the best potential for a heavy euro drop will be Sep-Oct-Nov. If NFP weak tomorrow we may see ranging in e/u for July-Aug and some better short entries further along.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #976
  • Jul 4, 2013 9:47pm Jul 4, 2013 9:47pm
Quoting Starry
Next planned trade. IF SLW gets to around $22 by july 20, then I will buy a $18-strike jan 2015 put in order to ride the next short wave down to ~11 or so. I may wait a bit till price action confirms a bearish bias, but probably not ..... Its my equivalent of being able to short the stock.....
the pm's are bubble prone. I went to prep skool with the Hunt snots in the late '70's. They acted like they owned the world....then it all came crashing down...MMMWAAHHAHHHAHAH! ... $100 Million margin call!!

http://en.wikipedia.org/wiki/Silver_Thursday
"If The Fool persists in his Folly he will become wise." - William Blake
  • #977
  • Jul 4, 2013 10:08pm Jul 4, 2013 10:08pm
speaking of bubbles....NFLX P/E 541...? Sep $125 puts are $0.97...
Attached Image (click to enlarge)
Click to Enlarge Name: 2013-07-04_nflx.png Size: 35 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #978
  • Jul 4, 2013 11:01pm Jul 4, 2013 11:01pm
My NFP prediction: 204,000.

ADP shows the way @188k private earlier this week, local/State govt jobs tick up imo based on brightening housing market in many parts of the country & delays in sequester's hits on Fed jobs, plus seasonal uptick generally.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #979
  • Jul 5, 2013 2:31am Jul 5, 2013 2:31am
Quoting The Fool
{quote} the pm's are bubble prone. I went to prep skool with the Hunt snots in the late '70's. They acted like they owned the world....then it all came crashing down...MMMWAAHHAHHHAHAH! ... $100 Million margin call!! http://en.wikipedia.org/wiki/Silver_Thursday
i used to trade SLW in a few years ago, i always had trouble getting filled at prices i was comfortable with due to at the time liquidity in those options, it had good range but don't see any longs in silver at the moment
  • #980
  • Jul 5, 2013 2:34am Jul 5, 2013 2:34am
Quoting The Fool
{quote} the pm's are bubble prone. I went to prep skool with the Hunt snots in the late '70's. They acted like they owned the world....then it all came crashing down...MMMWAAHHAHHHAHAH! ... $100 Million margin call!! http://en.wikipedia.org/wiki/Silver_Thursday
Sell Mortimer! SELL!!!!!
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