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Let's Trade Options

  • #1,921
  • Nov 29, 2013 11:27am Nov 29, 2013 11:27am
just changed my mind....bought back the 96.50s at a $200 loss per contract and sold 97.50s....equal #
feel safer that way
  • #1,922
  • Nov 29, 2013 11:47am Nov 29, 2013 11:47am
Quoting The Fool
watching gold and thinking about a long Feb strangle, say $130c/$107p - $0.87/$1.07 - $1.95 net debit. About a $8 move either way would break me even in December. I'd be selling puts & calls against the long numbers in Dec and Jan. If I bought here at around gold=$1,240, ideally I would ride the puts back down to gold<$1,150 (GLD<$115) and look for a good profit on them, then gold would bounce into the New Year, toward $1,300 or better. {image}
watching small gold bounce action, looking for cheaper Feb puts
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,923
  • Edited 12:23pm Nov 29, 2013 12:09pm | Edited 12:23pm
early bell. have a good weekend all.

(for next week, another cheap wide strangle: Jan EWZ $40/$54, $0.21/$0.09.....)
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,924
  • Edited 8:15pm Nov 29, 2013 7:23pm | Edited 8:15pm
Quoting The Fool
{quote} watching small gold bounce action, looking for cheaper Feb puts
you'd expect NUGT and GLD to be strongly positively correlated, right? (And, as I has shown in a pervious lesson, DUST and NUGT are of course 100% negatively correlated.) On the chart below it looks like NUGT moves 5-10x or more compared to GLD.

So, NUGT options should be 10x or more the price of comparable GLD options, right? Let's check:

Looking at 10% otm Jan calls:

NUGT (lt $32.60), Jan $36c @ $4.20; GLD (lt $120.70) Jan $132c @ $0.27....

...or at say 15% otm puts:

NUGT Jan $28p @ $3.20; GLD Jan $103c @ $0.25....

Right.
Attached Image (click to enlarge)
Click to Enlarge Name: 2013-11-29_gldnugt.png Size: 51 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,925
  • Nov 29, 2013 8:13pm Nov 29, 2013 8:13pm
Quoting The Fool
{quote} you'd expect NUGT and GLD to be strongly positively correlated, right? .... Right.
So? You think gold is gonna keep going down? Headed below 2013's low of ~$1,150?

(6/28/13 GLD dipped to $115.22, same day NUGT dipped to $4.65 - that was before NUGT 4x rev split and DUST 2x forward split, so comparable to NUGT=$18.60, and DUST=($159.53/2) = $79.77)

So, at gold < $1,150, GLD < $115, NUGT < $19, and DUST > $80. How to trade it?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,926
  • Edited Nov 30, 2013 12:52am Nov 29, 2013 8:41pm | Edited Nov 30, 2013 12:52am
Quoting The Fool
{quote} So, at gold < $1,150, GLD < $115, NUGT < $19, and DUST > $80. How to trade it?
Many possibilities. Obviously better to profit from NUGT & DUST by selling them, as volume is thin.

Bull put spread on DUST: long Mar 22 $14p @ $0.55, short Dec 21 $35p @ $1.80

Bear call spread on NUGT: long Mar 22 $100 @ $0.75, short Dec 21 $40 @ $1.35

You can work the GLD neg or pos correlations with DUST/NUGT into the mix. You're short gold:

long Mar 22 GLD $110p @ $1.66, long DUST Mar 22 $15p @ $0.65: spread and sell far otm puts against each set of long puts min 3x, Dec-Feb. The short DUST position can effectively hedge the short GLD position, but the ratio is not 1:1, more like 1 DUST:5 GLD, need to confirm...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,927
  • Nov 29, 2013 8:58pm Nov 29, 2013 8:58pm
Quoting pipple
{quote} id be very surprised if it hits 98-99 by the time Jan exp comes on 12/16.... I really think it will continue to follow this trend down and setting lower highs off of the 100 day MA on the 4hr chart. really good place for entries and exits IMO. check it out. either way I just don't trust it as far as I could throw a barrel of it.
i can't say for sure it will go to 98/99$ or whether it dips and touches 90$ first but there will be a bounce and 98/99 is the highest point I have as a maximum, however the 50 day is about to cross the 200 so maybe you are right in that level being to high.
  • #1,928
  • Nov 30, 2013 10:35am Nov 30, 2013 10:35am
With ADP and NFP (prelim home sales, GDP, etc - heavy week for data) in the coming week maybe there's a chance of some upside in the VIX. Look out to FOMC on 12/18, same thing, play it weekly or monthly.

UVXY 12/6 strangle $18p/$21c @ $0.25/$0.30, $0.55 debit. An atm finish either way would get $1.20 +/-
...could do VXX but the spreads are better on UVXY.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,929
  • Nov 30, 2013 10:46am Nov 30, 2013 10:46am
lot of times the end of the days move is more indicative of a trend......yesterday crude ran most of the day.....bounced slowly off of a bigger MA on the 4 hr.....and then proceeded to drop rapidly
obviously not always the case.....but especially for the last 30 days or so.....this thing has been very consistent in its movement, and with 10 straight weeks of inventory builds.....that type of price action makes me think it will continue
I am strongly leaning towards selling calls on any large move up....yesterday was very consistent price action and technical movement necessary for continued downward pricing.
  • #1,930
  • Nov 30, 2013 10:52am Nov 30, 2013 10:52am
morning pipple. how you doin? say, do you model your options trades? I mean, do you have off the shelf or proprietary software that you use to analyze prospective and running positions?

That was something I was just about to dive into, set that up in Excel...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,931
  • Nov 30, 2013 12:40pm Nov 30, 2013 12:40pm
GOLD WEEKLY CHART

(MELTING ICEBERG SHAPE)

We may see sudden drops to the 680-850 area. BE CAREFULL !!!
Attached Image (click to enlarge)
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  • #1,932
  • Nov 30, 2013 10:28pm Nov 30, 2013 10:28pm
Quoting The Fool
morning pipple. how you doin? say, do you model your options trades? I mean, do you have off the shelf or proprietary software that you use to analyze prospective and running positions? That was something I was just about to dive into, set that up in Excel...
nope. I have used software in the past (proprietary) that trading buddies who are also programmers have put together with me, but I always found that the problem with that stuff is that it is way more math heavy than I would like. It is great to have a machine tell you your delta, etc. and tell you exactly what your next move should be if you wanna get neutral.....but it doesn't take into effect fundamentals, and cant really chart for you.
There are a slew of CTAs I know of who run these software models you are asking about 100% of the time, and skew their books based on what the machine tells them. One specific comes to mind which writes S&P emini credit spreads on both sides of the market and buys deep deep OTM puts as an oh sh*t in case of a huge drop.....obviously the hole in that strategy is a sharp upward move.....but even still.....they have fared decently over the last 6 years or so using such a model type of software.
My whole thing is that I trust my fear, and I trust my charting. Id rather adjust on the fly then have a computer jam me up because the math and fundamental were at a crossroads, but not enough for the system to be scared of it.....
so then you follow the computer when your gut was telling you to be careful...etc etc you get my point
Im not saying they are useless Fool....just that they work until they don't. You seem like you have a good enough grasp on the market where I think adding that element could only hurt you, but I could be wrong.
Gods honest truth.....90% of my analysis on my running/prospective positions is done using the greeks, a chart, a calculator, pen and paper.
I try to set up just about every possible move I would be forced to choose to do beforehand, and when I post something like..."considering doing this or that"....I have already written that down days earlier when I entered the previous trade. I change the premiums of the rollable options on a daily (sometimes hourly) basis so that I know how many I need and at what price....its more work....but it allows me to circumvent using software models that I just don't trust. For me they add an extra layer of input that I don't feel like I want or need. Kind of like having someone standing over you giving you chart analysis right after you decide what youre going to trade.
  • #1,933
  • Nov 30, 2013 10:30pm Nov 30, 2013 10:30pm
Quoting The Fool
{quote} So? You think gold is gonna keep going down? Headed below 2013's low of ~$1,150? (6/28/13 GLD dipped to $115.22, same day NUGT dipped to $4.65 - that was before NUGT 4x rev split and DUST 2x forward split, so comparable to NUGT=$18.60, and DUST=($159.53/2) = $79.77) So, at gold < $1,150, GLD < $115, NUGT < $19, and DUST > $80. How to trade it?
I really think gold is gonna keep dropping.....I think were gonna be in the 11s soon......sucks the margin is so much per option on the commodity itself.....I would love to so a call heavy strangle on the next bounce up
  • #1,934
  • Edited Dec 1, 2013 11:44am Nov 30, 2013 10:58pm | Edited Dec 1, 2013 11:44am
Quoting pipple
Gods honest truth.....90% of my analysis on my running/prospective positions is done using the greeks, a chart, a calculator, pen and paper. I try to set up just about every possible move I would be forced to choose to do beforehand, and when I post something like..."considering doing this or that"....I have already written that down days earlier when I entered the previous trade. I change the premiums of the rollable options on a daily (sometimes hourly) basis so that I know how many I need and at what price....its more work....but it allows me...
cool, thanks, pipple. As I get more into complex strategies I think I need to get a lot more precise about how I enter trades and plan their management and it will be helpful to have good tools to do that. I think I will end up writing things for myself but I also have thought about using some open source code to get me started. I only recently started looking for the latter and this caught my eye.

http://windale.com/optionsx.php

I am not planning on taking myself and my instinct out of the mix, just trying to flesh out my approach to be smarter. For instance, I know there's a way to set up the diagonalized calendar spreads I like to do so that the best position is one that can be probabalistically determined to be least likely to lose money - currently I have a m/l hit or miss approach to taking those entries. I'd like to have a more robust approach, based on modeling large numbers of possible entries. I don't mind letting a machine do that work for me - I still have my nose to the wind in regards fundies.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,935
  • Nov 30, 2013 11:04pm Nov 30, 2013 11:04pm
Quoting pipple
{quote} I really think gold is gonna keep dropping.....I think were gonna be in the 11s soon......sucks the margin is so much per option on the commodity itself.....I would love to so a call heavy strangle on the next bounce up

yup, me too. I will prolly do a bear spread like the GLD/NUGT combo I outlined above.

You can trade gold pretty straight with the GLD etf, it's got good liquidity, margin requirements just like anything else
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,936
  • Dec 1, 2013 10:44am Dec 1, 2013 10:44am
Quoting The Fool
{quote} cool, thanks, pipple. As I get more into complex strategies I think I need to get a lot more precise about how I enter trades and plan their management and it will be helpful to have good tools to do that. I think I will end up writing things for myself but I also have thought about using some open source code to get me started. I only recently started looking for the latter and this caught my eye. http://windale.com/optionsx.php I am not planning on taking myself and my instinct out of the mix, just trying to flesh out my approach...
black scholes has credibility with me and a lot of industry guys I speak with......that whole site you linked looks very useful. TOS has a feature on their options platform with probability in the money %. I think there is some merit to it.....but I question it at a time like now in the S&P where we are at all time highs and they tell traders that an 1850 call has a 10% chance of exp ITM.....I have a hard time understanding what they are basing this on. obviously historical data clearly to an extent. I believe that price fluctuations in most liquid instruments have gotten larger over the last 5 years. Volatility has been crazier. A $30 move in Gold and a $2 move in crude is just no big deal anymore.....and I don't know that the software can adjust to that. Maybe I am just old school with my methods.
as far as entries go....I can totally agree that a prob tool would be helpful in certain strategies. I am still using my gut and a chart to initiate positions, and I really depend on option chains. I try to find options that don't move as much even with massive volatility. For example, my 87.50 puts. those I may still have a problem with, but even with the skew downward I have been able to withstand it.
I think something you might want to look into more instead of a tool to help with probabilities, would be the "sweet spot" to initiate your trade. For crude, there are certain days of the month where I know historically that it pays to write options on those days.....like 18 days out till exp.....and prior to that the day the exp of previous month happens, making me the front month.
I bet your stocks/etfs have these sweet spots as well. that is what I want to look for. I would be very interested in exploring that as opposed to adding a prob tool. I have done it this way for years.....and it has paid.
  • #1,937
  • Dec 1, 2013 10:46am Dec 1, 2013 10:46am
let me ask you this......throw the prob tool out for a sec.....if you were going to initiate a strangle (sell) like I do on one of your stocks/etfs......how far from exp would you think off the top of your head would be the "sweet spot"???
I bet if you stay consistent with that you could change your trading a touch. it gets boring doing the same approach week after week month after month.....but the profit is worth it.
  • #1,938
  • Dec 1, 2013 11:22am Dec 1, 2013 11:22am
Quoting pipple
let me ask you this......throw the prob tool out for a sec.....if you were going to initiate a strangle (sell) like I do on one of your stocks/etfs......how far from exp would you think off the top of your head would be the "sweet spot"???
well for me this is a bit of a loaded question. If I enter a strangle I 1) need it to be a long strangle because that requires the least margin and that's a necessity because the accounts are small, so 2) I am usually looking at least 2 and maybe three months out because I am then thinking about spreading - writing puts and calls against each of the long options and I might like to plan on doing that 2 or 3 times each around 20+ days out, depending on whether there are weeklies on the instrument (I usually want there to be weeklies on the instrument so I can have the most flexibility in the spreads.) 3) On the other extreme, I might buy a strangle based on the occurrence of a scheduled event - i.e., earnings release, NFP, etc. and, in the latter case, I'd look to buy pretty close to the event so as to get in as cheaply as possible.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #1,939
  • Dec 1, 2013 12:50pm Dec 1, 2013 12:50pm
Quoting pipple
let me ask you this......throw the prob tool out for a sec.....if you were going to initiate a strangle (sell) like I do on one of your stocks/etfs......how far from exp would you think off the top of your head would be the "sweet spot"??? I bet if you stay consistent with that you could change your trading a touch. it gets boring doing the same approach week after week month after month.....but the profit is worth it.
If you initiate a strangle on a single stock always do it a week after its earnings, let all the IV drop and go no longer than 2 months out after that you are heading into another quarter of earnings and the Greeks will change and align. Index EtfS for me are better initiated after FOMC even then I be checking on charts to see if its worth it. Like I've said before I don't do them but I still watch a strategy like that for reference, on something like indexes I always watch FOMC and its minutes for me that is the only data that can change market direction
  • #1,940
  • Dec 1, 2013 1:16pm Dec 1, 2013 1:16pm
Quoting Cecil Gee
{quote} If you initiate a strangle on a single stock always do it a week after its earnings, let all the IV drop and go no longer than 2 months out after that you are heading into another quarter of earnings and the Greeks will change and align. Index EtfS for me are better initiated after FOMC even then I be checking on charts to see if its worth it. Like I've said before I don't do them but I still watch a strategy like that for reference, on something like indexes I always watch FOMC and its minutes for me that is the only data that can change...
good stuff
"If The Fool persists in his Folly he will become wise." - William Blake
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