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Let's Trade Options

  • #2,881
  • Edited 10:37pm Feb 11, 2014 2:32pm | Edited 10:37pm
Quoting The Fool
{quote} Been watching but in too much else, $140 looks like a tall order, if it spikes up near there or beyond would likely be sold back down pdq
Yes, a lot going on today and my ES CALLS are suffering a little....

FOSL earnings during the last year have not has a move greater than 12%. Never say never but the 140 looks pretty good and good IV at the moment prior to earning...My 85 PUT is still pending. 29 minutes to go to get filled.... :-)
  • #2,882
  • Feb 11, 2014 3:11pm Feb 11, 2014 3:11pm
Quoting njr
{quote} Yes, a lot going on today and my ES CALLS are suffering a little.... FOSL earnings during the last year have not has a move greater than 12. Never say never but the 140 looks pretty good and good IV at the moment prior to earning...My 85 PUT is still pending. 29 minutes to go to get filled.... :-)
FOSL beats earnings. Currently up 7.58% in after hours. Still a ways to go for the 140 CALL strike. My 85 PUT was filled just before close. Summary of positions:


SOLD 100 FOSL Feb14'14 140 CALL (FOSL)

SOLD 97 FOSL Feb14'14 85 PUT (FOSL)
  • #2,883
  • Feb 11, 2014 3:13pm Feb 11, 2014 3:13pm
FOSL

http://seekingalpha.com/pr/8937491-f...-2014-guidance
  • #2,884
  • Feb 11, 2014 3:35pm Feb 11, 2014 3:35pm
Quoting njr
{quote} Yes, a lot going on today and my ES CALLS are suffering a little.... FOSL earnings during the last year have not has a move greater than 12. Never say never but the 140 looks pretty good and good IV at the moment prior to earning...My 85 PUT is still pending. 29 minutes to go to get filled.... :-)
looking good. my goal is to work my way up to enough account size so that all I ever do is these high prob iron condor sells.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,885
  • Feb 11, 2014 4:05pm Feb 11, 2014 4:05pm
Quoting njr
{quote} FOSL beats earnings. Currently up 7.58% in after hours. Still a ways to go for the 140 CALL strike. My 85 PUT was filled just before close. Summary of positions: SOLD 100 FOSL Feb14'14 140 CALL (FOSL) SOLD 97 FOSL Feb14'14 85 PUT (FOSL)
So you sold 100 call contracts, each of 100 shares, with each share worth about $115, giving a notional exposure of about 100*100*115 = $1.15m?
Or have I made a mistake? How much did you get for the calls?
I have no clue what I'm talking about.
  • #2,886
  • Feb 11, 2014 10:08pm Feb 11, 2014 10:08pm
http://finance.yahoo.com/news/contra...182302753.html

wanted to get on this via UVXY or SVXY today but had too many irons in the fire....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,887
  • Edited 11:10pm Feb 11, 2014 10:29pm | Edited 11:10pm
Quoting The Fool
{quote} did, for $1.40/$1.00, may look at cheap calls....(re: TRIP)
so TRIP missed and takes a dip? I didn't watch the AH ups n downs but I guess it was down 10% at one point, only to finish down <$2 at $82.75 AH. And I'm in 2/22 $75 long puts on 2/22 $72.50 short puts, $0.40 debit as above.

Uh.....I think I was looking for a moderate dip....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,888
  • Feb 11, 2014 10:39pm Feb 11, 2014 10:39pm
Quoting Boy Wonder
{quote} So you sold 100 call contracts, each of 100 shares, with each share worth about $115, giving a notional exposure of about 100*100*115 = $1.15m? Or have I made a mistake? How much did you get for the calls?
it be like this

http://ibkb.interactivebrokers.com/node/600
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,889
  • Feb 11, 2014 11:09pm Feb 11, 2014 11:09pm
pinnacle or plateau? I might be looking at some Mar put spreads
Attached Image (click to enlarge)
Click to Enlarge Name: 2014-02-11_gmcr.png Size: 27 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,890
  • Feb 12, 2014 7:45am Feb 12, 2014 7:45am
Quoting The Fool
{quote} it be like this http://ibkb.interactivebrokers.com/node/600
It not be like that. That's an iron condor; I think njr is selling naked calls and puts. If so then he's selling a strangle, which of course involves unlimited upside risk and nominally limited (by the zero bound to which stocks can drop) downside risk.
I am just checking whether my understanding of the risk that he is bearing on his trade is correct, and also what compensation (i.e. the prices of the calls and puts that he is selling) he is receiving in return for that risk.
I have no clue what I'm talking about.
  • #2,891
  • Feb 12, 2014 8:47am Feb 12, 2014 8:47am
Quoting Boy Wonder
{quote} It not be like that. That's an iron condor; I think njr is selling naked calls and puts. If so then he's selling a strangle, which of course involves unlimited upside risk and nominally limited (by the zero bound to which stocks can drop) downside risk. I am just checking whether my understanding of the risk that he is bearing on his trade is correct, and also what compensation (i.e. the prices of the calls and puts that he is selling) he is receiving in return for that risk.
Hey Boy Wonder and The Fool,

I'm selling naked strangles which have 'unlimited' upside risk and the downside risk if the underlying plunges to zero. I'm certainly not an option buyer but more in the school of to sell options that are deeeeeeeep OTM (around 2 standard deviations) to net a premium. The iron condor can limited the losses but obviously this reduces the amount of net profit given the net of the debit and the premium obtained. It's taken a few years to get my account size to what it is today but with a larger number of contracts I can net a reasonable premium at these standard deviations. For example, for the FOSL trade I sold the PUTS for 0.14 and the CALLS for 0.42. The margin requirements are determined by SPAN but I also understand that IB (who I trade with) overlays their own risk model and use the higher of the two margin requirements. The other trick is to obviously account for the potential for increased margin requirements following the changes in the underlying (post earnings) if it nears the strike.....
  • #2,892
  • Feb 12, 2014 10:04am Feb 12, 2014 10:04am
Quoting njr
{quote} Hey Boy Wonder and The Fool, I'm selling naked strangles which have 'unlimited' upside risk and the downside risk if the underlying plunges to zero. I'm certainly not an option buyer but more in the school of to sell options that are deeeeeeeep OTM (around 2 standard deviations) to net a premium. The iron condor can limited the losses but obviously this reduces the amount of net profit given the net of the debit and the premium obtained. It's taken a few years to get my account size to what it is today but with a larger number of contracts...
Hi mate, thanks for responding and answering my questions.
The next questions are (perhaps obviously) are you aware of
a) the risk that you are taking,
b) the concept of fat tails,
c) the inability of the options market to always be a decent forecaster of the future?

Did you work out what your losses would have been had FOSL gone up by 30%, 40% or 50%, and whether you feel that you were being adequately compenated by the $56 that you received in return for the risk that you were bearing for each contract?
Perhaps, if you're going to get absolutely loaded up like that, it makes more sense to do so on SPYs, rather than relatively small cap stocks like FOSL. Of course, the IV on the SPYs is less juicy than that on individual stocks, but for a reason.
You might get away with doing this for years, until one day, you sell a notional $1m+ of naked calls on a stock that doubles overnight, either because of earnings, or maybe the disclosure of an attempted hostile takeover. Of course, if you have an account size of say $100mn, then that wouldn't be so much of an issue. But if you don't, then it's not going to be pleasant.

This is just friendly advice mate, so please don't be offended.
I have no clue what I'm talking about.
  • #2,893
  • Feb 12, 2014 10:42am Feb 12, 2014 10:42am
Quoting njr
{quote} The iron condor can limited the losses but obviously this reduces the amount of net profit given the net of the debit and the premium obtained. It's taken a few years to get my account size to what it is today but with a larger number of contracts I can net a reasonable premium .....
right, my bad BW - iron condors is what I must do given general lack of free margin...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,894
  • Feb 12, 2014 10:50am Feb 12, 2014 10:50am
Quoting The Fool
{quote} strangled CTL for $0.17 net, calls have gone up eo $0.20, ratioed 2:1 calls to puts, looking good, may close half of the calls before the ER
calls have gone from $0.08 to $0.45, where I sold half of them this morning - a 180% return on the strangle, let the remaining calls ride into ER or may close b4 the bell if the share price keeps rising...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,895
  • Feb 12, 2014 10:59am Feb 12, 2014 10:59am
Quoting The Fool
{quote} calls have gone from $0.08 to $0.45, where I sold half of them this morning - a 180% return on the strangle, let the remaining calls ride into ER or may close b4 the bell if the share price keeps rising...
Good trade
  • #2,896
  • Feb 12, 2014 11:02am Feb 12, 2014 11:02am
Quoting The Fool
{quote} right, my bad BW - iron condors is what I must do given general lack of free margin...
No worries mate.
I have no clue what I'm talking about.
  • #2,897
  • Feb 12, 2014 11:09am Feb 12, 2014 11:09am
Quoting Boy Wonder
{quote} Hi mate, thanks for responding and answering my questions. The next questions are (perhaps obviously) are you aware of a) the risk that you are taking, b) the concept of fat tails, c) the inability of the options market to always be a decent forecaster of the future? Did you work out what your losses would have been had FOSL gone up by 30%, 40% or 50%, and whether you feel that you were being adequately compenated by the $56 that you received in return for the risk that you were bearing for each contract? Perhaps, if you're going to get...
Hi Boy Wonder,

No offence taken at all. I welcome any feedback / views on trading and an opportunity to learn from anyone. I've actually learnt a lot from some quite knowledgeable professional traders that use this site and I do appreciate your comments. Following are my answer to your questions:

a) Yes, there is a risk selling options in general and also selling options just prior to earnings announcements.
b) Yes, the concept that the 'normal' distribution is flatter in these times of high volatility
c) Yes
d) Yes, I always enter my trades knowing what the maximum potential loss would be for various percentage rises in the underlying.

There is obviously risk in trading using this approach and the lower risk approach would be the iron condors to define the maximum losses. I normally sell calls/puts a number of indexes but when there are earnings I try to look for potential opportunities such as FOSL, etc. For example, I'll look at various factors such as previous earning of the company, percentage movement following the earnings and the days after until expiration, expected earnings, expected movements, take over whispers, etc, etc. For earnings trades, I normally like to get waaaay out around 40% higher / lower than the underlying price at the time. The CALL I sold on FOSL was much closer (around 21%) than what I would normally sell at. However, based on all their earnings in 2013 they moved 12% or less on each occasion, the expected move was $12, etc, I decided to enter the trade. In terms of losses, if the price rocketed beyond my strike I would immediately close the position and take the loss which would certainly hurt but I would survive and I certainly do not want to be assigned. You are right in that there are always the exceptional earnings, outliers, takeovers, black swans, etc and one day it could all go kaboom.......
  • #2,898
  • Feb 12, 2014 11:27am Feb 12, 2014 11:27am
Quoting njr
{quote} Hi Boy Wonder, No offence taken at all. I welcome any feedback / views on trading and an opportunity to learn from anyone. I've actually learnt a lot from some quite knowledgeable professional traders that use this site and I do appreciate your comments. Following are my answer to your questions: a) Yes, there is a risk selling options in general and also selling options just prior to earnings announcements. b) Yes, the concept that the 'normal' distribution is flatter in these times of high volatility c) Yes d) Yes, I always enter my trades...
U iz playin wiv fire mate, but I wish you all the best

Btw "fat tails" simply means (as I understand it) that the conventional normal (or is it log normal) "bell shape" curve used in most probalistic models of reality is misrepresentative of that reality at the extreme left and right ends of the curve, which models have as decaying to nothingness (i.e. very flat) but which reality has a somewhat inconvenient habit of fattening at those extremes, and hence relying on it can be fatally hazardous to one's financial health.
We see this time and time again..."8 sigma events" that were supposed to only happen once every 100000 years (or whatever) etc. That geezer Taleb has written about it, and likened selling far OTM options as picking up pennies in front of a steamroller. He has his critics though. Nothing is ever black and white in trading eh.

Best of luck dude.
I have no clue what I'm talking about.
  • #2,899
  • Feb 12, 2014 11:28am Feb 12, 2014 11:28am
Quoting njr
{quote} In terms of losses, if the price rocketed beyond my strike I would immediately close the position and take the loss which would certainly hurt but I would survive and I certainly do not want to be assigned. You are right in that there are always the exceptional earnings, outliers, takeovers, black swans, etc and one day it could all go kaboom.......
whether with naked short strangles or IC's, this is certainly one of the best ways to play the probabilities. You just need to have enough free margin to sell enough contracts to generate decent returns. If you're doing IC's around ER's, you can establish that target well (weeks) in advance and buy the otm strikes at a discount, as they will ramp up as the event gets closer. re: Black Swan events, you might hedge against market-wide events with otm VIX options - but you're usually playing near the monthly expiration or even on the weeklies so exposure can be just a few days at the most.

Otherwise, eventually one may try to play too close on an ER or similar event and have to buy back short positions for large losses - the undeniable Achilles Heel of the strategy. Judicious target selection, being very conservative, etc, may keep that wolf at bay. I know there are options traders who trade this strategy almost exclusively so practice makes (near) perfect I suppose...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,900
  • Feb 12, 2014 11:44am Feb 12, 2014 11:44am
Quoting The Fool
{quote} so TRIP missed and takes a dip? I didn't watch the AH ups n downs but I guess it was down 10% at one point, only to finish down <$2 at $82.75 AH. And I'm in 2/22 $75 long puts on 2/22 $72.50 short puts, $0.40 debit as above. Uh.....I think I was looking for a moderate dip....
TRIP decided to chase EXPE into bubble country. I will lose at most $0.40....if it falls back a bit I might get something back on the long puts....
"If The Fool persists in his Folly he will become wise." - William Blake
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