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Let's Trade Options

  • #2,901
  • Feb 12, 2014 11:50am Feb 12, 2014 11:50am
Quoting The Fool
{quote} 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...
The problem is that we don't really understand what the probabilities are. We think "oh that's got a 6% delta so it's never gonna happen". Well, that ain't so.
Also, you can't really hedge individual stocks except by buying protection, but then you're not selling naked any more; you're selling ICs.
ICs are no doubt safer than naked. But you pay a price for that. You may end up going broke either way. But maybe there really are folks who have got rich off selling ICs with no directional view of the underlying. Why not.
I often sell futures options naked, but the underlyings are open near 24/5 and I can therefore hedge with buy and sell stops on the underlying.
You can't do that with a stock. If it gaps, it's gonna gap without you on board. The best you can hope for is that the stock remains open before during and after the ER so that you can get filled at the first available price should it gap violently.
Somebody (I can't rememer who - trader, whatever) said of GOOG's earnings (after they gapped from $850 to over $1000), there were a few peeps (option sellers) who went home that night and never came back.
I have no clue what I'm talking about.
  • #2,902
  • Feb 12, 2014 11:53am Feb 12, 2014 11:53am
Quoting Boy Wonder
ZB (bonds) look good here at 133, playing the weeklies.
Not looking good any more as we slide to 132, having to reposition
For the moment there's nothing stopping this from retracing all of this move up from 128, especially as equities appear poised for further gains in the days and weeks ahead. Switching to Damage Limitation Mode captain.
I have no clue what I'm talking about.
  • #2,903
  • Feb 12, 2014 12:04pm Feb 12, 2014 12:04pm
Quoting Boy Wonder
{quote} The problem is that we don't really understand what the probabilities are. We think "oh that's got a 6% delta so it's never gonna happen". Well, that ain't so.
I know, nobody knows what will happen. I drive across the Narrows Bridge every day, assuming I will get safely to Tacoma. But the first bridge did this:

Inserted Video
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,904
  • Feb 12, 2014 12:15pm Feb 12, 2014 12:15pm
Quoting The Fool
{quote} I know, nobody knows what will happen. I drive across the Narrows Bridge every day, assuming I will get safely to Tacoma. But the first bridge did this: http://www.youtube.com/watch?v=nFzu6CNtqec
LOL
I have no clue what I'm talking about.
  • #2,905
  • Feb 12, 2014 12:28pm Feb 12, 2014 12:28pm
Risky trade I taken on citi with the 200 and 50 day just above, I took a long $50.50 call for 17c or $17 per contract. I'm hoping for further upwards movement ib the Indexes that may move the stock past those MA.

price of underly as it stands is $50.10

Citigroup Inc. (C)

-NYSE

50.10 http://l.yimg.com/a/i/us/fi/03rd/up_g.gif 0.44(0.89%) 18:27 - Nasdaq Real Time Price


C Feb 2014 50.500 call (C140214C00050500)

-OPR

0.17 http://l.yimg.com/a/i/us/fi/03rd/up_g.gif 0.02(13.33%) 18:00
  • #2,906
  • Feb 12, 2014 1:03pm Feb 12, 2014 1:03pm
Quoting Boy Wonder
{quote} The problem is that we don't really understand what the probabilities are. We think "oh that's got a 6% delta so it's never gonna happen". Well, that ain't so. Also, you can't really hedge individual stocks except by buying protection, but then you're not selling naked any more; you're selling ICs. ICs are no doubt safer than naked. But you pay a price for that. You may end up going broke either way. But maybe there really are folks who have got rich off selling ICs with no directional view of the underlying. Why not. I often sell futures...
I think the key here is to play well known equities and not hot penny stocks... that way you know a 40% increase/decrease after earnings is quite rare with those stocks
  • #2,907
  • Feb 12, 2014 1:22pm Feb 12, 2014 1:22pm
Quoting brokerr
{quote} I think the key here is to play well known equities and not hot penny stocks... that way you know a 40% increase/decrease after earnings is quite rare with those stocks
Better of with indexes or index etf or one two commods like crude/gas
  • #2,908
  • Feb 12, 2014 1:27pm Feb 12, 2014 1:27pm
Quoting The Fool
took a shot at 2/22 EEM $39.50c for $0.25
lot of volume being pumped into EEM today, don't know whether traders want blast past the 200 and 50 day sitting around 40.xx or not
  • #2,909
  • Feb 12, 2014 1:52pm Feb 12, 2014 1:52pm
Quoting Cecil Gee
{quote} lot of volume being pumped into EEM today, don't know whether traders want blast past the 200 and 50 day sitting around 40.xx or not
i'm hangin in, holding out for $40. Yellen will be on the hill again tomorrow, maybe she can say words to juice us up another !00+ pt gainer in the DOW.

China CPI out tomorrow night, if that is good then EEM should pop Fri - EEM's underlying index is somwhat heavy Asian bits
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,910
  • Feb 12, 2014 1:55pm Feb 12, 2014 1:55pm
Quoting brokerr
{quote} I think the key here is to play well known equities and not hot penny stocks... that way you know a 40% increase/decrease after earnings is quite rare with those stocks
Good discussion on the topic of selling options

I guess that each trader has their own strategy, individual style, risk tolerance, etc, etc but it is still good to hear the different views out there. I know of various people that have done very well in selling options using different strategies (nakeds, IC, stock options, currency options, commodities, FO, indexes, etc, etc). There is actually one particular case where a lady made a phenomenal amount of money over a 3 year period on selling naked calls/puts. Of course, there are also cases where people crash and burn as well; so defining your own style, sensible risk tolerance and management, etc, etc is paramount.

However, Boy Wonder makes a good point about a 6% delta not being a 'true' 6% delta in some cases (e.g. during earnings, the fat tails you mentioned) but the decision to enter a trade (and the amount of loss that can be sustained) is obviously made on multiple factors (as I mentioned in my earlier post) and not just delta/standard deviation. For my style of trading I don't feel comfortable with buying options as I am not great at trying to work out where the stock / market direction is going to go; and also I'm aware that with some strategies for buying options the underlying needs to move a reasonable percent to make profit. I'd rather sell options and identify where the stock / market will have a relatively low probability of heading irrespective of if the direction is up, down, or sideways. Hence, naked strangles are what I tend to use predominately on some indexes but under certain circumstances stocks during earnings.....
  • #2,911
  • Feb 12, 2014 2:12pm Feb 12, 2014 2:12pm
Quoting njr
{quote} There is actually one particular case where a lady made a phenomenal amount of money over a 3 year period on selling naked calls/puts.
Yeah I think TastyTrade put up an interview on youtube with that lady (if it's the same one). She sells OTMs on indexes I think. But then I think she mentioned a "we" as in "we've never taken a loss on any of our positions" which makes me wonder if she's not part of some bigger entity.
I have no clue what I'm talking about.
  • #2,912
  • Feb 12, 2014 2:13pm Feb 12, 2014 2:13pm
Quoting njr
{quote} For my style of trading I don't feel comfortable with buying options as I am not great at trying to work out where the stock / market direction is going to go; and also I'm aware that with some strategies for buying options the underlying needs to move a reasonable percent to make profit. I'd rather sell options and identify where the stock / market will have a relatively low probability of heading irrespective of if the direction is up, down, or sideways.
Me too but McMillan reckons that the odds favour option buyers more than we think. But I never got round to that part of the book (at least, not yet). Too much time wasted on screenwatching and forums like this
I have no clue what I'm talking about.
  • #2,913
  • Feb 12, 2014 2:14pm Feb 12, 2014 2:14pm
Quoting Boy Wonder
{quote} Yeah I think TastyTrade put up an interview on youtube with that lady (if it's the same one). She sells OTMs on indexes I think. But then I think she mentioned a "we" as in "we've never taken a loss on any of our positions" which makes me wonder if she's not part of some bigger entity.
Hey Boy Wonder - yes, your right. It was on the TastyTrade site. I also found it on you tube if anyone is interested....

Inserted Video
  • #2,914
  • Feb 12, 2014 2:16pm Feb 12, 2014 2:16pm
Quoting Boy Wonder
{quote} Me too but McMillan reckons that the odds favour option buyers more than we think. But I never got round to that part of the book (at least, not yet). Too much time wasted on screenwatching and forums like this

Lol - same for me. Too much time on forums, listening to the quasi experts on CNBC, and screenwatching numbers going up and down
  • #2,915
  • Feb 12, 2014 2:17pm Feb 12, 2014 2:17pm
Quoting njr
{quote} Good discussion on the topic of selling options I guess that each trader has their own strategy, individual style, risk tolerance, etc, etc but it is still good to hear the different views out there. I know of various people that have done very well in selling options using different strategies (nakeds, IC, stock options, currency options, commodities, FO, indexes, etc, etc)......
I like it. Are you looking at anything for next week? How about TSLA? TSLA has been such a darling, hard to see it tanking >$50...ER out 2/17... the 2/22 $140 puts bid $0.36.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,916
  • Feb 12, 2014 2:31pm Feb 12, 2014 2:31pm
Quoting Boy Wonder
{quote} Yeah I think TastyTrade put up an interview on youtube with that lady (if it's the same one). She sells OTMs on indexes I think. But then I think she mentioned a "we" as in "we've never taken a loss on any of our positions" which makes me wonder if she's not part of some bigger entity.
Her follow up interview was yesterday on TT
  • #2,917
  • Feb 12, 2014 2:36pm Feb 12, 2014 2:36pm
Quoting Cecil Gee
{quote} Her follow up interview was yesterday on TT
lost everything? jk...

I have my popcorn, ready to see if my CSCO and CTL strangles make me a little richer...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,918
  • Feb 12, 2014 2:37pm Feb 12, 2014 2:37pm
Quoting njr
{quote} Hey Boy Wonder - yes, your right. It was on the TastyTrade site. I also found it on you tube if anyone is interested.... http://www.youtube.com/watch?v=BquDGE9KxZQ
Yeah $105m, but I wonder what she started with.
I have no clue what I'm talking about.
  • #2,919
  • Feb 12, 2014 2:37pm Feb 12, 2014 2:37pm
Quoting Cecil Gee
{quote} Her follow up interview was yesterday on TT
Cheers, will take a look.
I have no clue what I'm talking about.
  • #2,920
  • Feb 12, 2014 2:41pm Feb 12, 2014 2:41pm
Quoting Boy Wonder
{quote} Yeah $105m, but I wonder what she started with.
started trading options with $100k, didn't do great first couple years, as she got rolling she has brought in investor capital, so $100k --> $105MM is not all trading returns, I don't think. At any rate, a good story...
"If The Fool persists in his Folly he will become wise." - William Blake
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