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Let's Trade Options

  • #2,961
  • Feb 14, 2014 7:02pm Feb 14, 2014 7:02pm
Quoting The Fool
On the ER radar for the coming weeks: 2/18: HLF 2/20: PCLN, NEM, HPQ, GRPN 2/24: FSLR, HD, 2/25: TOL 2/26: CHK, TGT, RIG, BIDU 2/27: BBY, CRM, MBT
Hi friends. I trade forex, but never heard of options. Can someone tell me the best starting point? thank you. I enjoy reading your posts although I don't have any context yet.
  • #2,962
  • Feb 14, 2014 7:29pm Feb 14, 2014 7:29pm
Quoting c3p0
{quote} Hi friends. I trade forex, but never heard of options. Can someone tell me the best starting point? thank you. I enjoy reading your posts although I don't have any context yet.
you should get some basic books to read so you have an idea about what options trading is all about. I don't know any to recommend, maybe somebody else has some in mind. You can get lots of free education online, try

http://www.cboe.com/LearnCenter/Default.aspx
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,963
  • Feb 14, 2014 8:07pm Feb 14, 2014 8:07pm
Quoting The Fool
{quote} you should get some basic books to read so you have an idea about what options trading is all about. I don't know any to recommend, maybe somebody else has some in mind. You can get lots of free education online, try http://www.cboe.com/LearnCenter/Default.aspx
wow nice link! thanks!
  • #2,964
  • Feb 16, 2014 1:08am Feb 16, 2014 1:08am
Quoting The Fool
On the ER radar for the coming weeks: 2/18: HLF 2/20: PCLN, NEM, HPQ, GRPN 2/24: FSLR, HD, 2/25: TOL 2/26: CHK, TGT, RIG, BIDU 2/27: BBY, CRM, MBT
HPQ looks set up for an ER drop, maybe a repeat of Aug '13....look at 2/22 $28 or $28.50 puts
Attached Image (click to enlarge)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,965
  • Feb 16, 2014 8:35am Feb 16, 2014 8:35am
Hey guys, I am not very proficient in options mechanics, can anyone help me out and explain why would people heavily buy in the money puts? I attach my chart, the level I am looking has had a huge net change, am I right to assume this was an open interest to reach this level?
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  • #2,966
  • Feb 16, 2014 8:37am Feb 16, 2014 8:37am
http://www.federalreserve.gov/aboutt...140218open.htm

Final Rule Establishing Enhanced Prudential Standards for Bank Holding Companies and Foreign Banking Organizations with more than $50 Billion in Total Consolidated Assets.

http://finance.yahoo.com/news/foreig...130639891.html
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,967
  • Feb 16, 2014 8:48am Feb 16, 2014 8:48am
Quoting njr
{quote} I hope you don't mess it up! I used to work the contract IT market back in London my self. I'm a BA/PM and then left that to go into trading on my own. From what I hear, it isn't a great place to be working now.....Better off trading on your own. I know what you mean about how it can sometime be a bit of a lonely experience but I'll take this over 18 hour days, meetings and deadlines for critical items due yesterday!!! Have you set yourself up as a limited company, individual sole trader, or some other structure? Reason for asking is that...
Been looking into this a bit more. It's kinda complex cos there is a fourth option of an LLP (= U.S. LLC) but I found some online calculators that allow you to plug in hypothetical profits. Using these, if you make £100k trading profits in one year:

  1. as a sole trader you pay £34,165.95 tax
  2. as a limited company you pay £29,326.95 tax (source for both calculations: http://www.companiesmadesimple.com/s...lProfit=100000)
  3. treating the profits purely as personal gains for CGT purposes you pay £20,803.00 (source: http://www.invidion.co.uk/cgt/index..../css/tools.css)

So the CGT route is clearly (based on the above, which may be misleading or incomplete) the winner.
Of course operating as either a sole trader or limited company you can expense stuff but unless you're running e.g. a Bloomberg terminal you're probably going to struggle to find sufficient expenses to make trading through a company worthwhile. At least, that's the way it appears to me. What am I missing? Furthermore presumably tax returns and accountancy issues get more complicated once you start operating as a business, especially as a limited company. However, the 5k gain of a limited company would appear to make that worth it over a sole trader. But there's a massive gain of 10k by charging gains simply as CGT so why bother forming a company, I ask?

I'd be interested to hear from anybody who has any information to add to this, but I'm not holding my breath, as there are probably very few traders who make consistently good money, and those that do probably make so much filthy cash that they are using opaque offshore structures to minimize their tax liabilities.

I have no clue what I'm talking about.
  • #2,968
  • Feb 16, 2014 8:53am Feb 16, 2014 8:53am
Quoting Ulterior
Hey guys, I am not very proficient in options mechanics, can anyone help me out and explain why would people heavily buy in the money puts? I attach my chart, the level I am looking has had a huge net change, am I right to assume this was an open interest to reach this level? {image}
http://www.thestreet.com/story/10373...ney-calls.html
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,969
  • Feb 16, 2014 8:55am Feb 16, 2014 8:55am
Quoting Ulterior
Hey guys, I am not very proficient in options mechanics, can anyone help me out and explain why would people heavily buy in the money puts? I attach my chart, the level I am looking has had a huge net change, am I right to assume this was an open interest to reach this level? {image}
One reason why you would buy heavily ITM puts is because you
a) expect the underlying to fall, and
b) are a tight bastard (like me) who doesn't want to pay time premium.

The further ITM an option goes, the less time premium you pay, but the higher the risk that the u/l rises and wipes out the value of your option.
As ever, there is no free lunch.
But well spotted. As it happens, I bought heavily ITM puts on GLD and SLV this week. I think this rise on both is just another rally to be sold as the lemmings jump in with breathless excitement at over $1300 - where were they when gold was below $1200? But maybe I'm the lemming, who knows, that's trading, sometimes you're clever, sometimes you're an eejut.
I have no clue what I'm talking about.
  • #2,970
  • Feb 16, 2014 8:56am Feb 16, 2014 8:56am
Quoting The Fool
{quote} http://www.thestreet.com/story/10373...ney-calls.html
this article is about calls, and I meant buiying puts - reading now that this is a kind of way to short, isnt it? I want to understand what goes in the thinking process - is this some kind of no-touch level, or a sophisticated SL, anyone can help me out? I am looking forward to reach this level, but I want all the variables to be clear for all warning signs
  • #2,971
  • Feb 16, 2014 8:58am Feb 16, 2014 8:58am
Quoting Boy Wonder
{quote} One reason why you would buy heavily ITM puts is because you a) expect the underlying to fall, and b) are a tight bastard (like me) who doesn't want to pay time premium. The further ITM an option goes, the less time premium you pay, but the higher the risk that the u/l rises and wipes out the value of your option. As ever, there is no free lunch. But well spotted. As it happens, I bought heavily ITM puts on GLD and SLV this week. I think this rise on both is just another rally to be sold as the lemmings jump in with breathless excitement...
Hi, I expected this kind of answer, what are personal thoughts on this particular level and action in option markets? what are my chances ?
  • #2,972
  • Feb 16, 2014 9:02am Feb 16, 2014 9:02am
Quoting Ulterior
{quote} Hi, I expected this kind of answer, what are personal thoughts on this particular level and action in option markets? what are my chances ?
Your chances? Chances of what?
I have no clue what I'm talking about.
  • #2,973
  • Feb 16, 2014 9:08am Feb 16, 2014 9:08am
Quoting Boy Wonder
{quote} Your chances? Chances of what?
longing it to reach this level?
  • #2,974
  • Feb 16, 2014 9:10am Feb 16, 2014 9:10am
Quoting Ulterior
{quote} longing it to reach this level?
Let me just go find my time machine.
I have no clue what I'm talking about.
  • #2,975
  • Feb 16, 2014 9:12am Feb 16, 2014 9:12am
Quoting Boy Wonder
{quote} Let me just go find my time machine.
lol, I mean isnt it a tell-tell sign that this price level will be heavily defended, will not be allowed to be reached?
  • #2,976
  • Feb 16, 2014 9:13am Feb 16, 2014 9:13am
Quoting Boy Wonder
{quote} Been looking into this a bit more...... I'd be interested to hear from anybody who has any information to add to this, but I'm not holding my breath, as there are probably very few traders who make consistently good money, and those that do probably make so much filthy cash that they are using opaque offshore structures to minimize their tax liabilities.
I don't know squat about the UK business and tax regulations, so - grain of salt. But I use various strategies. As I note in the beginning of the thread, I have been moving assets into Roth IRA's. Roth deposits are taxed up front, but any profits on those deposits are tax free forever. There are estate and early withdrawal advantages, as well. The downside is I can only stuff $6,500/yr into Roths in total. I also have SEP IRA's that I trade from. Deposits there are tax deferred and that helps with year-to-year tax accounting. I have several businesses that are set up as S Corporations, including a business that does prop trading. Since I have a regular 9to5 j-o-b, all profits I derive from S-Corp businesses I just treat as dividends, avoiding the self-employment tax on those revenues.

I always find completely reasonable expenses for the trading business to pay for. I buy new trading related computing hardware and software on a regular basis, for instance. Books and media, my subscription to The Economist, etc - all expensed. If I were more flush, I would have the trading company own a villa in Costa Rica, where I and my team of Swedish swimsuit models would entertain various plutocrats with trading seminars and pool parties - all legitimate expenses.

re: offshoring, I have been thinking about that for some time, only seems to make sense to me if you really want to develop a physical presence in the location where you are going to park the offshore entity. And it has gotten much more transparent for your home govt to track your doings in the various offshore domiciles. But it's still doable.

Anyway, good luck.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,977
  • Feb 16, 2014 9:20am Feb 16, 2014 9:20am
Quoting Ulterior
{quote} this article is about calls, and I meant buiying puts - reading now that this is a kind of way to short, isnt it? I want to understand what goes in the thinking process - is this some kind of no-touch level, or a sophisticated SL, anyone can help me out? I am looking forward to reach this level, but I want all the variables to be clear for all warning signs
http://www.streetdirectory.com/trave...y_options.html
"If The Fool persists in his Folly he will become wise." - William Blake
  • #2,978
  • Feb 16, 2014 9:43am Feb 16, 2014 9:43am
Quoting The Fool
{quote} I don't know squat about the UK business and tax regulations, so - grain of salt. But I use various strategies. As I note in the beginning of the thread, I have been moving assets into Roth IRA's. Roth deposits are taxed up front, but any profits on those deposits are tax free forever. There are estate and early withdrawal advantages, as well. The downside is I can only stuff $6,500/yr into Roths in total. I also have SEP IRA's that I trade from. Deposits there are tax deferred and that helps with year-to-year tax accounting. I have several...
Thanks TF. Re offshoring, yes, that's the catch. You can't "just" set up an offshore co. and use it to trade in your home country. Our respective tax collection agencies are just not that stupid. You simply cannot conduct your trading business in/from the UK/USA using an offshore co. and then expect the profits from that offshore co. to not be subject to UK/USA taxation. At least, that's my understanding.
Roth IRAs sound similar to ISAs that we have in the UK that allow tax-free saving using cash or shares (or both) up to some small amount. Well it's small per year but I guess over the years it adds up. But I can make way more money with my money than by ferreting it away in a savings account for a paltry interest and even paltrier tax saving on that paltry interest.
As for expenses, even a new 'puter every 18 months plus a few subscriptions probably only comes to little more than a grand, maybe 2. Compared to the 10k saving you get from just expensing trading profits as CGT gains (which you can do as long as you're a speculator not e.g. a market maker) it's just not worth it (for me; I understand your affairs are different).
For me you've gotta start doing something heavy to make it worthwhile e.g. expense a car (but that ain't gonna work for a trader, again, the taxman ain't that stupid) or property (but only if it's not your primary residence - the primary residence is tax free in the uk).
I have no clue what I'm talking about.
  • #2,979
  • Feb 16, 2014 9:44am Feb 16, 2014 9:44am
Quoting The Fool
{quote} http://www.streetdirectory.com/trave...y_options.html
Well, from all my recent readings I assume people are "shorting" it from this level, but why this level particularly and now? Confidence, but about what?
  • #2,980
  • Feb 16, 2014 10:43am Feb 16, 2014 10:43am
Quoting Boy Wonder
{quote} Thanks TF. Re offshoring, yes, that's the catch. You can't "just" set up an offshore co. and use it to trade in your home country. Our respective tax collection agencies are just not that stupid. You simply cannot conduct your trading business in/from the UK/USA using an offshore co. and then expect the profits from that offshore co. to not be subject to UK/USA taxation. At least, that's my understanding.
it's perfectly legal to set up a corporation in a tax-beneficial country (I have looked at Panama very closely) and that corporation can do trading and its profits on that activity will be taxed only in the country where it resides. The rub is when I would actually take some of that revenue as "salary" or dividends, whatever - on those deductions from the offshore corp's books I would be taxed. But if I actually wanted to live in Panama, let's say, the Panamanian SA (sociedad anonima) could own property, incur all kinds of expenses, etc - and that activity would be beyond the reach of the US taxman. That's why I say offshoring makes sense to me if you are going to live (even if part-time) in the offshore country - what's the point of having an offshore entity that owns various assets if you are never there to enjoy them?

Do you have a favorite warm weather vacation destination? Does it have beneficial tax laws? Is it off the various black and grey lists of tax haven/money laundering countries? The latter point is important, because more than likely your offshore entity will still need to establish trading accounts in the US or other major banking countries - and they won't let you in if you are residing in a listed country. It's best, I think, to have in-country partners (not just attorneys posing as partners, but real, active partners) - and you don't just find those people that you can trust overnight, if ever.

It's altogether a lot of trouble and I have found ways around (at least partially) the various tax burdens that I can live with.
"If The Fool persists in his Folly he will become wise." - William Blake
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