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Let's Trade Options

  • #4,341
  • Aug 10, 2014 1:07am Aug 10, 2014 1:07am
Quoting The Fool
{quote} oh, I see if you toggle on the "leg" button you get delta's for each leg...kindof.... Well, I have it linked to my TDA Roth IRA account, but it's nothing like ToS. And I ain't paying the BoB subscription fee.... {image}
Hey TF - I do like the dough visuals that shows a snapshot of the 1SD and 2SD, DTE, IV, probability of OTM, etc. I don't think you can see any of the greeks (except of the probability of OTM which kinda translates to 'delta') in the dough application. However, I believe that dough plugs directly into ToS (which I am sure will show all the greeks) and you can execute trades direct from dough. I don't know much more that this as I use IB and I don't subscribe to BoB....
  • #4,342
  • Aug 10, 2014 1:28am Aug 10, 2014 1:28am
Quoting njr
{quote} Totally agree with you there TF. It took me some time to come to the same realization but I'd say from about May this year onwards I have done only this 'type' of trading principally in the ES mini's,....... Also, for anyone considering this type of trading, I would say that the size of the account does help. I have a portfolio margin which allows me a higher margin plus some other benefits. All the best to anyone willing to try this......
yes I am looking forward to having enough equity for p. margin. And of course to do naked strangles. But, until then, I feel like I have got a good grasp of how to do the spreads and it really helps to stick to the most liquid names with good volume across all weekly strikes and tolerable bid/ask spreads. It's not a long list in equities. I need to start trading futures options also and am on the verge of doing so....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,343
  • Aug 10, 2014 1:56am Aug 10, 2014 1:56am
Quoting njr
{quote} Hey TF - I do like the dough visuals ....
dough is great for what it is and it's free. The website is altogether a very cool spot for options traders. I wonder if they might add a forum?

I am trying to write my own tools in Excel and that's been held up during the summer, when I am very busy with engineering projects. But one thing I have had time to work on today is a utility to help me model the spreads I do and so to be able to optimize their profitability.

For instance, I do a lot of diagonal spreads and verticals, as well. There's a sweet spot (in time) when the short legs of the trade should be bought back and (perhaps) the long legs sold for some recoup of their original loss - or maybe it makes sense to hold the short legs til expiry? It's necessary to model the price changes of the options legs over time in order to know where that sweet spot is, though. Maybe you make $0.50 net on a vertical spread if you hold til expiry, but you could make $0.40 if you rolled out two weeks earlier? Which would you do? Roll out earlier, of course, and put your margin back to work immediately. Time is of the essence.

There's a trajectory in learning to trade options and the first hurdle is learning to make money consistently on one's trades. The next is learning how to make THE MOST MONEY consistently. Knowing when to roll in and out of trades is the big problem in the latter regard. But it can be overcome with computational help...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,344
  • Aug 10, 2014 2:14am Aug 10, 2014 2:14am
http://finance.yahoo.com/video/every...210851982.html

I tend to agree with these talking heads, I think the US indices could put on a good rebound show over the rest of August....especially IF we get a letup in gruesome news for a spell. I could see SnP back to 1,97x or better by Labor Day...maybe.

Still some potentially bearish wildcards into the Fall, though, namely US mid-term elections - could get jittery. And I don't know what might come out of Jackson Hole....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,345
  • Aug 10, 2014 3:33am Aug 10, 2014 3:33am
Quoting The Fool
{quote} dough is great for what it is and it's free. The website is altogether a very cool spot for options traders. I wonder if they might add a forum? I am trying to write my own tools in Excel and that's been held up during the summer, when I am very busy with engineering projects. But one thing I have had time to work on today is a utility to help me model the spreads I do and so to be able to optimize their profitability. For instance, I do a lot of diagonal spreads and verticals, as well. There's a sweet spot (in time) when the short legs...
Sounds like an interesting tool you are building. Can you build me a HFT tool, that;'s where the big money is made!

I used to let all my options expire but I've watched a few of Tasty Trade segments showing the advantage of what they call 'managing winners'. They have done various studies showing that there is significant profitability advantages to closing positions prior to expiration (I recall around 50-70% max profit) and redeploying the capital for the next position. I tend to stick to this principle but aim for between 30-70% max profit depending on where I think the market may move - perhaps I should look at keeping it to 50% minimum?? The good thing about the market moving like it has been recently is that 10 - 30% max profit can be made in a day with some of the intraday moves. I did a quick search on the segments and found two of them that go through some of this detail.

https://www.tastytrade.com/tt/shows/...9?locale=en-US

https://www.tastytrade.com/tt/shows/...0?locale=en-US
  • #4,346
  • Aug 10, 2014 9:20am Aug 10, 2014 9:20am
Quoting njr
{quote} Tasty Trade segments showing the advantage of what they call 'managing winners'. They have done various studies showing that there is significant profitability advantages to closing positions prior to expiration (I recall around 50-70% max profit) and redeploying the capital for the next position. I tend to stick to this principle but aim for between 30-70% max profit depending on where I think the market may move - perhaps I should look at keeping it to 50% minimum?? The good thing about the market moving like it has been recently is that...
exactly, thanks for the vids. I will look at those after I get sufficiently caffeinated. Hopefully there's one on "managing losers", too.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,347
  • Edited 12:36pm Aug 10, 2014 12:09pm | Edited 12:36pm
Quoting The Fool
{quote} I do better on diagonals than anything, they are pretty forgiving. I don't always diagonalize, though. I just did a bull put spread on HLF, 9/20 $40/$45 for $1.22/2.08, $0.86 credit. Wanted to get in this AM for like $1.20 but couldn't find time.
here's the dough view of the HLF bull put vertical spread I did a few days ago. I think HLF will move back above $55 in the coming week or so, maybe as high as $60. I thought about funding an outright otm call with the proceeds from my spread, but didn't. Anyway, assuming I am right and HLF share price rises, somewhere in the next few weeks there will be a point where remaining value of the long put and the same for the short put combine for a maximum value relative to time. But when? And at what share price?

ToS shows the otm probability for the $45 put at 66%, but a -.25 delta....
Attached Image (click to enlarge)
Click to Enlarge Name: 2014-08-10_DOUGH-HLF.png Size: 276 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,348
  • Edited 1:22pm Aug 10, 2014 12:34pm | Edited 1:22pm
Quoting The Fool
{quote}somewhere in the next few weeks there will be a point where remaining value of the long put and the same for the short put combine for a maximum value relative to time. But when? And at what share price?
A model requires computations for incremental share prices (both away from and toward the option strike price) at varying dte's. IV may also be ranging around but atm I am assuming it will be constant.... The sums of the two options values can be represented in a table or maybe a 3-d graph to help find the optimum spread value at share price/dte. Or maybe there's an excel solver approach that will work....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,349
  • Aug 10, 2014 1:21pm Aug 10, 2014 1:21pm
Quoting The Fool
{quote} I bought back SSO short Sep $121 calls this morning for $0.68, about a $1.10 net....
actually, that netted only $0.50 on the spread, because I was $0.60 in the hole on the original 9/20 $125 SSO long calls. But I'm still holding those & will look to sell another call leg. Currently SSO trading at ~$112.50, will look to sell 9/20 $122+ calls for $0.50 or better....

SSO never been above $120.00.....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,350
  • Aug 10, 2014 8:21pm Aug 10, 2014 8:21pm
http://www.simpleroptions.com/public...34f3d4d641d6d0

I agree with JC, the coming week will offer great opportunities to sell call credit spreads. I'm not so sure I go along with him when he says SPY will be capped at $195.43, but it's a fine point....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,351
  • Edited 9:49pm Aug 10, 2014 9:18pm | Edited 9:49pm
Quoting njr
{quote} I used to let all my options expire but I've watched a few of Tasty Trade segments showing the advantage of what they call 'managing winners'. They have done various studies showing that there is significant profitability advantages to closing positions prior to expiration (I recall around 50-70% max profit) and redeploying the capital for the next position. I tend to stick to this principle but aim for between 30-70% max profit depending on where I think the market may move - perhaps I should look at keeping it to 50% minimum??
OK, njr, thanks again for the vids, I am looking at them now. In the "Should I Stay/Go?" video, they plot the avg daily p/l for a basket of strangles that are sold on the first of each month for 18 months, starting Jan 2013 until July 2014. These are all 45 dte 1SD strangles on the SnP, I am assuming. The plot expresses the daily P/L as a % of max profit achieved against cumulative trading days. They then show the results in a table, showing the % of max profit (10, 20....100%) and the average days held to get there. OK.

So, the table is the crux of the guidance they have derived from the exercise: if you have gotten to 30% of max profit in 8 days, as opposed to 10 days, the latter being the average number of days to get to 30% max profit, then you are "ahead of the curve" and they advise you to roll out with that profit and re-deploy. So it seems that they are arguing for re-deployment at any time so long as you are ahead of the curve. I'm not sure I agree, but I can't say why not....

I am not quite sure they make a case for a particular percentage of max profit against cumulative days as always being the right place to roll. But I may have missed something.

Anyway, Sosnoff expresses consternation that it took them 50 years of trading to try to get at this chestnut, and I'd have to agree. I am just a Fool, trading options labout 2 years, and even I can see that this is the crux of spread trading. There's an optimum profit relative to days held that a trader has to be looking for if he wants to make the most of his endeavor. I think there's a math modeling approach that will provide good guidance. I'll expose it here if I can figure it out before I die...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,352
  • Aug 10, 2014 10:00pm Aug 10, 2014 10:00pm
Quoting The Fool
{quote} OK, njr, thanks again for the vids, I am looking at them now....
I like the "optimizing re-deployment" vid, that shows the huge time advantage in using an optimized approach as opposed to an arbitrary redepolyment at 50% of max profit - again for monthly \ES strangles.

I suppose this approach - extrapolation of backtest results -could be used for any type of spread? For me, since I can't sell naked calls & have to do call credit spreads instead, I could try the same approach for monthly (or weekly?) SPY vertcal spreads, or IC's..?

Another vid on the same page there is "DTE for Optimal Management", I must look at that one, too.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,353
  • Aug 10, 2014 10:57pm Aug 10, 2014 10:57pm
Quoting The Fool
{quote} So, the table is the crux of the guidance they have derived from the exercise: if you have gotten to 30% of max profit in 8 days, as opposed to 10 days, the latter being the average number of days to get to 30% max profit, then you are "ahead of the curve" and they advise you to roll out with that profit and re-deploy. So it seems that they are arguing for re-deployment at any time so long as you are ahead of the curve. I'm not sure I agree, but I can't say why not.....
I think what they provide in the table is a good 'guide' to determine when to take profit or not. My personal view is that I'll take profit depending on the market situation and it is usually a higher % max profit than their general guide provided in their table. For example, if there is a down day in the SPX, I'll sell naked PUTs. If the SPX then rises for two consecutive days and I get ~ 30% of max profit over those two days; I'll certainly take the profit and look to redeploy into another PUT particularly if I think there is a chance of another down day (geopolitical risk, bad data, etc).

Sure, there have been times where the SPX didn't fall and it continued to rise further and I kick myself thinking that I could have made more % of max profit. However, there have been other times when I got out at the right time. Of course if I didn't close my position and my unrealized P/L went negative, then I sit and wait until 1) theta decays sufficiently to give me a profit or 2) the market rose again to get me back to a reasonable % net profit. It does make me think that I need to take a closer look at my results and compare with what they discuss in their "optimizing re-deployment" video and see if I can squeeze out more profit.....
  • #4,354
  • Aug 11, 2014 1:10am Aug 11, 2014 1:10am
I hear ya, njr. there's a lot of merit in seeking a m/l mechanical approach to trading but you're still always able to bring discretion to bear, based on what you see coming.

It'll be interesting to see how much of a rally markets can put on this week....Asian and ez markets and us futures all green now....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,355
  • Aug 11, 2014 1:17am Aug 11, 2014 1:17am
Quoting The Fool
....Asian and ez markets and us futures all green now....
meanwhile, a coup d'état in Iraq? I smell an IS trap.......
"If The Fool persists in his Folly he will become wise." - William Blake
  • #4,356
  • Aug 11, 2014 5:06am Aug 11, 2014 5:06am
Quoting The Fool
I hear ya, njr. there's a lot of merit in seeking a m/l mechanical approach to trading but you're still always able to bring discretion to bear, based on what you see coming. It'll be interesting to see how much of a rally markets can put on this week....Asian and ez markets and us futures all green now....
Yup, futures look like they are ready for an explosive upward movement for the beginning of this week. Let's see how long it lasts!
  • #4,357
  • Aug 11, 2014 7:05am Aug 11, 2014 7:05am
Quoting njr
{quote} Hi SD, Not sure if you are watching but fyi, the Tasty Trade people have just done an IC on PCLN on their live show. I can't recall the exact strikes but I think it was something like 1120/1125 + 1430/1435 (Aug 15 expiry) with a POP of around 90%. I think that it will go through their BOB application if you subscribe to it. Good luck with the trade if you decide to enter.
Hi njr

Unfortunatelly I did not entered that IC on PCLN. I can see now, that it was possible to enter Friday and exit today with about 40-50% gain, since that IC (1195/1200 + 1350/1355) was about $2.00 - $2.15 credit, and now it is about $1.20 - $1.30... Never mind. Good ideas was also DIS and GMCR for the same "Chicken" IC strategy. One of dough traders, Kristi, first sold a 1500 call than a day later a 1100 put. That is how you can make some "dough"... Margin requirements for that would be like $20,000... Which I currently do not have, since this acc is deliberatelly small for now. Big acc is allways a big help, cos it takes money to make money, and it is far more easier to make money. I have worked with relatively large accounts, mostly stocks...

I had entered JCP 9.5 calls on friday for $0.33 and sold them today for $0.44 (a stupid sell). Wanted to do something on JCP, so I have a beer money on that.

Open positions
IC 30/31 + 40/41 Sep19 on YHOO for $0.26 credit. (Should really do a $2 wide spreads on both sides for more credit... considering commision and all)
Bear call spread 115/117 Sep19 on IWM for $0.65 credit

Entered today 18/20 Aug15 strangle on KING for $1.60 debit. It is a new kid on the block, so I expect / hoping for a wild move.
Hope is dangerous in this game.
  • #4,358
  • Aug 11, 2014 7:17am Aug 11, 2014 7:17am
Quoting Cecil Gee
{quote} GOOGLE and GS
Hi CG,
Thanks for reply. Traded GOOG a few times, in fact because of one loss playing the GOOG earnings wrong way, made me think that I dont really understand a thing in options world... and than I decided it is time to learn more. I still dont know much, but learned a lot more since then.

Hey TF and njr,
interesting stuff, good discussion, I will watch those videos too. Next step in my learning about options is diaginal spreads and butterflies. In the meantime I will do as much credit spreads and Iron Condors as I can.
Hope is dangerous in this game.
  • #4,359
  • Aug 11, 2014 7:26am Aug 11, 2014 7:26am
Quoting njr
{quote} I think what they provide in the table is a good 'guide' to determine when to take profit or not. My personal view is that I'll take profit depending on the market situation and it is usually a higher % max profit than their general guide provided in their table. For example, if there is a down day in the SPX, I'll sell naked PUTs. If the SPX then rises for two consecutive days and I get ~ 30% of max profit over those two days; I'll certainly take the profit and look to redeploy into another PUT particularly if I think there is a chance...
Looks like one of those days where I shouldn't have closed my PUTs. I closed them on Friday after the big rally......but If I had closed them today then I would have made an additional ~ 30% of the max profit!!! Live and learn as they say!
  • #4,360
  • Aug 11, 2014 8:01am Aug 11, 2014 8:01am
here's my HLF vertical from last week. HLF bounced hard as I expected. Bid/ask spreads suck on this one though....I will wait and see....
Attached Image (click to enlarge)
Click to Enlarge Name: 2014-08-11hlf.png Size: 15 KB
"If The Fool persists in his Folly he will become wise." - William Blake
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