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Let's Trade Options

  • #6,561
  • Jan 7, 2015 3:05pm Jan 7, 2015 3:05pm
here's the P/L projection for my MU double calendar. I need MU share price to slip toward the $31 strike and stay there deep into next week. If it settles around $33 I will make a little and if it slides down below $29.80, I will start to lose money, although loss will be limited to the original $0.23 debit. Max P on expiry day if it will get on the $31 is $1.10!

There's something to be said for getting these set up to play out at the expiry after the ER...calendars and diagonals are always a waiting game - the less wait, the better.

http://screencast.com/t/y01wjQ8kz7H
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,562
  • Jan 7, 2015 3:41pm Jan 7, 2015 3:41pm
I entered this FB double diagonal (DD) a couple weeks ago when FB was around $80. I wanted to ride it into the week b4 the ER (ER on 1/28). DD's are cool but higher risk than dbl calendars - you have to watch out for hard moves beyond the b/e points. And the b/e pts are a moving target. Fun, huh? Anyway, I need FB to bounce. I entered the trade for a $0.08 credit, the iv of these options is going to rise over the next weeks, front week will prolly rise more than back, even so the P/L projection gives a general idea of the performance of the trade over time. I am looking to get out in the Jan4 or Jan5 week, pre-ER, and will be lucky if the share price is trading in the mid-range then, around $79-$80. Looking for a max P around $0.80 (but I'll be happy with 1/2 of that )

http://screencast.com/t/mT95rVBrHn
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,563
  • Jan 7, 2015 9:02pm Jan 7, 2015 9:02pm
easy trades to play a bounce in oil - USO bull call diagonals - there are many combos of strikes/expiries you can choose that will get you in the trade for just comms or small credit, that will close off the downside risk. Returns are not huge but just fine considering you pony up nothing to get in. Just one thing: look at what the b/e is on expiration day and close the trade if, at any time, the share price goes beyond that - even if that means you lose a little bit. Easy peasy... you need to try to hold till expiry if you can to get max P. Since that is true, I prefer to do these that get over quickly...

all said above applies to any weekly bull call (or bear put) diagonal plays...

http://screencast.com/t/g6OyRHBjIsu
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-01-07_usodia1.png Size: 59 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,564
  • Jan 7, 2015 9:25pm Jan 7, 2015 9:25pm
Quoting The Fool
Easy peasy... you need to try to hold till expiry if you can to get max P. Since that is true, I prefer to do these that get over quickly... all said above applies to any weekly bull call (or bear put) diagonal plays....
Actually, there are many ways to do these directional diagonals. There's a way to do them on the weeklies, as shown above. If you stretch out the time-frame, though, you can increase the profit range and the max P at expiry. It just takes more time, though, and (possibly) more margin. In either case, you can get in the trade for small credit or small debit, and effectively close off the risk on one end. So, a bottom or top-picker's friend. I have some of these USO diagonals set up already .. I may do more, as I expect we may see some upside for oil as seasonal demand increase start showing up in a couple months...

by pushing out to Mar/Apr - the $26/$27 call diag has a wide profit range from $19 to $28
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,565
  • Jan 7, 2015 10:05pm Jan 7, 2015 10:05pm
when it comes to diagonals. the wider the spread between the front/back strikes, the cheaper the trade is to put on, and the more margin required...and, typically, the higher the max P and the higher the risk of ruin on the death slide...
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,566
  • Jan 7, 2015 11:28pm Jan 7, 2015 11:28pm
high IVR now on C, w/ ER 1/15
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,567
  • Jan 7, 2015 11:48pm Jan 7, 2015 11:48pm
oh snap, I discovered something on ToS I dint know was there - there's a global "volatility adjustment" clicker on the P/L analyzer. For any given day, I can raise/lower the iv of all options being analyzed, in 0.1% increments. So, on the C DD above, for instance, I might guess there will be a 5% IV drop for the options after the ER. The vid shows the result on the P/L - looks like that 5% IV drop cuts my max P by about half.

http://screencast.com/t/3OwNkfbFVk66

A good trader (not necessarily me) would model the change in P/L across the ER horizon using a range of estimated IV drops. A really good trader would write his own tools to model iv-induced changes for all options individually. The problem with the ToS analyzer is that it just allows a global analysis, you can not vary the IV changes of each individual option...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,568
  • Jan 8, 2015 12:53am Jan 8, 2015 12:53am
lost money last time I tried to pick a reversal for the long bond, time this for the week following the Jan FOMC
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,569
  • Jan 8, 2015 3:03am Jan 8, 2015 3:03am
Hello TheFool

I am very interested in binary. I wanted to know if you could recommend a broker which always has touch/no touch orders available for wagering (It doesn't have to be during Asia, but during US and LONDON would be great). I'll be awaiting your response.

Cheers
  • #6,570
  • Edited 3:48am Jan 8, 2015 3:16am | Edited 3:48am
GLD kitty
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,571
  • Jan 8, 2015 3:56am Jan 8, 2015 3:56am
Quoting XuxaMadre
Hello TheFool I am very interested in binary. I wanted to know if you could recommend a broker which always has touch/no touch orders available for wagering (It doesn't have to be during Asia, but during US and LONDON would be great). I'll be awaiting your response. Cheers
I don't trade binary options, know nothing about it.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,572
  • Jan 8, 2015 6:43am Jan 8, 2015 6:43am
Quoting The Fool
GLD kitty
Thanks for mentioning :-) I guess you're looking for a calendar? In my view, GLD might be a bit softer till Jan expiry, so I'm looking for a diagonal, for instance Feb 13 116 - Jan 116.5 (1:2 ratio)
  • #6,573
  • Edited 9:00am Jan 8, 2015 8:50am | Edited 9:00am
Quoting Vermeer
{quote} Thanks for mentioning :-) I guess you're looking for a calendar? In my view, GLD might be a bit softer till Jan expiry, so I'm looking for a diagonal, for instance Feb 13 116 - Jan 116.5 (1:2 ratio)
yeah I had a DD setup when I typed that but I lost it. Anyway, gold has been underpinned pretty well & I don't think it will fall far, but may slip some under heavy USD strength. Trying to get filled on this diagonal...

...yeah, that $0.04 was there for a minute at the open, gone bye now....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,574
  • Jan 8, 2015 9:03am Jan 8, 2015 9:03am
working on a 500+ pt 2-day move for the Dow - I shoulda known a v-bottom was lurking to guillotine the bear
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,575
  • Jan 8, 2015 9:36am Jan 8, 2015 9:36am
Quoting The Fool
working on a 500+ pt 2-day move for the Dow - I shoulda known a v-bottom was lurking to guillotine the bear
Don't you just hate those V reversals... still holding my bearish positions, volatility ahead... we should cover both ends earlier, but easy to say in hindsight...
DAX exploded today... SPY just rocketed right after open with no down-tick... I expect higher highs in first quarter, but I can't picture myself as a buyer at these levels. Looks like more and more ppl expects rate hike in April, but still I saw one of the FED members, saying he wouldn't raise them until 2016... Jawboning again.
Hope is dangerous in this game.
  • #6,576
  • Jan 8, 2015 9:41am Jan 8, 2015 9:41am
Example of aggressive counter trade.. selling the strength.

Attached Image (click to enlarge)
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He sold calls, ATM or close to the money, on NFLX, SBUX, and TSLA... just selling the strength. It takes some balls for this, the ones I don't have.
(And it also takes a portfolio margin account with lot of free cash)
Hope is dangerous in this game.
  • #6,577
  • Jan 8, 2015 10:01am Jan 8, 2015 10:01am
Maybe MU-spread will end good after all... nice rally! Bit more and I'm a happy man
  • #6,578
  • Jan 8, 2015 12:12pm Jan 8, 2015 12:12pm
Quoting StrayDog
{quote} Don't you just hate those V reversals... still holding my bearish positions, volatility ahead... we should cover both ends earlier, but easy to say in hindsight...
Yup, the directional debit spreads are worthwhile, imho, but you have to accept that you are gonna miss more than you hit. All of the SPY spreads I have are out til Jan5 or later, so I'll hold on for now. Problem is, if you wait long, it's not even worthwhile to roll down/up the short strike to try to get near b/e. So you try to get in cheap. But, typically, if you're in cheap you're in for a low POP. Trading, phhh....I'm glad I have a real job....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #6,579
  • Jan 8, 2015 12:18pm Jan 8, 2015 12:18pm
Quoting StrayDog
{quote} BBBY @ $77.75 now. I will look tomorrow in more detail, current e.m. of $4.25 is about 5.45% - that is not a problem. If IV ramps up a bit, it will be a bit larger. MU had e.m. of up to 6.7%.......
BBBY
Vol actually contracted a bit, and VIX is under $17, so now when BBBY is trading for about $79, E.M. is $4 or about 5%....
That is strange to me, because in previous 5 ER's statements, stock moved more than 6% 3 times, once more than 7% and once more than 9%.
(I am looking just % between close of the previous day and open of the next day, after..) So now MM expecting a smaller move. Probably because the stock went pretty much vertical since the last ER's?

Another thing - comparing margin req / credit received between MU and BBBY, much more effective trade if you want to do a short strangle is for MU options.
Will think more about it, maybe do something else, or nothing....

(Can SPX jump like 2% today? or more, why not...)
Hope is dangerous in this game.
  • #6,580
  • Jan 8, 2015 12:48pm Jan 8, 2015 12:48pm
Quoting Vermeer
Maybe MU-spread will end good after all... nice rally! Bit more and I'm a happy man
I gotta hold until this time next week or later. I need $36 or $31 - with my luck it'll pin on $33.50....
"If The Fool persists in his Folly he will become wise." - William Blake
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