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Let's Trade Options

  • #7,921
  • Mar 30, 2015 8:06am Mar 30, 2015 8:06am
Quoting The Fool
... I may need to trade TLT with no bias, look at double diagonals...
OTM BWB on TLT...

Attached Image (click to enlarge)
Click to Enlarge Name: TLT-BWB.PNG Size: 79 KB



So, he is doing put BWB for credit, no upside risk...$500 margin req. Maybe just to wide for my taste.

Very similar combo I have on IWM, if you remember TF... I financed $1 wide put spread by another, OTM $3 wide put spread.. al done for credit. IWM is now more up than it was before, and yet this bearish trade is positive.

Both trades have something similar with diagonals... sensitivity to large moves in your direction, and no risk i another direction. But, I don't have time now for discussion, it could be interesting to compare.. like you have max profit on diagonals in last days, it is gamma sensitive, dynamic b/e points and so on, while I think combo of debit and credit spread is more simple... but 2x the comms...
Hope is dangerous in this game.
  • #7,922
  • Mar 30, 2015 10:07am Mar 30, 2015 10:07am
Quoting StrayDog
OTM BWB on TLT......
I filled a TLT Apr/Apr4 $123/$122 put diagonal for $0.02 debit today
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,923
  • Mar 30, 2015 11:20am Mar 30, 2015 11:20am
Quoting The Fool
{quote} I filled a TLT Apr/Apr4 $123/$122 put diagonal for $0.02 debit today
I tried to put on IB platform AND on OptionPlay both versions of the put diagonal with that strikes and expiry...

Attached Image (click to enlarge)
Click to Enlarge Name: TLT-diag-1.PNG Size: 16 KB


What you did, SOLD Apr 123 and BOUGHT Apr4 122... The 'default' version, I guess, selling the front month option which is closer to the price.

But, this second thingy ... got less risk and more profit potential, at least on paper...

Attached Image (click to enlarge)
Click to Enlarge Name: TLT-diag-2.PNG Size: 91 KB


So...
Hope is dangerous in this game.
  • #7,924
  • Mar 30, 2015 11:29am Mar 30, 2015 11:29am
Quoting The Fool
{quote} I filled a TLT Apr/Apr4 $123/$122 put diagonal for $0.02 debit today
I don't like doing these time spreads for anything past 30 dte, unless I am trying to use them to leg into a longer term trade. All of the good action is really in the last days of the spread, so why wait? The downside of that, of course, is the death slide - if I have not given myself enough room then I might be in for a scorched butt.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,925
  • Mar 30, 2015 12:00pm Mar 30, 2015 12:00pm
Hm, what about this one TLT put diagonal... Selling Apr 124.50, buying Apr4 125... Getting closer to the price, in order to get higher POP ?

Attached Image (click to enlarge)
Click to Enlarge Name: TLT-diag-3.PNG Size: 91 KB


So, when you sell a front month option which is further away from the price, it is very similar like put debit spread, re margin req (none)... just more expensive, than regular diagonal, which requires margin like credit spread...

Filling these is a bitch, though...
Hope is dangerous in this game.
  • #7,926
  • Mar 30, 2015 12:05pm Mar 30, 2015 12:05pm
Quoting StrayDog
Hm, what about this one TLT put diagonal.....
The part of the curve not shown on the screen shot is the death slide to the downside - that's where all the risk is on these. I will show you some vids of how the P/L changes over time, will have to do that tonight.

SnP bounce has crushed my SPY short call spread, expiry tomorrow. I shoulda known the market would rally if I shorted it....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,927
  • Edited 12:58pm Mar 30, 2015 12:31pm | Edited 12:58pm
Thanks in advance TF... I just want to learn what is the freaking difference in these two... Both have short legs in front month.

Attached Image (click to enlarge)
Click to Enlarge Name: TLT-diag-3-4.png Size: 114 KB


First one Apr 124.50 sold / Apr4 125 bought --> is turn-around diagonal... a debit spread mutant. Short leg is further away. No margin req. Higher possible payout.

Second one is traditional diagonal, Apr 125 sold / Apr4 124.50 bought... gaining on time decay, have margin req... could have negative risk-reward like credit spreads, but this one do not have it...

When you mention death slide, you mean that maximum risk on second one diagonal I suppose... They are characterized as a limited risk strategies everywhere.
Hope is dangerous in this game.
  • #7,928
  • Mar 30, 2015 12:40pm Mar 30, 2015 12:40pm
I can't tell from the OP graphic what the trade is - need to know what option is bought/sold for which expiries? There are some rules of thumb I can convey, learned thru bitter experience, will have to do that later.

Diagonals are tricky to trade....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,929
  • Mar 30, 2015 12:44pm Mar 30, 2015 12:44pm
No problemo, my friend, already see some interesting things there... I will edit the above post with strikes and expiration...
Hope is dangerous in this game.
  • #7,930
  • Mar 30, 2015 8:03pm Mar 30, 2015 8:03pm
Maybe I will tag along with Carl Icahn.....
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_chk.png Size: 52 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,931
  • Mar 30, 2015 8:22pm Mar 30, 2015 8:22pm
Quoting StrayDog
First one Apr 124.50 sold / Apr4 125 bought --> is turn-around diagonal... a debit spread mutant. Short leg is further away. No margin req. Higher possible payout.
screen shot below shows your first diagonal, have not traded them that way, but interesting, defined risk moderate to the upside, b/e at $128.20, $0.18 debit to get in, maxP about $0.81 at $124.25, no risk and good return of $0.36 if TLT overshoots to the downside.
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_tlt.png Size: 64 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,932
  • Mar 30, 2015 8:31pm Mar 30, 2015 8:31pm
just for comparison, look at a Apr $124 put calendar, b/e at $128.00, debits $0.10 to get on (1/2 of the above) and a maxP of $0.62. Doesn't have the nice return protection on the downside, but at 1/2-price you could put on twice as many and maybe come out ahead in the right range
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_tlt2.png Size: 63 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,933
  • Mar 30, 2015 8:42pm Mar 30, 2015 8:42pm
You guys are taking options to a whole new level for me. Going to figure this stuff out.

In the past just bought calls and puts depending on my directional bias, Then spreads on futures contracts only to help control costs

Looking forward to learning the fine art of this stuff
Illegitimi non carborundum - Noli pati a scelestis opprimi.
  • #7,934
  • Mar 30, 2015 8:45pm Mar 30, 2015 8:45pm
Quoting StrayDog
Second one is traditional diagonal, Apr 125 sold / Apr4 124.50 bought... gaining on time decay, have margin req... could have negative risk-reward like credit spreads, but this one do not have it... When you mention death slide, you mean that maximum risk on second one diagonal I suppose... They are characterized as a limited risk strategies everywhere.
http://screencast.com/t/zx1YwqT68Lv

the 2nd one debits $0.06 to get in, b/e on the downside is $123.10, maxP of $0.44 at $125.30. $50 margin required per each. The death slide is the steep loss on the P/L below the downside b/e - that's a defined risk but it's large, about -$0.51. The vid clip runs thru the P/L day by day.
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_tlt3.png Size: 62 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,935
  • Mar 30, 2015 8:51pm Mar 30, 2015 8:51pm
Quoting Rufus
You guys are taking options to a whole new level for me. Going to figure this stuff out.
Howdy neighbor, feel free to ask questions anytime and by all means check out tastytrade and dough.com, there are lots of great vids that will bring you along on those sites, especially on tastytrade. It does take some time to start to get your brain around everything, though - I am still just a beginner myself 2 yrs in....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,936
  • Mar 30, 2015 9:37pm Mar 30, 2015 9:37pm
the TLT diagonal I am in below. I am a little lower than your strikes, but I want by all means to stay off the death slide. Even so, I got in for $0.02 debit. I paid additional margin to widen the spread between the strikes to get the debit down to near $0. Spreading is full of trade-offs like that.

So diagonal spreads have this "value trap" aspect. I could get in for near $0 or even a credit if I want, but I have to pay for that - pay more with margin tied up and also pay more in the ultimate downside risk. In the trade below the max risk below is $0.97 - maxP is $0.31. So, on the upside, I risked $0.02 to make $0.31 - woohoo - but really it is $0.31 to $0.97, a greater than 1:3 risk to reward - not good, so, the main thing to keep in mind with these low-debit/small credit diagonals is: stay off the death slide, give yourself plenty of room. Very dicey...
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_tlt4.png Size: 60 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,937
  • Mar 30, 2015 10:29pm Mar 30, 2015 10:29pm
another way to diagonalize - by lengthening out the time spread, you can leg into trades and set yourself up for subsequent spreads. In the USO spread below, if USO is below $22 by June expiry, I could sell calls against the long Oct calls over another 4 months. Of course, if oil craters and USO goes down further and stays down, it might be hard to make a profit, but I might at least have a chance of breaking even with all that time...
Attached Image (click to enlarge)
Click to Enlarge Name: 2015-03-30_uso.png Size: 60 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7,938
  • Mar 31, 2015 3:04am Mar 31, 2015 3:04am
Quoting Cecil Gee
we have two trading days until the end of month, looking at DOW futures and VIX we may see a large 400 plus point drop in them 2 remaining days so I'm looking at placing a put spread on the DIA
well they took it higher by over 250 points with it possibly coming back down by just as much today and if it does then I'm looking for a 1000 point drop over the coming weeks once we pass 17600 on the DOW
  • #7,939
  • Mar 31, 2015 3:59am Mar 31, 2015 3:59am
Quoting Cecil Gee
{quote} well they took it higher by over 250 points with it possibly coming back down by just as much today and if it does then I'm looking for a 1000 point drop over the coming weeks once we pass 17600 on the DOW
Two analysts, Slim from tastytrade and one guy I know both predict a 14-17% or more correction starting from second half of April... Idk... markets are due for correction, but with these easing all over the world (China yesterday), maybe tough to get. Seems like some old rules do not apply any more... very frustrating. There is a large wedge on US indices, at least on ES and NQ, and 2daily candles were at the line, but we did not got closing below... and yesterday there was a bounce... Slim said the resistance comes if I remember, around 2080 on ES... corresponds with my chart of SPX and 2086... since cash index and futures differ for about 7 points.. already down in pre market I see...

I just wonder would we finally see some more downside, OR just choppiness.
Hope is dangerous in this game.
  • #7,940
  • Mar 31, 2015 4:05am Mar 31, 2015 4:05am
Quoting The Fool
{quote} screen shot below shows your first diagonal, have not traded them that way, but interesting, defined risk moderate to the upside, b/e at $128.20, $0.18 debit to get in, maxP about $0.81 at $124.25, no risk and good return of $0.36 if TLT overshoots to the downside. {image}
Hey TF! Thanks man for your time. Interesting, isn't it... but you are right, maybe that put calendar is a better way to play it. I tried yesterday to fill just one of those diagonals, but no luck. I tried to leg in, but nobody was at midpoint... maybe better luck today.
Hope is dangerous in this game.
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