Let's Trade Options

CHEAP, OK, but idk if Jan 2016 is enough time

$0.30 for a 2017 $2 call vert is not bad - a 10 lot risks $300 to net $1700 within 18 months

for $300 I might buy 20-30 shares - I'd need a $50 move up to make out as well as the vertical does...and the vert only needs $20

if you wanna risk $350-$400, the Jan 16/Jan 17 diagonal is worth a look - risk ~$400 to make $7500?..........(with high IVR a diag a better bet anyway imo)

If SUNE sits down til next year, no prob, start selling calls, hey you got 12 months.....death slide way out to kingdom come, no worries

Small matter of where you can get filled, though....always a rock in the free pie, dammit....

here are Friday's larger SUNE options trades...

Light bulb goes on above TF's head - these 1-yr spread diagonals give you a chance to sell calls/puts on the ER iv ramp up 3-4 times (assuming you stay in after the front short options expire) - do them on both sides and you are getting 3-4 chances for ER-related short IC's - those are just 1-week to 1-day trades, then you have other spread opps too.......hmmmm......time is your friend. If one side gets to the sweet spot and starts to show fat profit, take the money and run.

Me gonna start shopping these intensively. Still getting filled will be a problem, but watch for other volume to come up way out into the 2017's and that will help you get filled at those strikes anyway.

Shop the heavy movers like SUNE and that's where you will find the heavy interest coming in.....

buying diagonals under high IVR is better, look for high IVR in the beat down names & commods - oil patch is rife

as are metals and miners, blood in the street over the curb...sandbag time

using FinViz to surf thru the 52-week low names, watch out for the dogs

fire sale in the miner stocks....fire not out yet...might take years...

ZNGA? GRPN? meh...

http://finance.yahoo.com/video/4-sto...162700738.html

wtf is going on in Brazil?.......30c for a 1yr calendar? OK.

I used to have trades on in EWZ & PBR all the time, not so lately since I became a SPY spreader

spread em wide

what'll happen to junk when the rate rises start stacking up? JNK not been above $40 since 11/14.

some think junk is in for a big dunk. JNK spent about 6 mo under $35, back in the Lehman crisisis, but that's all, out of ~8 years...

Yes, but...

The higher the price, the larger the Vega. This means that as you go farther out in time (imagine LEAPS options), the Vega values can get very large and pose significant risk or reward should volatility make a change. For example, if you buy a LEAPS call option on a stock that was making a market bottom and the desired price rebound takes place, the volatility levels will typically decline sharply (see Figure 11 for this relationship on S&P 500 stock index, which reflects the same for many big cap stocks), and with it the option premium.

Read more: http://www.investopedia.com/universi...#ixzz3iKaG3psC

I encountered this a while back on a TWTR trade: TWTR had dropped quite a bit and I thought it would probably go up. To play that I thought I was very clever by buying OTM LEAPS (calls) and shorting near-term OTM (calls). I forget the strikes but suffice it to say TWTR went up quite a bit in a short period of time - so in effect I was right - but my LEAPS got killed by the collapse in IV and to make things worse the short-term OTM went up like a rocket. So I got hit on both ends of the trade even though I was right on the underlying. Another battle scar to add to the thousands of others.

Yep, good point. The P/L models above will change over time (as they always do) and, in cases where I am buying at supposed bottoms, at elevated iv's, the iv's will of course come down, if the u/l rebounds. But, as I suggest, the iv's will also spike several more times thru the long life of the long leg (at the earnings iv upticks) and you will have many chances to sell short-term calls to make profits. I don't know if you have done much with diagonal spreads, but I have - just not on the long frame that I point to above.

One trick with diagonals is to try to set your front short strike far enough out that it does not get touched, but not so far out that the spread does not profit. Easier said than done. In the long frame method shown above, another pitfall is that you might set the long leg strike out too far, where it gets m/l stranded, and you may have a hard time making much against it in the future cyclical spreads.

You can take a similar approach to the put side, buying long frame calendars, top-picking on IVR bottoms. Generally, the time spreads work better on rising iv.

On shorter timeframe diagonals, I will usually try to put them on for a credit, since about half the time that might be all the profit they get. I double them, too, putting spreads either side of the expected move of the u/l. That's not a panacea, either, it just raises the odds and the initial credit. The credits are small, usually, so you can't get out early and collect much as a percentage, & need to hold til expiry, which means tying up a lot of margin to make not much.

so, yeah, diagonals are tricky, maybe sucky....the long frame method above with long legs out at the last available expiry is a way I thought I might make them more worthwhile. I will try some & see....

Yes, that sounds reasonable. It's an eternal quandary how to make money using calls or call spreads when you think the underlying is near a bottom, because the IV is so high. It'll be good to see how you get on, what you learn from the strategy.

Thinking about it, maybe the thing to do if you think an underlying is at a significant bottom, AND IV is high, is to simply buy the underlying and hedge with short LEAPS calls - ATM, OTM or ITM according to preference. If you wanted to get real aggressive you could probably sell LEAPS puts as well, and you could probably buy near-term ATM puts to offset against them e.g. if you were nervous that you were maybe a bit early. This is a strategy for good longer term gains, more for investors than traders. Most of us are trying to make money more quickly but if you have the patience to make 20%+ per year doing very little but searching for underlyings that are beaten up, buying them and selling LEAPS against them and then just sitting back then this is probably a reasonable strategy.

Btw, sorry, what does m/l mean?

You can do this with weeklies...buy say 3 months out, sell weeklies against them and pray you get months of rangebound. If it works out it's an absolute monster of a trade. Anybody who did this on SPYs etc. over the six months or more has done very very well.

sorry, m/l = "more or less". I have a bad habit of using shorthand without identifying it. Anyway, I appreciate your critique.