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Let's Trade Options

  • #10,541
  • Sep 4, 2015 9:57pm Sep 4, 2015 9:57pm
trying to figure out what is going on with these VXX spreads, involving 1,000's of contracts - all went thru at the same time at 07:49:41 this morning
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,542
  • Sep 4, 2015 10:07pm Sep 4, 2015 10:07pm
Hi Sir Fool, could you recommend me which put option to buy? S&P500 Put option, I expect a drop below 1680 by October to November. I am still really bad at calculating which option is a better buy.
  • #10,543
  • Sep 4, 2015 10:17pm Sep 4, 2015 10:17pm
Quoting titanmelvin
Hi Sir Fool, could you recommend me which put option to buy? S&P500 Put option, I expect a drop below 1680 by October to November. I am still really bad at calculating which option is a better buy.
how much money do you want to risk, amigo?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,544
  • Sep 4, 2015 10:20pm Sep 4, 2015 10:20pm
About $1000, is that enough to purchase the minimum contract? I can do $3000 max. I made a very stupid mistake and bought 1675 S&P500(US 500) Dec Put Option, I sold it already. I was looking at around 1875 or 1850 level, but I don't know how to calculate which is the best profit ratio, or less risky with profits.

I bought 24 sept expiry Gold 1030 Put Option @ 1.0. Since the probability of Fed Rate hike is about 20%, is this trade alright?
  • #10,545
  • Sep 4, 2015 10:43pm Sep 4, 2015 10:43pm
ok, let's look at the SnP options (SPY) - there are lots of possibilities. You got $3,000 and you think SPY is going below $168 by the end of October. Below is a Oct/Oct4 diagonal put spread that costs $180+ comms for a 10-contract trade - you buy the Oct4 $165 put and sell the Oct $166 put. The expiry b/e's are at $180 and $159, approximately, and the max profit is at $166.50. MaxP is around $1,600.

Diagonal spreads are tricky to trade, you have to watch out that the underlying does not overshoot your further (lower) b/e. If it does, your losses can be large. On the above trade, the upside losses are just what you pay for the trade - $180 + comms. If you want to risk more, you have enough, with $3k, to double the trade size.

Could you handle this trade? There are many other good possibilities.

To trade options, you don't necessarily have to calculate anything if you have a nice trade analyzer to help you. Most likely your broker has something you can use to assess spreads and all types of trades...?
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,546
  • Edited 11:41pm Sep 4, 2015 11:30pm | Edited 11:41pm
Thanks for your reply Sir Fool. I bought a book on Trading Options, but I have not read up to Diagonal Spreads, so I would rather just do the basic strategy first. My broker is IG. As for the calculator, I am using one from google search but it sucks bad. I am using manual calculation but I have a headache. For example,

TARGET: FALL BELOW 168
US500 1750 PUT, BUY 48.47, Expiry 18 Dec. 1750-1680 = 70 x 100 = $7000 less Premium($4847) = $2153
US500 1825 PUT, BUY 65.60, Expiry 18 Dec. 1825-1680 = 145 x 100 = $14500 less Premium($6560) = $7940
US500 1850 PUT, BUY 72.65, Expiry 18 Dec. 1850-1680 = 170 x 100 = $17000 less Premium($7265) = $9735
US500 1900 PUT, BUY 89.26, Expiry 18 Dec. 1900-1680 = 220 x 100 = $22000 less Premium($8926) = $13074

But if I am using $3000,
I can buy 0.6189 contracts for 1750 put
I can buy 0.4573 contracts for 1825 put
I can buy 0.4129 contracts for 1850 put
I can buy 0.3361 contracts for 1900 put


Generally, it is better to buy Expiry 18 Dec (more expensive) than to buy Expiry 20 Nov (cheaper) right? Dec expiry is about 20% more expensive than Nov expiry, but I get more time.
  • #10,547
  • Sep 5, 2015 12:01am Sep 5, 2015 12:01am
Melvin I don't advocate just doing long puts and calls. I don't think the average trader who only does that will make money in the long run. Trading spreads is more complicated but anyone can master it in time. Trading spreads allows one to better control his risk. He may lose money, but he will probably be able to stay in the game longer. If one can stay in the game long enough, one's chances of becoming a successful trader are compounded. Just like my byline says - "If the Fool persists in his Folly, he will become wise." And richer, let us hope.

Here is a place where you can find a decent options trade analyzer. There are others, I'd bet.

http://www.optionsplay.com/

Below I will show some simpler spread trades for your SPY scenario. I won't comment on your gold trade because I only trade gold very occasionally.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,548
  • Sep 5, 2015 12:17am Sep 5, 2015 12:17am
in the Oct vertical put spread, you buy the Oct $168 put and sell the Oct $167 put for a debit of $0.08, or $8.00 per contract. No margin is required - all you can lose is what you pay for the spreads + comms. For a risk of $8/contract you could make about $90/contract, if SPY moved deep enough. Vertical debit spreads are the simplest spreads - they are directional trades like just going long calls or puts, but they increase one's chance of making a profit. Compare to the straight long put shown under the pic of the vertical spread. The Oct long $168 put will cost you $136/contract. The expiry break-even is at $167.75 (vs $171.80 for the vertical spread) .... for the cost of one of these long puts I can buy 16 of the vertical spreads......

...the only time it makes sense to go long calls/puts is if you think you are in a position to catch a very strong trending move.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,549
  • Edited 1:36am Sep 5, 2015 1:23am | Edited 1:36am
10c for a $2, 9 month diag is a deal. We just need OPEC to swing it. PBR, hmmmm...you'd prolly need all that time if the USD is gonna whoop the world.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,550
  • Sep 5, 2015 1:55am Sep 5, 2015 1:55am
http://jlfmi.tumblr.com/post/1283516...sting-chart-in

cash or trash? (EWZ at a 10yr low.....)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,551
  • Sep 5, 2015 2:28am Sep 5, 2015 2:28am
for a post Sept liftoff breakdown I have my eye on $171 for SPY's lower bound in October. We could be trading around $185 just b4 the Sept FOMC and get a $10-$15 drop within the week after the FOMC. In another week it could dip <$170, but will begin to bounce back from there, especially if the ffr hike is something small, like 10-15 bps, which is a possibility.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,552
  • Sep 6, 2015 2:44pm Sep 6, 2015 2:44pm
$10,000 to $18 million in 18 months....back in the dot com bubble blowing days

http://www.readtheticker.com/Pages/B...trader-2012-12
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,553
  • Sep 7, 2015 4:42pm Sep 7, 2015 4:42pm
Quoting The Fool
{quote} lol...I miss that guy. TT is not the problem. I have thought about hanging out a shingle to do financial advising - no license required for it here - "I'm not selling anything" in red letters on the calling card. Just charge by the hour. But I'd have to bone up on all kinds of taxation details, hurts to think about it....
I briefly considered going for a Chartered Financial Analyst certification or something similar ... . The certifications are onerous ... . You've got state and fed tax issues, trusts, wills, estates, a bevvy of state and federal regulatory bodies who oversee investments, advisors, and traders ... . Liability issues that you'd have to insulate yourself against ... . Almost doesn't seem worth the headache ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,554
  • Sep 7, 2015 5:19pm Sep 7, 2015 5:19pm
Quoting titanmelvin
Thanks for your reply Sir Fool. I bought a book on Trading Options, but I have not read up to Diagonal Spreads, so I would rather just do the basic strategy first. My broker is IG. As for the calculator, I am using one from google search but it sucks bad. I am using manual calculation but I have a headache. For example, TARGET: FALL BELOW 168 US500 1750 PUT, BUY 48.47, Expiry 18 Dec. 1750-1680 = 70 x 100 = $7000 less Premium($4847) = $2153 US500 1825 PUT, BUY 65.60, Expiry 18 Dec. 1825-1680 = 145 x 100 = $14500 less Premium($6560) = $7940 US500...
I'm with TF on this one; I'm not a fan of buying standalone calls or puts. Point in fact, I have never bought a standalone long call or put as a strategy; they've always been part of a setup (a debit spread, a credit spread, etc.). There are various reasons for this, not the least of which is volatility, which affects the current price of the option ... . I can understand the attractiveness of buying calls and puts, since it allows traders to arguably cheaply purchase an interest in a greater number of shares than they could if they bought/sold the underlying outright, but using options as a leveraging tool is simply not the way to go in light of certain characteristics that options have (time decay, premium, theta, etc.).

Also, to be completely honest here, $3,000 max to play with isn't going to allow you to do a heckuvalot week in and week out, especially with pricey underlyings like SPY, unless you go with cheap debit spreads or something similar (TF's got a bunch of good cheap debit spread/calendar/diagonals ideas posted here). That being said, I could see managing $3K with 3-6 index ETF trades a month (a SPY iron condor takes about $250 of buying power per contract), which is probably not what you're looking for, since the max profit potential of those setups is only about $50 and sometimes less (minus commissions/fees, which will eat up between 40 and 50% of that if you're only trading one contract at a time, depending on your broker).
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,555
  • Sep 7, 2015 5:24pm Sep 7, 2015 5:24pm
Quoting The Fool
trying to figure out what is going on with these VXX spreads, involving 1,000's of contracts - all went thru at the same time at 07:49:41 this morning {image}
And what's with the Jan 17 13 Put? Lol.
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,556
  • Sep 7, 2015 5:29pm Sep 7, 2015 5:29pm
Quoting The Fool
$10,000 to $18 million in 18 months....back in the dot com bubble blowing days http://www.readtheticker.com/Pages/B...trader-2012-12
Pre-PDT days ... . Of course, with $18 million, no PDT worries ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #10,557
  • Sep 7, 2015 5:29pm Sep 7, 2015 5:29pm
Quoting ZebraSquirl
I'm with TF on this one; I'm not a fan of buying standalone calls or puts. .
Melvin disappeared when I didn't say what he wanted to hear.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,558
  • Sep 7, 2015 5:32pm Sep 7, 2015 5:32pm
Quoting ZebraSquirl
{quote} Pre-PDT days ... . Of course, with $18 million, no PDT worries ... .
I knew college kids back in those days, smuggling cocaine, using the drug money on tech stocks that tripled in a month, rinse/repeat. Make shitloads and waste it all on more blow and cars and trips and Miami Vice clothes. Where are they now...?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,559
  • Sep 7, 2015 5:35pm Sep 7, 2015 5:35pm
Quoting ZebraSquirl
I briefly considered going for a Chartered Financial Analyst certification or something similar ... . The certifications are onerous ... . You've got state and fed tax issues, trusts, wills, estates, a bevvy of state and federal regulatory bodies who oversee investments, advisors, and traders ... . Liability issues that you'd have to insulate yourself against ... . Almost doesn't seem worth the headache ... .
i know, screw all that. I have thought about hanging out a shingle offering investment advice, just showing people how to trade their own money, doing seminars, etc. Motivation is low....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #10,560
  • Sep 7, 2015 5:41pm Sep 7, 2015 5:41pm
Quoting The Fool
trying to figure out what is going on with these VXX spreads, involving 1,000's of contracts - all went thru at the same time at 07:49:41 this morning {image}
Can you tell if they're debit/credit spreads? I'm assuming that the 9000 Sep 4 28.5 C's are paired with partial fills of the other Sep 4 36 C's ... . That would be a strange-ass spread (a 2.18 debit/2.18 credit, depending).
Fireworks are fun ... as long as you don't blow your fingers off.
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