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Let's Trade Options

  • #12,981
  • May 17, 2016 7:19pm May 17, 2016 7:19pm
Quoting NorthTrader
{quote} Yeah, thinking about some puts here too. I'm pretty long on the stock market already though with ETFs so it would just be greedy really. But in the name of practice... why the heck not Is there any reason you're choosing Jun24 instead of Jun17? Volatility could be huge going into Brexit so I wanted to avoid that on the short side if possible. Maybe I needn't worry about it? Rolling options is a whole new thing for me. Still go a lot of homework to do on those sites you mentioned TTFN
If you're long in actual ETF shares, you may want to consider covered calls to reduce your cost basis in those shares ... . Although those are best done in 100 share increments, since each short call represents the equivalent of 100 shares ... . Naturally, if you've got an oddball number of shares (123 SPY shares, for example), you can still partially covered call the position with a single short call ... . I have one IRA portfolio that is all SPY shares that I've been selling short calls against for literally years, so I've experienced both the bull market appreciation in the shares plus the cost basis reduction in the shares that selling short calls against gives me ... . Before doing any of this 45 DTE stuff, that is the only thing I really knew how to do effectively with options -- covered calls ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #12,982
  • May 17, 2016 7:35pm May 17, 2016 7:35pm
Quoting ZebraSquirl
{quote} If you're long in actual ETF shares, you may want to consider covered calls to reduce your cost basis in those shares ...
Thanks Zeebs, I'll look into that. Actually all my stock index ETFs are long-term and hedged with gold and bond ETFs. I don't lose any sleep on them but always rebalance once or twice a year.
You reap what you sow.
  • #12,983
  • May 17, 2016 8:20pm May 17, 2016 8:20pm
WHEN I 1st started, I'd try to catch big moves at earnings with long strangles.....like this on CSCO....it will put on a 4$ move sometimes - here I have b/e's a little less than $2 out either way....a move to $23 would net out 6-7 bag. Anyway, I don't trade this way anymore....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,984
  • Edited 10:10pm May 17, 2016 8:40pm | Edited 10:10pm
Quoting NorthTrader
Is there any reason you're choosing Jun24 instead of Jun17? Volatility could be huge going into Brexit so I wanted to avoid that on the short side if possible. Maybe I needn't worry about it? Rolling options is a whole new thing for me. Still go a lot of homework to do on those sites you mentioned TTFN
North, there are a couple scenarios I am speculating on with that Jun 24/ Jul 1 put calendar:

1) We get a little buildup in iv in the 6/24 VXX options and the underlying sits near $17 on Brexit day - 6/23 - I may be able to profit b4 the short puts expire, as shown below
2) What I really want, though - I think VXX will be trading well north of $17 on Brexit day, so I will see the short puts expire and I will have the following week to watch VXX come back down as the markets rally on the Brexit flop
3) Crikey, VXX may be trading way north of $17 by June 24, but I might take advantage of high iv and roll the short put up a few bucks for the following week, try to make something that way if it seems safe (doable if Brexit wins and markets fall)

....anyway, that's the rough game plan, it's good to have your scenarios mapped out somewhat and future moves planned....my ideal scenario is No. 2: VXX is trading low $20's on Brexit day, the vote fails, markets start to rally, VXX falls to $19 and the short 6/24 $17 put expires worthless; in the following week, markets keep coming up, VXX falls to $15.xx, and I make >$100 net per contract....I am filling these higher, too - up to $22-23
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,985
  • May 17, 2016 10:12pm May 17, 2016 10:12pm
Ah, thanks Fool, I see what you're doing now. VXX up then down. Sounds reasonable for a "stay" vote. And for a "leave" vote... VXX up and UP!

By the way, if your short option is ITM close to expiration, do you usually buy it back? Or do you ever let it get assigned? I hope that's not a stupid question! And what about if it's roughly ATM? Is this a case by case thing or is it always best to liquidate your options before they expire?

If you get bored with my silly questions then just ignore them... I won't be offended.
You reap what you sow.
  • #12,986
  • May 17, 2016 10:33pm May 17, 2016 10:33pm
if VXX is near $17 going into the 1-2 days b4 expiry, I will be looking to close the calndr with healthy profit. Check out the p/l diagram for the trade above - VXX short $17 Jun 24 put itm is not a problem - the b/e's are at $14 and $20.50, roughly...

for me, there are really only two options: I can close the trade, i.e., buy back the Jun 24 put and sell the Jul 1 put; or, if the Jun 24 put is otm. I can let it expire worthless and take my chances with the Jul 1 long put.

...the following week, I can let the long put ride alone or I can sell another put against it, making either a bullish or bearish put vertical.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,987
  • May 17, 2016 10:39pm May 17, 2016 10:39pm
I'm with you - close the spread or let the short expire worthless. That makes sense. I suppose letting it expire is always a "no no". Thanks!
You reap what you sow.
  • #12,988
  • May 17, 2016 10:42pm May 17, 2016 10:42pm
...the trick in the trade above is to try to set the short put at a strike that will be otm at the Jun 24 expiry, but close enough to go way itm if there is a big vol collapse in the following week. That is why I am setting up multiple put calendars - setting my bet at various levels....

...All you're going to lose on a calendar is the initial debit - it's a defined risk trade.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,989
  • May 17, 2016 10:44pm May 17, 2016 10:44pm
However, I suppose there might be cases where you think your short is going to expire worthless (worthless to the buyer, that is), but right at the end it suddenly recovers and it expires ITM. In that case you'll be unexpectedly assigned, won't you? Has that ever happened to you?
You reap what you sow.
  • #12,990
  • May 17, 2016 10:51pm May 17, 2016 10:51pm
Quoting NorthTrader
However, I suppose there might be cases where you think your short is going to expire worthless (worthless to the buyer, that is), but right at the end it suddenly recovers and it expires ITM. In that case you'll be unexpectedly assigned, won't you? Has that ever happened to you?
check the P/L diagram for the VXX calendar just above. If you are so close to itm (in or out, you must be near $17) then you are near the maxP of the spread. So, congratulations. The maxP for a calendar can be huge if you are in a wide (wide in time) spread - sometimes like 10x......so, you don't really have a problem, you have the desired outcome for the spread: close it, bank the profit, and go on to the next trade...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,991
  • May 17, 2016 10:53pm May 17, 2016 10:53pm
I need to make a little video for you
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,992
  • May 17, 2016 10:57pm May 17, 2016 10:57pm
http://screencast.com/t/UFZHsJfs

click on the screencast....I just run thru the P/L from today til the Jun24 expiry.....you will see that the maxP for the calendar only comes about in the few days before expiry. These are trades that you have to stick with til near the end. The narrower (in time) the spread, the more true this is
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,993
  • May 17, 2016 11:01pm May 17, 2016 11:01pm
Quoting The Fool
{quote} check the P/L diagram for the VXX calendar just above. If you are so close to itm (in or out, you must be near $17) then you are near the maxP of the spread. So, congratulations. The maxP for a calendar can be huge if you are in a wide (wide in time) spread - sometimes like 10x......so, you don't really have a problem, you have the desired outcome for the spread: close it, bank the profit, and go on to the next trade...
Oh yeah, I see thanks. Just close the thing for max profit. I was thinking of a really wild sudden swing from OTM to ITM after the vote but the results will be in by the time the session opens on the 24th, so probably not going to happen.

Also, closing the spread means you've lost the chance to make a fortune on the long put if volatility collapses the following week. But that's one reason why you're spreading your bets over several strike prices I guess
You reap what you sow.
  • #12,994
  • May 17, 2016 11:05pm May 17, 2016 11:05pm
Quoting The Fool
I need to make a little video for you
Bloody hell, you really did make a video! Yes, that was crystal clear. It all happens in the last few days! Thank you so much, you're a star
You reap what you sow.
  • #12,995
  • May 17, 2016 11:07pm May 17, 2016 11:07pm
Quoting NorthTrader
Also, closing the spread means you've lost the chance to make a fortune on the long put if volatility collapses the following week. But that's one reason why you're spreading your bets over several strike prices I guess
Exactly. I don't need to be a hero on every trade. If some of those trades are in decent profit, 2x net or even 3x, ain't nothing wrong with that. Maybe some of the others will get a big run in the following week, maybe not. I am just trying to give myself a nice big range of good possible outcomes....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,996
  • Edited May 18, 2016 10:53am May 17, 2016 11:11pm | Edited May 18, 2016 10:53am
Quoting NorthTrader
{quote} Bloody hell, you really did make a video! Yes, that was crystal clear. It all happens in the last few days! Thank you so much, you're a star
lol. you're welcome. Calendars are cool. they're defined risk, they can give back a nice profit or help you set yourself up for something down the line, etc. One general rule of thumb for them: look to buy calendars when the iv is low, i.e., when the options are cheap, and look to benefit from a situation where the iv will be rising into the expiry date of your spread. This is a tailor-made scenario for an earnings release, I will show an example sometime....


... you will learn that trading otions really is all about understanding how the implied volatility is moving in the underlying instrument, cycling thru time....if you can focus on that concept from the getgo you will be on the road to making profitable trades consistently.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #12,997
  • May 17, 2016 11:18pm May 17, 2016 11:18pm
Thanks! Gotta work now. Catch you later...
You reap what you sow.
  • #12,998
  • May 18, 2016 6:49am May 18, 2016 6:49am
Quoting The Fool
NorthT I did the Jun 24/Jul 1 $17 puts calendar for 14c
Everything you said earlier made a lot of sense, so I've just done some too for 17c. Don't like to piggy-back, but I couldn't stop myself. So now I'm covered both directions for minimum risk. Let's see what happens! Thanks again for being so helpful and patient.
You reap what you sow.
  • #12,999
  • May 18, 2016 7:23am May 18, 2016 7:23am
FILLING UVXY Jul 01 $15.5/$16 bull calls for 13c......risk 15c to net $0.30 - $0.35....if UVXY won't even gimme that well I'm screwed...filled a block @ 12c, too.....had it loaded for 10c to start....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,000
  • May 18, 2016 9:57pm May 18, 2016 9:57pm
...excruciating watching the do-nothing market do nothing.....even a hawkish Fed show today resulted in a dead flat spoos.....the P/L shown is for just the Jun 17 UVXY bull call verts I have .... similar across several accounts, I have been rolling calls down but I am still roughly $30/$45....just looks like a huge mountain to climb at this point....a gentle slide in the spoos will not give me what I need - no, I need the market to sell off with conviction.....an endless line of weekly red dojis will not lift UVXY, which has to fight an uphill battle every day anyway....so I must fight the temptation to roll down the short legs to lock in some profit. That would suck, since it wouldn't be that much and since I'd be killing the chance of catching big returns on that June swoon vol spike, but might be better to do some of it now while there's lots of time left....it'll be sad to watch all these things expire worthless.....
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"If The Fool persists in his Folly he will become wise." - William Blake
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