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Let's Trade Options

  • #13,021
  • May 19, 2016 8:52pm May 19, 2016 8:52pm
If I am going to tie up some margin, I like this Jul VXX broke wing fly - not sure if I can fill it for $1.55 credit, but that's > 50c on the spread $1, pretty hard to beat that. This trade is saying I don't think VXX will be any lower in mid-July than it is right now.

...the max loss down below VXX $15 is roughly the same as the credit shown, or about $1.50. Now I must explore ways to protect against that risk
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,022
  • May 19, 2016 9:02pm May 19, 2016 9:02pm
I can add a put calendar to protect the max loss risk of the brk wing fly: a Jul1/Jul $15 put calendar fixes things a bit, as shown below....

...at expiry, the calendar is not a calendar any more (IF the short $15 put expired worthless on July 1) - you are just left with the original fly and long Jul $15 puts....the max loss is cut from $1.50 down to about $0.55
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,023
  • May 19, 2016 9:05pm May 19, 2016 9:05pm
actually, expiry is the worst case, and if you look to exit the trade about a week before expiry, it appears to be risk-free....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,024
  • May 19, 2016 9:15pm May 19, 2016 9:15pm
Quoting The Fool
if you look to exit the trade about a week before expiry, it appears to be risk-free....
assignment risk on the itm fly puts?....only as you approach expiry, another incentive to close before then. If we do see a ^vix pop and VXX goes up, then you can cheaply roll up the far otm puts for a little peace of mind...if VXX would move far enough you might get them up to $17 and still retain a healthy part of your initial credit - that'd be another way to work your way into a risk free trade...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,025
  • May 19, 2016 9:52pm May 19, 2016 9:52pm
Quoting The Fool
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.... ..
OK, NorthT, here's an example - I have made money on this trade every time I put it on, so far as I can recall. I want to put on some calendars to catch the next cyclical uptick in iv on AAPL options....from the chart I see that options iv's are low now (check)....and from Yahoo Business Earnings calendar utility I can look for next AAPL ER and see it is scheduled for 7/19. That can change, but usually it won't...
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,026
  • May 19, 2016 9:58pm May 19, 2016 9:58pm
Quoting ZebraSquirl
{quote} A total side note on trade sizing ... . I don't generally post the number of contracts I'm actually using here (you'll notice it's always a 1 contract setup, pretty much no matter what; in reality, it's a totally different number of contracts, since I'm not comfortable with sharing the size of my trading account here). In any event, as with all things, the size of your trades is important. As a handy rule of thumb, I try to keep the max loss of these defined risk setups (speaking primarily of iron condors and credit spreads here) to nor...
Nice post ZS. I too tend to limit by max loss to about 2% per trade. Not that I've always done that... but I learned the hard way that this is the best way to keep your account together. Defining your risk right at the start is one thing that all the successful pros have in common I think. Trading pre-defined risk options is a great way to do this, of course. Writing straddles is the opposite of this, so I won't be doing that until I have a very clear understanding of the exit strategies, and lots of practice at a micro level.

I wouldn't expect anyone to reveal their account sizes here on FF, though I am curious as to who the consistently successful traders are. I personally have a few good winning streaks, interspersed with many break-even periods. It's better than consistently losing I suppose, but I'm still not happy with my level of consistency after all these years, and am constantly trying to improve it. Not staying in winning trades long enough is one recurring problem of mine.

Would you say that you are consistently winning with your option trading, Zeebs? I get the impression that TF is!
You reap what you sow.
  • #13,027
  • May 19, 2016 10:00pm May 19, 2016 10:00pm
Quoting The Fool
that'd be another way to work your way into a risk free trade...
What a beautiful concept
You reap what you sow.
  • #13,028
  • May 19, 2016 10:05pm May 19, 2016 10:05pm
Quoting NorthTrader
I wouldn't expect anyone to reveal their account sizes here are FF, though I am curious as to who the consistently successful traders are.
I am just trading 5-figure accounts, definitely small potatoes. I also do some real estate investing and that takes alot of dry powder, although now is not the bext time to be doing that. If the markets would start moving again, I could see trading larger. It's hard to make money trading option, or anything else for that matter, when the markets are not moving and when the premium is dried up, but things can change quickly, so I am trying to stay in the game. Since I started trading defined-risk only, I can say I am happy with my results. My losing streaks are a little less than break-even, and when I get in-sync (and lucky) my returns are good.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,029
  • May 19, 2016 10:09pm May 19, 2016 10:09pm
Quoting The Fool
{quote}OK, NorthT, here's an example...
You are giving me too much Fool-san. Stop it!!!
You reap what you sow.
  • #13,030
  • May 19, 2016 10:14pm May 19, 2016 10:14pm
Quoting NorthTrader
What a beautiful concept
I know, right? Just to finish thought on AAPL calendars above........I really only have the July/Aug setup to look at. As luck would have it (and it just so happens it always works out like this for AAPL, which is why I always do this trade on AAPL) - the AAPL ER is in the week following Jul opex.....so that means a Jul/Aug calendar is perfectly positioned to catch the iv rush before the AAPL ER.

If you look at the AAPL chart, you will see options iv now around 25%....well, that will rise into the ER - they might go to 35, 45, or >50%......the two P/L's shown below show a Jul/Aug $105 call calendar at expiry with iv's set at where they are now - around 23%, and then jacked by an additional 20%....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,031
  • May 19, 2016 10:15pm May 19, 2016 10:15pm
Quoting The Fool
{quote}I am just trading 5-figure accounts, definitely small potatoes. I also do some real estate investing and that takes alot of dry powder...
We are very alike. I'm also trading 5 figures, and also invest in real estate. Most of my spare cash is invested in balanced portfolios of stocks, bonds, gold and cash. I use the cash as margin for trading. So far it's working out well, but if interest rates ever rise to decent levels again I might be tempted to put some of the cash back in the bank, or use it to pay off any outstanding mortgages.
You reap what you sow.
  • #13,032
  • May 19, 2016 10:19pm May 19, 2016 10:19pm
I'll have to study that AAPL trade later. Work beckons unfortunately. Thanks for everything and catch you later.
You reap what you sow.
  • #13,033
  • Edited 10:53pm May 19, 2016 10:23pm | Edited 10:53pm
it's almost hard not to make money on an AAPL double-calendar if one sets it up at the right time (now is good)....the other part of the DC spread is a Jul/Aug put calendar....but you could also do two call calendars, put them maybe $15 apart.....you will get the chance (most likely) to close one of them in good profit on Jul expiry day (beautiful) and you can save the other or some or all or whatever to let the short legs expire worthless, if that is what presents itself, and then you will be positioned to catch a big move with long Aug options.....you can look thru the names that have ER's in the week following July (or any other) opex (monthly especially) and find similar setups....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,034
  • May 19, 2016 10:44pm May 19, 2016 10:44pm
...here's a first cut at an AAPL Jul/Aug DC, and I am modeling at 15% iv rise at expiry.....debits about $1.30 to put on and you could net out around 65c to almost $3.00 if AAPL is between $76 and $122 on July expiry day
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,035
  • May 19, 2016 10:50pm May 19, 2016 10:50pm
a practical note - the b/e's are pushed out early in the life of a calendar and draw in tightest near the end....and if you are in the last week or 10 days and you see that the u/l price is settling around the DC midpoint, it could be a good time to close the whole thing (all or part) as the mid-point deep dip only happens in the last week...(...kitty!)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,036
  • May 19, 2016 11:23pm May 19, 2016 11:23pm
Quoting NorthTrader
{quote} Nice post ZS. I too tend to limit by max loss to about 2% per trade. Not that I've always done that... but I learned the hard way that this is the best way to keep your account together. Defining your risk right at the start is one thing that all the successful pros have in common I think. Trading pre-defined risk options is a great way to do this, of course. Writing straddles is the opposite of this, so I won't be doing that until I have a very clear understanding of the exit strategies, and lots of practice at a micro level. I wouldn't...
I tend to be extremely mechanical and cycle into and out of certain types of trades at particular times -- (a) VIX >15, cycle into 45 DTE premium selling trades in the broad market ETF's -- SPY, QQQ, IWM, and DIA; (b) VIX <15, cycle into >90 DTE SPY/QQQ/IWM/DIA (if I can't find premium to sell in other, individual instruments) and long VIX products if VIX presents an extreme to play with. I have certain monthly goals and a particular amount of theta I ideally like to have on at all times, but I don't force anything to get to a particular goal or a particular theta value if the cards just aren't there to play. Over time, I've just gotten pickier and pickier with premium selling setups, since it ticks me off to no end to take a trade that wasn't ideal only to have something juicier pop up a week or two later. Naturally, I do a ton of hand sitting where all I do is hop on to see how stuff is going, which was quite an abrupt change over primarily trading spot forex. All this stuff has led to more consistent results than I've frankly had with any other style of trading I've done, probably because the Black Scholes model which forms the basis for a lot of these set ups is statistical and probabilistic and lends itself to setups that you can do the exact same way every time ... .

* * *

I guess the point I was trying to make with the 1 contract setups is that may or not be "right" for whoever might be reading this thread. One can naturally only do "1 lots", but you should really be scaling up the number of contracts to make it worthwhile for your risk tolerance, while not exceeding sensible single trade risk ... . Some of the trades TF is doing, for example, are put on quite cheaply, so it only makes sense to increase the number of contracts such that the payout is something to look forward to. A five-bagger payout for a 1 lot debit spread that you put on for .10 ain't gonna buy you an ice cream ... . Well, you get the idea.
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,037
  • May 19, 2016 11:26pm May 19, 2016 11:26pm
Quoting The Fool
...here's a first cut at an AAPL Jul/Aug DC, and I am modeling at 15% iv rise at expiry.....debits about $1.30 to put on and you could net out around 65c to almost $3.00 if AAPL is between $76 and $122 on July expiry day {image}
The "Kitty" lives! I'll have to look at putting one of these on ... . I got distracted last pre-earnings season to gander at these (I don't know if we had a broad VIX pop then or what) ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,038
  • May 19, 2016 11:30pm May 19, 2016 11:30pm
Quoting ZebraSquirl
{quote} The "Kitty" lives! I'll have to look at putting one of these on ... . I got distracted last pre-earnings season to gander at these (I don't know if we had a broad VIX pop then or what) ... .
I thinks AAPL has been beat down quite enough, but we have to run the Jun FOMC/Brexit gantlet - that could throw a wrench into a lot of long-setup gears....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,039
  • May 19, 2016 11:48pm May 19, 2016 11:48pm
yes, I want to see equities drop like a lead turd, but they can wait til next week, that'll be ok....I am glad to see oil rallying - maybe it'll look for $50 tomorrow? I have May/Jun USO $12 call calendars, a nice stack, that I put on months ago for 7c....it looks like (milagros!) USO could pin $12 tomorrow, expiry day, and those could net back 40c+.....I will have to let some run into June, but most will go to cash....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,040
  • Edited 1:02am May 20, 2016 12:44am | Edited 1:02am
Quoting ZebraSquirl
The "Kitty" lives! ... .
Praise God.

I am loading variations of the trades shown on this page, page no. 652, a better page than many.....thanks Zeebs and NorthT for tuning in.....

....AAPL $80/$105 DC, safe from near $70 til near $120, holy cow a $50 profit zone.....get sum....
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"If The Fool persists in his Folly he will become wise." - William Blake
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