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Let's Trade Options

  • #13,121
  • May 26, 2016 9:45pm May 26, 2016 9:45pm
Quoting The Fool
I can't recall going thru this: so, if I have 10 UVXY calls at $20 and UVXY hits $10 and they do a 1:5 reverse split, UVXY share price will bump to $50.....and does that mean I will have what....2x $100 calls...?!?
http://sixfigureinvesting.com/2014/0...reverse-split/

no, they cut the number of options by 1/5 - assuming it is a 1:5 R/S....but keep the strikes the same on those remaining options.

So, if I have 10x $20 calls and they R/S when UVXY hits $10, the shares will go to $50 and I will have 2 x $20 calls that are itm $30?!?

No, I don't think that is right either, they must have to adjust the strike value so that the pre-split value of the options is the same as the post-split value.....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,122
  • May 26, 2016 10:04pm May 26, 2016 10:04pm
Quoting ZebraSquirl
{quote} That would kind of be a legit setup -- a short strangled covered call, but normally you'd have the short put below your cost basis in the stock (to protect the downside) at something like the 75-85% probability OTM strike, then your shares of stock and then 2 short calls above your shares' cost basis at the 75-85% OTM short call strike. The single short put and one short call are the short strangle; the other short call to cover the shares ... . Ordinarily, you want to get something "decent" for those shorties, though -- a tough thing to...
Thanks for this, but just to be clear... I didn't sell the put, I bought it! This is to protect my profits in the ETF trade should oil turn south after OPEC.

Quoting The Fool
{quote}can you amplify? not sure what you are referring to....
For example: http://www.theoptionsguide.com/conversion.aspx

Quoting The Fool
....if you want to trade oil, /CL is where it's at
True, but I didn't want to risk trading a leveraged and volatile instrument that I wasn't experienced with.
There's also QM, the e-mini version. Not brilliant liquidity but not bad either.

Quoting The Fool
{quote}aha, I was wondering how come your English is so good....
Yeah, us Brits get everywhere. There are quite a few Yanks round here too. I'm even friends with some of them!
You reap what you sow.
  • #13,123
  • May 26, 2016 10:40pm May 26, 2016 10:40pm
Quoting NorthTrader
There are quite a few Yanks round here too. I'm even friends with some of them!
lol. I've a brother spent a couple decades living in Tokyo, I never got to visit....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,124
  • May 26, 2016 10:55pm May 26, 2016 10:55pm
Quoting The Fool
hey must have to adjust the strike value so that the pre-split value of the options is the same as the post-split value.....
get out before the split
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,125
  • May 26, 2016 10:55pm May 26, 2016 10:55pm
Quoting The Fool
{quote} http://sixfigureinvesting.com/2014/0...reverse-split/ no, they cut the number of options by 1/5 - assuming it is a 1:5 R/S....but keep the strikes the same on those remaining options. So, if I have 10x $20 calls and they R/S when UVXY hits $10, the shares will go to $50 and I will have 2 x $20 calls that are itm $30?!? No, I don't think that is right either, they must have to adjust the strike value so that the pre-split value of the options is the same as the post-split value.....
Here's the nutshell:

No change in strike price or number of contracts; notional value of each contract changes to 20 shares (assuming 1:5 r/s). http://www.optionseducation.org/tool...kruptcies.html

However, the "adjusted options contract" would trade at 1/5th of UVXY's split-adjusted price. Currently, your $20 calls are trading relative to a $10 underlying. On split, your $20 calls would be trading relative to a $50 underlying x .20 = $10 (since each "adjusted" UVXY contract would have a value of 1/5th of UVXY's split adjusted price ... ). Funky workaround.

The best explanation I could find as to why the OCC does things this way is to avoid the creation of "fractional contracts" which would occur for investors who did not hold the number of contracts that were multiples of the split or create situations in which an investor was holding an OTM option that was moved ITM merely because of the split ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,126
  • May 26, 2016 10:57pm May 26, 2016 10:57pm
Quoting NorthTrader
{quote} Thanks for this, but just to be clear... I didn't sell the put, I bought it! This is to protect my profits in the ETF trade should oil turn south after OPEC. {quote} For example: http://www.theoptionsguide.com/conversion.aspx {quote} True, but I didn't want to risk trading a leveraged and volatile instrument that I wasn't experienced with. There's also QM, the e-mini version. Not brilliant liquidity but not bad either. {quote} Yeah, us Brits get everywhere. There are quite a few Yanks round here too. I'm even friends with some...
Ohhh. Gotchya on the long put ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,127
  • May 26, 2016 11:07pm May 26, 2016 11:07pm
Quoting NorthTrader
{quote} Thanks for this, but just to be clear... I didn't sell the put, I bought it! This is to protect my profits in the ETF trade should oil turn south after OPEC. {quote} For example: http://www.theoptionsguide.com/conversion.aspx {quote} True, but I didn't want to risk trading a leveraged and volatile instrument that I wasn't experienced with. There's also QM, the e-mini version. Not brilliant liquidity but not bad either. {quote} Yeah, us Brits get everywhere. There are quite a few Yanks round here too. I'm even friends with some...
That conversion's kind of neat, but you're fronting $9k to make a hundred, and that's assuming that you'll find a $1.00 ATM put/call skew in something ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,128
  • May 26, 2016 11:14pm May 26, 2016 11:14pm
Quoting ZebraSquirl
{quote} That conversion's kind of neat, but you're fronting $9k to make a hundred, and that's assuming that you'll find a $1.00 ATM put/call skew in something ... .
For example, you have to go all the way out to the Sept quarterlies to find >1.00 skew in the SPY 209 synthetic long .... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,129
  • May 26, 2016 11:32pm May 26, 2016 11:32pm
Quoting ZebraSquirl
{quote} Here's the nutshell: No change in strike price or number of contracts; notional value of each contract changes to 20 shares (assuming 1:5 r/s). http://www.optionseducation.org/tool...kruptcies.html However, the "adjusted options contract" would trade at 1/5th of UVXY's split-adjusted price. Currently, your $20 calls are trading relative to a $10 underlying. On split, your $20 calls would be trading relative to a $50 underlying x .20 = $10 (since each "adjusted" UVXY contract would have a value of...
still confused...can those 20 share contracts even trade?....I think I have seen them sometimes in the chains, grouped separately...

....so, they do adjust the price by 0.20? So, I have 10x $20 calls (worth 25c today - thats $250) and the rev split hits 1:5 when UVXY is $10, then UVXY shares go to $50, then I still have 10 of the 20-share contracts...but the strikes in that group's chains would reflect the new underlying price X 0.20? So, r/s to $50, then big vol pop, UVXY goes to $100, and then my $20 calls would be at the money...?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,130
  • May 26, 2016 11:37pm May 26, 2016 11:37pm
I think I get iit....in a nutshell, I'll be screwed.
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,131
  • May 27, 2016 5:06am May 27, 2016 5:06am
Quoting ZebraSquirl
{quote} For example, you have to go all the way out to the Sept quarterlies to find >1.00 skew in the SPY 209 synthetic long .... .
That's an annual rate of return of about 1.4%. Not exactly a get-rich-quick method, is it?
I'm sure that better opportunities present themselves from time to time but, like you said, the algos probably catch a lot of them. Oh well...
You reap what you sow.
  • #13,132
  • May 27, 2016 1:50pm May 27, 2016 1:50pm
well, so much for "sell in May"....a solid volatility rout the last two weeks, ....I doubt it will let up, either, likely see equities rally to June opex.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,133
  • May 27, 2016 2:37pm May 27, 2016 2:37pm
Quoting The Fool
well, so much for "sell in May"....a solid volatility rout the last two weeks, ....I doubt it will let up, either, likely see equities rally to June opex.
8 Consecutive red day candles for UVXY, might be a record. Yep, I really know how to pick em.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,134
  • May 27, 2016 2:51pm May 27, 2016 2:51pm
Quoting The Fool
8 Consecutive red day candles for UVXY, might be a record. Yep, I really know how to pick em.
surely we see UVXY sub-$10 next week, ...they prolly wait til it is ~$7 or so, then do a 1:10, that'll buy a few months....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,135
  • May 27, 2016 2:52pm May 27, 2016 2:52pm
Quoting The Fool
surely we see UVXY sub-$10 next week, ...they prolly wait til it is ~$7 or so, then do a 1:10, that'll buy a few months....
gonna be wood-chipper time, I just need somebody to push the last of me through, I can handle most of it....
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,136
  • May 27, 2016 4:19pm May 27, 2016 4:19pm
Quoting ZebraSquirl
A short-term engagement trade while I work on "crap heaps": SPX June 15th 2000/2010/2120/2130 iron condor Metrics: Probability of Profit: 63% P50: 68% Max Profit: $310/contract Max Loss/Buying Power Effect: $690/contract Theta: 10.61/contract Delta: -2.98/contract Notes: I generally don't like to put on a premium selling setup in a low volatility environment, but I'm collecting nearly 1/3rd the width of the wings here in credit and the theta (10.61) rates as "drop dead gorgeous sexy." Moreover, the "lay" of the strikes here is good from a charting...
Rolled up the short side to balance delta a touch for an additional $50/contract credit. Gonna still shoot for 50% max of the original setup or about $150/contract ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,137
  • May 27, 2016 4:31pm May 27, 2016 4:31pm
Flattening a bit in advance of the long weekend:

Bought to cover XME June 24th 19/23.5 short strangle for about 43% max profit.
Bought to cover GPS July 1st 17.5 short straddle for about $25/contract profit.

Some house keeping:

Rolled SPY July 1st 206/210 long put vertical to July 8th 199/202 short put vertical for a $185/contract credit, which I matched up with a SPY July 8th 214/217 short call vert, completing a July 8th 199/202/214/217 iron condor. I originally put on the long put vert for $189/contract debit and thought better of it ... .

Bought to cover SPY June 10th 199/202 for a $10 debit (which I consider "near worthless"), leaving me with the call side to deal with next week, which I'll probably roll up, since the short call is at 209 ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,138
  • May 27, 2016 4:36pm May 27, 2016 4:36pm
Quoting The Fool
well, so much for "sell in May"....a solid volatility rout the last two weeks, ....I doubt it will let up, either, likely see equities rally to June opex.
No two ways about it: the long vol trade is blowing extremely hard here ... . I'd naturally like to free up the buying power those poor man's covered calls are tying up, but the market refuses to cooperate ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,139
  • May 27, 2016 5:17pm May 27, 2016 5:17pm
Think I'm down to 18 setups here and haven't been 100% "flat" since about this time last year ... . Unlike trading spot or scalping /ES, most options setups take time to work out, and it's difficult to just shut the whole kit and kaboodle down unless everything is somehow magically "in profit" at some point ... . Your only option is to basically quit putting new trades on, let the ones you've got on work through the cycle, etc. Inevitably, when you start to try to do that as a premium seller, there is a pop in volatility in one instrument or another, and you're pulled back into a trade or two or three, and going "flat" becomes just as elusive as before ... .
Fireworks are fun ... as long as you don't blow your fingers off.
  • #13,140
  • May 27, 2016 6:38pm May 27, 2016 6:38pm
Jul/Aug AAPL DC - $85/$115 - for 90c, I show modeled with a 15% iv rise into the week b4 expiry - wide profit zone, should be able to net out a min $1.00. sweet spot finish on one of the calendars, maybe gets maxP $2.50....
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"If The Fool persists in his Folly he will become wise." - William Blake
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