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Let's Trade Options

  • #13,901
  • Jul 16, 2016 6:38am Jul 16, 2016 6:38am
Quoting The Fool
{quote}those wide verts can be good, but you have to be aware of the shape of the P/L curve. I have gotten into the habit of just looking at the 50c and $1 spreads. UVXY sometimes has really good deals in the wide spreads, though, .....I wonder how long before they will have to retire that freak?
Thanks Fool. Yeah, I don't have much experience with vertical spreads, so I'll take your advice. The thing that I find attractive about wide spreads is the lower commission (compared to several narrow spreads over a similar range). But there ain't no free lunch of course, so I'll keep my eye on the P/L curves.
You reap what you sow.
  • #13,902
  • Jul 16, 2016 11:49am Jul 16, 2016 11:49am
Hey NT,

when I said "be aware of the P/L" of those wide spread verts, to be less obtuse I should've just said: be aware that the wide spread shoves the b/e down, further away from your entry. Examples below. Sep SPY put verts, $210/$205 for 85c and $210/$209 for 20c, both 10-lots. P/L's at expiry.

On a really big move down, SPY to $200 say, the wide spread would net $3,511 on $850. The other would do $800 on $200. So...both trades have max roi of 4. However, the $1 spread has b/e at $210.65, while the $5 spread has b/e at $209.50. In a game of inches, (or pennies), the latter fact is all I need to know.

There are other trade-offs, though, and if you can get a wide spread at a deep discount, it might be the best approach. You could roll up the short leg later, when options are cheaper.
Attached Image(s) (click to enlarge)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,903
  • Jul 16, 2016 12:12pm Jul 16, 2016 12:12pm
Quoting The Fool
There are other trade-offs, though, and if you can get a wide spread at a deep discount, it might be the best approach. You could roll up the short leg later, when options are cheaper.
just an example below, UVXY is about to rev/split, so I'm not touching it. But pretend I thought we'd get a big vol pop between now and Sep opex - I might try to put on a call vertical.

I could try to fill the $12/13 for 9c. But the $12/15 might fill for 13c. A better deal, given the increased roi potential.

The trick in thin (and volatile) options is to look for strikes that have higher volume than their neighbors. This often means looking at the 00's and 05's. You can sometimes find deep discounts on wider spreads with those strikes on your short leg. It is easy enough to just shop all the vertical combo's, though. You can throw the data into Excel and do it with some simple spreadsheet code.

Getting filled at the deep discount mids shown another matter, though, but it's a starting point.
Attached Image (click to enlarge)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,904
  • Jul 16, 2016 6:02pm Jul 16, 2016 6:02pm
Quoting The Fool
On a really big move down, SPY to $200 say, the wide spread would net $3,511 on $850. The other would do $800 on $200.
oops, I misread that - the wide spread has max return of $4,150 on $850, so it has a better roi than the $1 spread (of course)..almost 5:1 vs 4:1, but the point about the b/e being pushed down is still true...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,905
  • Jul 16, 2016 9:01pm Jul 16, 2016 9:01pm
How I am trading NFLX - bot a Jul 22/Jul 29 $90/$105 DC. 50c debit. If nothing else changes, p/l will look as shown on expiry day, about a 60c net out...but if lucky I will get a 5% iv rise or better, so I am setting a $1.25 gtc on it....
Attached Image (click to enlarge)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,906
  • Jul 16, 2016 9:11pm Jul 16, 2016 9:11pm
the AAPL DC is set up to run into the ER week as a strangle.....just need AAPL to pull back a little by Friday....
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,907
  • Jul 17, 2016 1:19am Jul 17, 2016 1:19am
Quoting The Fool
I have VXX and UVXY spreads set up for the week of 7/18 since months ago. The UVXY stuff might make a few cents on a vol pop, but I have VXX $15.5/$16 calls, which I may roll down to $14/15 or something in the coming day or so. My original thought was "trouble a'brewin' st the Repub Convention".....
riots, coups d'etat in NATO partner countries, I really don't think ........yeah the Fed can handle any of that......no worries
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,908
  • Jul 17, 2016 2:08am Jul 17, 2016 2:08am
CSCO...ER 8/17....P/L modeled at +5%.....meh....if no vol comes back into the markets even these ER trades could choke
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,909
  • Jul 17, 2016 7:24am Jul 17, 2016 7:24am
Quoting The Fool
{quote}oops, I misread that - the wide spread has max return of $4,150 on $850, so it has a better roi than the $1 spread (of course)..almost 5:1 vs 4:1, but the point about the b/e being pushed down is still true...
Thanks for the crystal clear explanation TF. I'll have another crack at it on Monday. Have a good one!
You reap what you sow.
  • #13,910
  • Jul 18, 2016 11:40pm Jul 18, 2016 11:40pm
Quoting The Fool
How I am trading NFLX - bot a Jul 22/Jul 29 $90/$105 DC. 50c debit. If nothing else changes, p/l will look as shown on expiry day, about a 60c net out...but if lucky I will get a 5% iv rise or better, so I am setting a $1.25 gtc on it....
DIDN'T get what I was after - boom big drop on the ER, now I'm stuck with the aftermath....will see how bad the iv bleed is Tuesday
Attached Image (click to enlarge)
Click to Enlarge Name: 2016-07-18_2136NFLX.png Size: 74 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,911
  • Jul 18, 2016 11:56pm Jul 18, 2016 11:56pm
Exactly. Nothing is going to change until one of the major CB's throws a rod.

https://www.yahoo.com/finance/video/...002200048.html
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,912
  • Edited 2:08pm Jul 19, 2016 1:49pm | Edited 2:08pm
AAPL 7/22 - 7/29 $90/$100 DC the only thing in my books that looks like an alpha dog. I need AAPL to nudge down to low $99's by Friday, then blast off to $110+ on the ER next week. Otherwise..........
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,913
  • Jul 19, 2016 3:32pm Jul 19, 2016 3:32pm
near the close I bought a $51/$54 MSFT Jul 22 strangle for 90c, MSFT was right at $53.00,,,,,,big 1-lot gamble......MSFT pushing towards $55 AH, I might make a dollah
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,914
  • Jul 19, 2016 6:57pm Jul 19, 2016 6:57pm
Quoting The Fool
near the close I bought a $51/$54 MSFT Jul 22 strangle for 90c, MSFT was right at $53.00,,,,,,big 1-lot gamble......MSFT pushing towards $55 AH, I might make a dollah
dam, I wish I hadda done a strangle on NFLX. I wonder if there be any other opps like that? For further inspection:

7/20: INTC, LVS, TSCO
7/21: SLB, SBUX, CMG, AMD....

The money week is next week, though.....(sigh, fishing ER pops with strangles, is this what it has come to....?)
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,915
  • Jul 19, 2016 8:47pm Jul 19, 2016 8:47pm
New lows for ^VIX....what else? I had a 30c gtc on 7/20 VIX $12.50 long puts - hit that at the last minutes of the day, looks like 35c or maybe even 40c woulda hit, in that for 5c, does a little to hedge some of the bullish VXX spreads I put on about the same time.

The 5c atm VIX puts are there for the taking now, but idk - vol is getting so cheap, it gets bought regularly and you see those long bottom ranges - but, if the SPX keeps breaking out upside, even in little chunks, ^VIX will keep dropping, and I fully expect to see new lows, sub-10.

Hard to imagine what could change things now, other than some exogenous event. Even then, the CBankers will do what they do, which is all they can do. Pathetic, really, to be a trader in these times....
Attached Image (click to enlarge)
Click to Enlarge Name: 2016-07-19_1830VIX.png Size: 57 KB
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,916
  • Jul 19, 2016 9:32pm Jul 19, 2016 9:32pm
Quoting The Fool
The 5c atm VIX puts are there for the taking now, but idk - vol is getting so cheap, it gets bought regularly and you see those long bottom ranges - but,....
you can use the cheap cheap VIX puts to hedge out the risk of VXX put spreads, as in the combo shown below. With the right move, both trades make money; with a really big move that pushes down out of the net positive profit zone of the bw fly, the long VIX puts balance out the VXX losses (ratios need work)
Attached Image(s) (click to enlarge)
Click to Enlarge Name: 2016-07-19_1922vxx.png Size: 80 KB
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,917
  • Jul 19, 2016 10:57pm Jul 19, 2016 10:57pm
Quoting The Fool
dam, I wish I hadda done a strangle on NFLX. I wonder if there be any other opps like that? For further inspection: 7/20: INTC, LVS, TSCO 7/21: SLB, SBUX, CMG, AMD.... The money week is next week, though.....(sigh, fishing ER pops with strangles, is this what it has come to....?)
INTC not a mover; TSCO no weeklies, wide strikes.....LVS, though, looks OK - the ER is Jul 25, it appears, - next Monday, nice to catch a move with a few days to run, if that's in the cards. The iv's are pretty low, so you can do a narrow strangle. LVS does not always do much, but sometimes it will....$4+ sometimes.

Just looking at the chart I'd say LVS has not done shit since the smack-down it got on its last ER. Another disappointing report could open the trap door.....but any time I guess to ratio one side vs the other, I am usually whacked for it. Since the ER is next week, I should check calendars....
Attached Image(s) (click to enlarge)
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"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,918
  • Jul 19, 2016 11:14pm Jul 19, 2016 11:14pm
Quoting The Fool
Since the ER is next week, I should check calendars....
I can try a Jul 22/Jul 29 $45/$47.5 DC, hope LVS freezes up the rest of the week, and bring those b/e's in - for the same price +/- as the strangle above
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,919
  • Jul 20, 2016 3:28am Jul 20, 2016 3:28am
with vol falling thru crust of Earth I have not given up on long vol dreams, but am putting on trades with plenty time - loaded VXX Sep/Dec $21 calls calendar for 45c
"If The Fool persists in his Folly he will become wise." - William Blake
  • #13,920
  • Jul 20, 2016 12:22pm Jul 20, 2016 12:22pm
Quoting The Fool
I can try a Jul 22/Jul 29 $45/$47.5 DC, hope LVS freezes up the rest of the week, and bring those b/e's in - for the same price +/- as the strangle above
hadda go $45/48 for a dollar
"If The Fool persists in his Folly he will become wise." - William Blake
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