Let's Trade Options

looking like a little 1-2 hr dip off the FOMC is all equities will get....

Dec16/21 SPY $225 calendar calls - in for 2 whole cents......if we get a slip down near the strike Thursday, could net out 35-40c, if that happens on Friday, could net out near 60c....epic...

Mar SPY Big Kahuna....a $191/200/209 put fly with a $190/189 put vert guarding the downside.....risk free below $220 on the date shown - Feb opex. MaxP almost $6k on a $340 risk for the 10-lot with a perfect finish....still I would like to pay less.....will look a bit narrower.....

a comparable SPX combo costs more but involves less comms - you just have to do the math.....I have had better luck filling cheap SPX spreads though - at or sometimes below the mid

you can buy skinnier flys and they will have great r:r on the mid strike at expiry, but they won't give much on dates much ahead of expiry....they will be in profit across a wide range before expiry, just not much profit. You can stack these skinny flys (distributed across a wide range) and maybe come out better with increased chance of a good finish at expiry

there are advantages.....and you could do both.....the skinny flys are a lot cheaper. If you have one in a series that goes itm, you have to start thinking about closing it, or the short leg might get assigned as it gets deeper itm and closer to expiry

if you're gonna combo wide and skinny flys, it becomes a bit of optimization, but just t&e, look at putting the expensive wide flys further otm and bridge down to them with cheap skinnies

BTFD started at Wed close

looking out to late Jan earnings round, I note CREE likes to dump at ER time - I take advantage of cratered iv's to buy some cheap bull put verts - the Jan 27 $23/23.5 is mid 4c.......ER's Jan 24

in for 2c out for 64c with SPY pinning $225, 32 bag....looks like I coulda got >70c

...almost 80c looks like maxP ... a near 40bagger. The SPY and SPX weeklies will give up these dirt cheap calendars regularly....if I had a brain I would automate my manual hunt/peck search method and plow through big data in real time to catch these continuously. I still need the underlying to move. but with cheap enough spreads (the one above actually wanted a 1c mid) I could put them all over the place and something would hit well...

cheap spreads....NFLX with ER 1/18 - I filled the spread below for 8c. Nearly $6 wide with some odd strikes there....way down at $100 but it will b/e or better at expiry between $93 and $107....risking 8c to make about $1.00 max at perfection. I am always putting these spreads on the '00's and '05's and '10's, because that's where the action is and that is where these u/l's might more likely settle at opex.

I don't mind paying more for a wide fly, $20 wide shown has a zone in profit a few days before expiry about $24 wide; at 2 weeks before expiry it's $30 wide. MaxP at expiry is just under 7x. You get what you pay for, but trading options is always a quest to exploit the screwy pricing anomolies that are always popping up.

for CREE I bot the $24.50/$24 bull puts for 11c

looking at REIT stocks to short into the rising interest rate regime of 2017 (as if). Speaking of price anomolies, you find them around large oi differences between adjacent strikes.

some people (who own/operate REIT's lol) argue REITs don't necessarily tank with rising rates
https://www.reit.com/data-research/r...gauging-impact

AAPL expiry week cheap put fly, just $4 wide, for 8c, could net 90c

Hey Fool. Noob question on this put fly. Trying to understand the premise of the strategy. Sorry to the experienced options traders here for cluttering the thread with rudimentaries.
So with AAPL up around 116 at the moment if it were to stay there or above 107 at Jan expiry, the 105 puts you sold in the middle will pay a premium and the two you bought will expire worthless (or sold at a loss).
If AAPL is trading at 105 you'll sell the 107 for a profit, cover the 105 for a profit and the 103 will expire worthless (or sold at a loss).
If AAPL trades at 103 or lower you'll lose on the 105 but make good money on the two long puts at 103 and 107.
Best scenario (without considering the possible peaks and valleys between entry and expiration, but rather assuming a straight run for the sake of my limited understanding of it) is 105 at expiry allowing you to close 107 and 105 legs in profit and 103 at minimum loss.
A decent outcome is anywhere between 107 and 103 allowing profits on two legs to outweigh losses on the other.
Worst scenario is hmm...can't put my finger on it. Must be if price dips hard then spikes or vice versa making the management of it more complicated and leaving ŕoom for mistakes in closing the legs? Is it an open interest consideration? Im sure its more complicated than my question implies.Trying to imagine a situation where you get stuck selling the naked puts but seems like it would have to be a special circumstance or mismanagement in closing parts of the trade so perhaps I'm looking for max risk in the wrong place.

Am I anywhere close?

http://www.screencast.com/t/kuOMp1vW

FOR now you should just think of spreads as a whole organism, to be traded as a whole, irrespective of its discrete parts. I will touch on how there is more beyond this, but it is all you may ever need. So, look at the P/L diagram for the put fly shown above and realize it is the state of the trade on the date shown in the screen grab - i.e., on 1/27: expiry day. In reality, the P/L on flys and calendars and all spreads is changing day to day. This is an important thing for a new trader to get, because it is often better to take some or all profit on a spread trade before it gets to expiry.

The little vid pasted here follows the trade from today til expiry. Over time, the b/e's (little red vertical line on the share price axis) move in toward the fly and the profit curve bulges up higher. The perfect finish is AAPL=$105 on expiry day - then you would sell out of the fly to take the profit - you'd sell the two wings (long puts) and buy back the middle short puts and the result would be fat profit. If AAPL went the other way and never comes near that skinny fly, you do nothing - the fly would expire worthless and you'd be out the $8/contract you paid for the fly originally.

If AAPL overshoots past the fly to the south, goes lower than $105, you have to start thinking about selling the fly, because the short puts can be assigned. This is the only case wherein you could lose money over what you paid for the fly originally. I will explain assignment risk in a separate post.

The premise of the trade above: I am fishing for a big move in AAPL to occur on its Jan 24 earnings release (ER). The odds of making a good finish on this trade are low. They get lower as time moves toward expiry. However if AAPL slides down within a few bucks of $105 before the ER, I might consider taking off part of the trade early. For instance, if AAPL trades at $108 on 1/23, a day before the ER, the fly would net 20c - 2.5 times more than it cost. I would be tempted to close it. Bird in hand or 2 in bush? Always a relevant question in any trading, just a little harder in options trading because there's more things to keep track of: the u/l price, time til expiry, implied volatilities of the options, etc...

If AAPL trades at $108 on the day b4 the ER, I could sell 4-5 of the flys to b/e on the trade and let the rest run. Or do nothing and see what happens. Or close them all for 20c and 2.5bag. ER could move 10 bucks either way on the ER and then I'd be SOL.

Ok. Very helpful. Took me a minute to get my bearings with that video but I think I can grasp the important moving parts there. let me know if I'm getting it though.
Your two longs total .98, the equal weight short is .90 making your cost for the whole package .08 (x100= $8/contract).

The purple line and b/e red marks represent p/l through time and shows the profit window gradually closing in to the wings of the fly and increasing as price gets closer to the 105 target strike. This window is closing due to a long list of factors, but mainly time. The profit line is rising due to a long list of factors but mainly because price is approaching strike so closer to at the money, delta going up.

If price is moving towards 105, as this window of profit closes you periodically assess where the trade is at vs. where you think it will likely end up. If you wanted to take some off at some point you would close equal parts of each component (i.e. sell 2 contracts of each wing and 4 of the shorts).

If price moves up and away from 107 you do nothing, the video is boring. $8 per contract spent.

If price shoots down through 103 the video looks the same but faster and after cruising through 105, it looks like the same video but backwards and you got til price is at 103 to bail or (possibly) get stuck.

Maybe I got ahead of myself there.