advice for beginners; out of the money options contracts are wholly useless.

[Mnewton]

The only way to make money with otm calls and puts is as others have said, is obviously when you get large price movements. This happens often at earnings time and more often a negative earnings will sink the stock more than 5%.
So you can take a strangle with a close otm put and if you think the stock will talk a balancing far otm call, that is cheap. Often good to look it a week for earnings and high volatility stocks and try to pick ones where the weekly is a couple of days away from the earnings or even the best week. Negative earnings teens to get the stock sinking for more than just a day.
For an oversold situation at earnings you should expect a 50% recent over the next week or so, so a call around that price can make good money once the stock responds. A good case in point was QCOM last week when the news came out i picked up the 70's for 80 cents, the next morning they were $12. So quick action on news can be good for otm calls.

 

[Mnewton]

Another good one is SPY or RUT on Fridays for that weekly. Slightly otm calls can be had for 3 cents and if you pick the right time and direction you can make good $$. The volume last week was over 70,000 contacts on the SPY on Friday.

 

[Epicurus]

If someone who understands what strike skew is, then asks about the meaning of "contango/backwardation", I think it's visually simple and intuitive for them to see it as an "IV time skew". "Skew" is visual - "structure" is abstract: If I started using "Strike structure" in place of "strike IV skew", all I would be doing is adding an abstract layer of professional sounding jargon, impeding understanding to make myself seem smarter. I suspect the replacement of "IV time skew" with "term structure" was a similar kind of process.

Markuzick, I appreciate your effort to use non-professional jargon to a mostly non-professional readership. I immediately got what you were saying, whereas a lot of the posts of the professional guys here I don't absorb or couldn't be bothered. ET would be better if your approach caught on.

An interesting tendancy in any profession is that your average-level expert uses the most jargon, perhaps to try to fit in with their tribe, but the person at the very top of their game who has truly mastered their subject matter can explain complex subjects in the simplest of laymen terms. It's normally a good gauge of real expertise.(Not particularly targeting posts in this thread).

 

[ironchef]

OK, but for the purpose of explaining "IV contango/backwardation", putting it in terms of skew seem to me to be less abstract and more intuitive; and then it can all be put under the heading of "term structure" without having to give a seperate explanation of "term structure" by comparing it to vertical skew.

Appreciate the explanation, I actually understood the phenomena. I was actually asking about the word Contango, why is it called Contango?

 

[markuzick]

Appreciate the explanation, I actually understood the phenomena. I was actually asking about the word Contango, why is it called Contango?

From Oxford dictionaries:
Stock Market

• 
  
  1The normal situation in which the spot or cash price of a commodity is lower than the forward price.
  
  Often contrasted with backwardation
  1. 1.1historical A percentage paid by a buyer of stock to postpone transfer to a future settling day.
     

Origin
Mid 19th century: probably an arbitrary formation on the pattern of Latin verb forms ending in -o in the first person singular, perhaps with the idea ‘I make contingent’ (see contingent).

I also checked Webster's which says it may be derived from the word "continuation".

 

[markuzick]

Markuzick, I appreciate your effort to use non-professional jargon to a mostly non-professional readership. I immediately got what you were saying, whereas a lot of the posts of the professional guys here I don't absorb or couldn't be bothered. ET would be better if your approach caught on.

An interesting tendancy in any profession is that your average-level expert uses the most jargon, perhaps to try to fit in with their tribe, but the person at the very top of their game who has truly mastered their subject matter can explain complex subjects in the simplest of laymen terms. It's normally a good gauge of real expertise.(Not particularly targeting posts in this thread).

I'm no professional and I share with you, and many who come here to learn, the same frustration. I appreciate the generosity of the smart guys who try to help us understand, but I wish they would show off in a more constructive way by couching their explanations in standard language.

 

[qubit000]

During the tech bubble, i easily made $500k trading far OTM on stocks like Amazon, Yahoo, etc. The problem today for daytraders, which many still dont realize, is that theyre trading against computers - complicated algorithms that are being constantly tweaked by Wall Street quants to exploit any potential pattern among retail trading.

These algos trade at fractions of second millions of times a day rendering any protective stops by retail practically useless during highly volatile periods and esp during black swan event.

All the nonsense you hear about traders using complex technical analysis with headache inducing chart indicators is completed waste of time as algorithms are easily created to take advantage of such widely believed patterns.

 

[Mnewton]

All option pricing is obviously computerised it would be impossible for a market maker to adjust pricing manually. The true price is somewhere between the bid and the mark (mid). The old technical analysis was definitely before algos. The most guiding factors for algos now are pivots and bid ask resistance from dark pools. Algos also work on implied volatility , the change in implied volatility is the traders edge

 

[ironchef]

From Oxford dictionaries:
Stock Market

• 
  
  1The normal situation in which the spot or cash price of a commodity is lower than the forward price.
  
  Often contrasted with backwardation
  1. 1.1historical A percentage paid by a buyer of stock to postpone transfer to a future settling day.

Origin
Mid 19th century: probably an arbitrary formation on the pattern of Latin verb forms ending in -o in the first person singular, perhaps with the idea ‘I make contingent’ (see contingent).

I also checked Webster's which says it may be derived from the word "continuation".

Thank you. I googled the word and did not see any explanation and that was why I asked.