Flys > straddles.
Anatomy of a fun 2-day trade (AMC +$60k)
- Thread starter Dustin
- Start date
I suppose that could be. The daily looks pretty good on that stock but I personally wouldn't be a part of the trade until breakout time, ideally from a tighter triangle so it's more clearly defined.
So, when that guy was doing this with forex, his net profit was $0 no matter what happened prior to closing the unprofitable side, in which case he just paid more comissions to have $0 net profit against just doing nothing until he psychologically picks a side and adds in this way. Of course, market can instantly reverse as soon as you determine which side is profitable.
For example, price is 1.1000. He goes long and short at 1.1000. Price gets to 1.0000 and he says "ok, short is profitable" and closes out his long position. He now has a $0 net gain minus three comissions, but to open long, sell to open short, and sell to close long. He could have just waited until price got to 1.0000 and gone short, had exactly the same net gain, except only paid one commissions, and come out ahead.
Does doing this with options change something? Are you waiting until one leg is profitable or are you waiting until the stock is profitable? For example, if you buy $48 puts and $52 calls, let's say the position becomes profitable at $46 and $54. Do you wait until a net profitable position, or do you wait until either sort of option is profitable on its own, but not overall? In other words, if the $48 puts would become profitable by themselves at $47, do you start adding more at $47?
For example, price is 1.1000. He goes long and short at 1.1000. Price gets to 1.0000 and he says "ok, short is profitable" and closes out his long position. He now has a $0 net gain minus three comissions, but to open long, sell to open short, and sell to close long. He could have just waited until price got to 1.0000 and gone short, had exactly the same net gain, except only paid one commissions, and come out ahead.
Does doing this with options change something? Are you waiting until one leg is profitable or are you waiting until the stock is profitable? For example, if you buy $48 puts and $52 calls, let's say the position becomes profitable at $46 and $54. Do you wait until a net profitable position, or do you wait until either sort of option is profitable on its own, but not overall? In other words, if the $48 puts would become profitable by themselves at $47, do you start adding more at $47?
No, I only outright buy/sell options. I want max leverage and reward for my setups. It's everything the books tell you not to do.
Thanks for this chart and the explanations once again.
It seems to me that you are first more of a chart trader. If this is true, I like this because it seems that most guys think that the only way to make lots of money is via the math route and not even looking at a chart. All the data just seems to go into a spreadsheet which generates stats and they trade based off this. But to be more of a price action trader seems like a sin here at ET.
But it also can't be as simple as looking for a triangle on a daily chart and takes both positions and waiting for one to work. How much of your knowledge of options helps with the decision making process? When destriero talks, its like another language, but I understand he is a high level options guy and it works for him. But for you, is there info within the option chains that help with your decisions, or are you simply buying options as a way to put on your trade since you can accomplish more with less money vs. buying or shorting the shares outright? (clearly with shares you couldn't even be in both short and long positions at the same time)
That is the fear in all of us, and honestly, it happens, and clearly even to Dustin. I think the key is that his strategy doesn't change. I mean look at the trade summary. Many positions go nowhere or are all small losers. You never quite know where the big win is, but you gotta keep taking the trades so that you're in it for when the big win presents itself. Of course after 20 years, your intuition helps to filter this down a bit, so I'm sure this is a huge part of his edge, but he probably has a trade like this only once or twice a month. The rest will do exactly what you say, but it doesn't phase him. At least this would be my guess as a long winded explanation.
Yes options do change this, because as the trade starts working the winning side will usually double, while the losing side will drop 50%. These are very rough numbers.
Example:
Stock at $52.50
Buy 10c $50 puts
Buy 10c $55 calls
Stock drops to $52 confirming the short trade.
Buy 20c $50 puts (you are doubling/tripling your position here)
Sell 5c $55 calls (you are selling for a 5c loss, while your winning trade has a 10c gain)
Stock drops to $51 showing enough gain that you can sell the initial position to cover the cost of the trade. Now you wait for the big move with the rest, like the AMC move from $50 to $48 in minutes. If that move never happens, you are lightening up throughout the day and re-entering a wait-and-see mode.
I'm constantly adjusting positions, it's a very important part of the process. Yesterday I traded 6600 contracts. You need to have cheap commissions (I pay 25c) and collect rebates whenever possible. If your broker doesn't offer that, then get a better broker. They are literally lining their pockets with your rebates.
Yep, good summary. A really good month would have 4-6 of these.