Another option trading strategy

[spindr0]

I think the spike in IVs are shown in many sites including Options Chameleon.

And here's another one (free sign up):

http://www.ivolatility.com/options.j?ticker=spx& R =1&x=0&y=0

 

[ironchef]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

On thinly traded equity options. the counter parties are the MM who do not care about directional since they hedge and make money on bid/ask spread.

On index option, I have to figure out why a professional institutional trader wants to take the other side. If he/she is willing, I am on the wrong side.

 

[Kim Klaiman]

On thinly traded equity options. the counter parties are the MM who do not care about directional since they hedge and make money on bid/ask spread.

On index option, I have to figure out why a professional institutional trader wants to take the other side. If he/she is willing, I am on the wrong side.

You have no way to know. There are could be many reasons.

This is why "unusual options activity" means nothing in my opinion. You cannot reliably trade it.

For example, if you sell a naked put to get some income or buy stock at discount, and institutional trader buys those puts from you, does it mean you are wrong? Not necessarily - maybe he is hedging a big stock position.

 

[ggelitetrader000]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

I do it lot of time. Yes you are exposed to an imminent risk but i normally try to be carried on momentum that is just starting to build up and once it gets high enough buy an insurance. Not to say it is risk-free but where is risk-free and high-return trades? I dont think it is anywhere.

 

[Kim Klaiman]

I rarely trade options on individual stocks. They are volatile, often have poor bid-ask spread, and are subject to nasty news surprises.

That really depends on the stock.

Stocks like AAPL, FB, AMZN, MSFT, NFLX and many others have excellent liquidity. As for nasty news surprises - it depends on the strategy you implement.

Some of our members held QCOM straddle before earnings and booked 60% gain when the stock went down 7% couple days before earnings. if you know what you are doing, you can actually benefit from "nasty surprises".

 

[ironchef]

For example, if you sell a naked put to get some income or buy stock at discount, and institutional trader buys those puts from you, does it mean you are wrong? Not necessarily - maybe he is hedging a big stock position.

Agree. But if the option volumes are thin, e.g. <100 OI, it is unlikely a big institutional trader is buying 1-10 contracts.

 

[ironchef]

This is why "unusual options activity" means nothing in my opinion. You cannot reliably trade it.

Are you sure?

 

[ironchef]

The overall market. I often use Otar's "hurricane warning" described here: http://retirementoptimizer.com/.

I like the articles on asset allocation and re-balancing. I always have my doubts about allocation and re-balance.

Thanks.

 

[ironchef]

You have no way to know. There are could be many reasons.

Just like your method of trading straddle prior to earning? You have no way to know?

 

[ironchef]

That really depends on the stock.

Stocks like AAPL, FB, AMZN, MSFT, NFLX and many others have excellent liquidity. As for nasty news surprises - it depends on the strategy you implement.

Some of our members held QCOM straddle before earnings and booked 60% gain when the stock went down 7% couple days before earnings. if you know what you are doing, you can actually benefit from "nasty surprises".

By the way, I do appreciate and enjoy your posts and comments.

I took a quick look at trading straddles prior to earning, for the underlying I hold, I can see some logic and benefits to the method. What I don't know yet is whether it was luck or real.

Regards,