any option sellers

[RichardRimes]

Quote from Eddiefl:

Richard,

Hope trading is going well. A quick question for you, since it is very obvious you have much much more knowledge than myself. Whats your take on these "put backspreads", I am papertrading two now, they seem worthwhile to pursue.... do you have a take on them.??

All appreciated as always Sir. here is a link from cboe with Dan Sheridan.

http://www.cboe.com/tradtool/webcas...6371&mediaId=86a84d26763949dc97d91a675b323b4b

Your giving me more respect than I deserve! I have done put backspreads as a specific trade with mixed results. I'm definitely not an expert. Riskattydrownpruf is more experienced and has done what he (and others) call pitchforks..sort of a complicated put/call backspread kind of thing.

IMO they can get difficult to manage if your wrong on direction or volatility (as any trade can). In all honesty the more experience I have in trading the simpler my "style" becomes. You can attach fancy names to complicated spreads but bottem line is you are simply buying/selling puts and calls based on your short term/long term outlook. Backspreads help reduce risk but doesn't eliminate risk.

 

[Eddiefl]

Quote from RichardRimes:

Your giving me more respect than I deserve! I have done put backspreads as a specific trade with mixed results. I'm definitely not an expert. Riskattydrownpruf is more experienced and has done what he (and others) call pitchforks..sort of a complicated put/call backspread kind of thing.

IMO they can get difficult to manage if your wrong on direction or volatility (as any trade can). In all honesty the more experience I have in trading the simpler my "style" becomes. You can attach fancy names to complicated spreads but bottem line is you are simply buying/selling puts and calls based on your short term/long term outlook. Backspreads help reduce risk but doesn't eliminate risk.

Thanks RR. i am reading the thread on "pitchforks" now. I think i am starting to notice the same thing you mentioned above. The more complex it is, not necessarily more useful.

Have an excellent weekend,,,

EF

 

[crayon851]

I sell naked premium too on the call side. Put side is cash secured.

Anyone else finding it hard to sell 2 STD out?

I'd like to start managing my portfolio so its selling bear call or bull put spreads month to month and vertical spreads that are 3-6 months in duration. I'm going to start looking for stocks that have dropped recently by 5-10% and then place my spreads on depending on the move.

Anyone experience any huge losses trading naked strangles?

 

[Brighton]

I sell naked premium too on the call side. Put side is cash secured.

Anyone else finding it hard to sell 2 STD out?

How are you calculating your SDs? Are you using a simple Excel calculation or plugging some numbers into an online calculator? If using a calculator coded into a retail trading platform, are YOU allowed to make the volatility forecast or does it make it for you?

 

[RichardRimes]

I sell naked premium too on the call side. Put side is cash secured.

Anyone else finding it hard to sell 2 STD out?

I'd like to start managing my portfolio so its selling bear call or bull put spreads month to month and vertical spreads that are 3-6 months in duration. I'm going to start looking for stocks that have dropped recently by 5-10% and then place my spreads on depending on the move.

Anyone experience any huge losses trading naked strangles?

Personally I think there is actually more risk in selling 2 SD than getting paid for being closer to the money so I sell closer to the money and short duration...haven't blown out........................................................................................................yet.

 

[crayon851]

i almost blew out... because of the non 1std move. had naked strangle on bks last week 14/18 strikes the it closed just under 18 but i closed my positions before hand. managed to recover about 1/3 my loss.

ive been doing 1 month long strangles too and have been good, but i realize the risk after that one trade. now i trade risk defined spreads.

i use the standard formula with the iv quotes from cboe.

formula: (iv(%) x price x sqrtDTE) /sqrt 252.
i dont forecast the IV but i usually add 5% to the IV that way i have a little wiggle room. less premium but higher volume.

i have a jul vix trade right now, bull call 14/15.

after the trades for this month clear im going to start looking for trades that allow me to sell credit spreads into weakness.

 

[Brighton]

i use the standard formula with the iv quotes from cboe.

formula: (iv(%) x price x sqrtDTE) /sqrt 252.
i dont forecast the IV but i usually add 5% to the IV that way i have a little wiggle room. less premium but higher volume.

If you're using the sections of the CBOE and OIC (Options Industry Council) sites with the options tools provided by ivolatility.com, you're probably getting iVolatility's "IV Index" for 30 DTE, which

1) may be greatly elevated or depressed due to recent earnings or other news and
2) may not correspond to the term you're considering.

There's no right number to plug in, but I'd recommend experimenting with HVs of various lengths and perhaps the ATM IV of the specific contract you're considering. You're sure to get different results in the model; you might even get better trading results!

 

[crayon851]

hmm i never considered that. can you give me an example?
i use the volatility optimizer or finder and look at the only IV value they have lol. I also look at trades by tastytrade and compare the IVs and usually they are generally the same. which hv do you use? how do you know which iv for which contract? assume 1 mth contract you use the 30 day vol?

arent the iv for 52 weeks?

 

[Brighton]

Crayon, Here's an example:

JKS (Jinko Solar), a volatile Chinese solar stock, reports earnings Monday, I think (I have no positions in it right now).

Underlying $32.72
Expiration 20 Jun 2014
iVolatility's 30 day "IV Index" 82.03%
Alternative volatility forecast 55.00%

Using a probability tool provided by OptionsHouse (it's iVolatility's tool) and 82% vol, -1SD is $18.75, -2SD is $11.90

Let's say I think the company and industry will mature, stabilize and it's all going to happen by June (haha), so I plug in 55% for a vol forecast. In this scenario -1SD is now $23.05 and -2SD is $17. Viola! All of a sudden the pool of candidates has expanded.

Similarly, pick a high volatility stock and run the probability calculations six months out vs. 30 or 40 days out. Using the same forecast volatility, you're statistically 'safer' selling the shorter dated options because there's less time for adverse events to happen.

Some brokers and third-party tools show this graphically with a cone (or funnel) that on the left has recent prices and on the right the cone shape begins (at the most recent price) and shades the area of the chart where the prices might move up on down depending on what volatility and DTE you've plugged in. That's a useful tool for understanding what could happen, assuming an accurate volatility forecast and normal price distribution.

Finally, whether you're looking at at 20 trading day HV or an ATM IV on an option with 60 calendar DTEs, the volatility figure is annualized. It doesn't have to be that way, but for the types of tools you're using, I'd bet it is.

 

[crayon851]

are you just throwing a random vol number out there like 55%? isnt forecasting the vol equivalent to forecasting price action in the underlying and therefore just as difficult?

so is the iv index on cboe the 52week?