Buying calls and puts

[Stadtmuller Von Texas]

Hey Danjuma,

I'm a buyer only, I just don't like the risk involved in selling options. Of course they perform better, because there is more risk.

When I first started trading options there was a story on JP morgan which involved JP placing a relative big trade on something and it went against them. There were unable to get out of the position and lost quite a lot of capital, if I hunt around I could dig it up.

I basically got spooked and always brought my options to cap the risks involved. U gotta understand that selling options have brought major corporations into liquidation. You're just "seeing the light" involed with selling. I've met people that have losts multiple investment properties selling / writing options.

Best of luck.

Hi Danjuma, I like your cautious statement re selling options. Since oil hit bottom in Jan/Feb this year I have been buying both OTM & ITM options on RDS/A & BP . The best performing so far is LEAPS to Jan. 2017. I am looking to move more to LEAPS Jan. 2018. Even though it gives me less leverage I am looking to go deeper ITM,
for instance BP $25.00 Jan. 2018 call (current bid is $8.00 ) my limit bid is $7.00 on 200 contracts 20,000 shares. It will only fill if there is a good drop in the underlying. If it does fill I will be at $32.00 , that seems pretty safe considering the slow drop in global production. If need be I can excerise the 200 contracts and collect the .60 quartly dividend.
You seem very experienced and cautious, is this a trade you would make? Thank you for your input.

Stadtmuller

 

[ironchef]

Danjuma,

In my opinion, buying options is mainly a directional play. It is a leverage buy similar to margin buying. Others here told me it could also be a volatility play depending on your opinion of where you think volatility will be in time. Some others may have a different views and I like to hear them too.

Disadvantage: You generally pay a premium (over intrinsic value) which can be significant and it often takes a lot to breakeven. Your trade will expire some time in the future and may become worthless. Because of the interplays between underlying movement, time decay, IV etc., it is a lot more complicated than buying on margin. Often, when the underlying goes up, call options may not move up due to time decay, IV, gamma, delta and vega change.

Advantage: If my guess is wrong, I maybe able to ride out a dip without a margin call. Since I was the recipient of margin calls in the past, this advantage is very real to me.

In general, I found mechanically buying or selling netted me a small loss due to slippage (tried both for about 6 months and ~2000 trades).

Having a mathematical model to assess the profitability and stress testing is helpful in my opinion.

 

[CBC]

is this a trade you would make? Thank you for your input.

Stadtmuller

Sorri I can't help, your like the complete opposite to me. I've never executed before, I've never traded around dividends and I only trade from the chart. I don't look at fundamentals like what the price of oil is doing and how its related to the share price.

Best of luck Stadmuller.