Buying Naked Calls

ironchef · Nov 13, 2019

Baozi said:
Poor chef! Getting so much flak for playing devil's advocate..

It is OK, he was right, I deserved it.

Can't learn anything new if I have thin skin and keep my mouth shut.

ironchef · Nov 13, 2019

taowave said:
IC,with all due respect,you going along with Ravars haze of unconsciousness is a bad look.

What trader in his right mind buys a "longer dated" option and hopes for a vol contraction??

Keep in mind BW said he will stop himself out on a fixed loss on the option price.There is no doubling down on a vol implosion as he will be stopped out.Ball game over...

Wrong on every level

You have a good point about @raVar. He started out on non-correlated trades and talked about periodicity which were excellent topics that I struggled with for a long time. But I am too dumb because I could not understand half of what he was talking about.

As for your second point, some of us who trade directional, have a strong opinion on the direction, vol contraction may be a good thing? Because often when the underlying goes up steadily, like in a bull run, vol contracts. In that situation, convexity is my friend and volatility be damned.

Third, if you trade single leg options on the long side, the best stop may be your premium? Why put stop on stop? So I don't understand BW's problem.

Of course I am just an amateur retail, most of the time the pros here laughed at what I wrote. I am like @raVar, don't make sense to them.

taowave · Nov 13, 2019

Ravar says things which defy the laws of options and then throws out nice fancy terms as a distraction. Non correlated assets,periodicity,teaching spreads before single legs???

Keep it simple...You bring up trading directionally and vol contraction being a good thing.

What does having a strong opinion on direction and vol contraction tell you??? It's not complicated..Trade with a directional bias,be short vol,and do not let your gamma bite you in the butt...(turn a long into a short)

Great point about options and stops..imho,part of the extrinsic value is the built in stop.But if you trade directionally,you know that there Are many approaches to stops and options. It can be a punt where the option premium is the stop.It could be the stock price triggers the sale of the option.It could be a time stop.Until you run a simulation of your strategy and have some idea of Profit Factor,MAE,MFE etc,it's simply one persons opinion..

Elaborate how convexity is your friend in a Bull market..

ironchef said:
You have a good point about @raVar. He started out on non-correlated trades and talked about periodicity which were excellent topics that I struggled with for a long time. But I am too dumb because I could not understand half of what he was talking about.

As for your second point, some of us who trade directional, have a strong opinion on the direction, vol contraction may be a good thing? Because often when the underlying goes up steadily, like in a bull run, vol contracts. In that situation, convexity is my friend and volatility be damned.

Third, if you trade single leg options on the long side, the best stop may be your premium? Why put stop on stop? So I don't understand BW's problem.

Of course I am just an amateur retail, most of the time the pros here laughed at what I wrote. I am like @raVar, don't make sense to them.

ironchef · Nov 13, 2019

taowave said:
Elaborate how convexity is your friend in a Bull market..

1. If I am lucky and my directional guess is correct, my gain is nonlinear.

2. Buying option is like buy a ticket for an amusement ride, why get off the ride before it ends? If I am winning and stay till the end, less vol near the end is better?

Please correct me if my rationale is flawed.

Best to you.

Wheezooo · Nov 13, 2019

ironchef said:
1. If I am lucky and my directional guess is correct, my gain is nonlinear.

2. Buying option is like buy a ticket for an amusement ride, why get off the ride before it ends? If I am winning and stay till the end, less vol near the end is better?

Please correct me if my rationale is flawed.

Best to you.

#2???? Because the Dynamics change. Always - is this good from here. Do I like it at this moment, here!

ironchef · Nov 13, 2019

Bushwacked9 said:
So one thing I've noticed .. he's the only one that tried to help. Then everyone else spends the rest of the time telling me how bad he is ... Which is fine, but then they don't actually give their own thoughts sooooo ....

Bushwacked9 said:
Right now I see one guy trying to help, right or wrong, he's the only one throwing out suggestions, then a bunch of keyboard warriors swarming, but not actually putting anything out there ...

Am I wrong?

Yes, you are wrong. @destriero was trying to help you except you were too dumb to notice:

destriero said:
I don't typically buy singles unless it's intraday or legging into a combo or spread, or unless they are distinctly a proxy for the underlying (shares) to reduce haircut. So you're trading GOOGL and don't have $65K in net liq to short 100. Buying the Dec 1400P at $100 is a practical alternative to $65K in shares.

Carry is embedded in the vol (options) and the only significant exposure is delta. Microstructure plays a role with displaying greeks on the front-end, so price the same strike call for its greeks. Delta (100+P(D)); gamma(same); theta(same); vega(same).

One minor advantage is that while you have some decay the option has some value-add as a stop. Intraday in a liquid series? I typically go ATM and spread it off by the close.

ironchef · Nov 13, 2019

Wheezooo said:
#2???? Because the Dynamics change. Always - is this good from here. Do I like it at this moment, here!

I know it is stupid, not supported by math or analysis.

I just don't like to "waste" my purchase, after all, I don't buy mechanically, each purchase is precious.

ironchef · Nov 13, 2019

Wheezooo said:
#2???? Because the Dynamics change. Always - is this good from here. Do I like it at this moment, here!

After thinking about what you said, you are absolutely correct, mine rationale was based on emotion, not logic.

Thank you for the coaching.

Wheezooo · Nov 13, 2019

ironchef said:
After thinking about what you said, you are absolutely correct, mine rationale was based on emotion, not logic.

Thank you for the coaching.

Thanks, saved me having to write, "you should never get married to your trades."

destriero · Nov 13, 2019

"Non correlated" as used by the ravar dude is just silly. SPY and QQQ are correlated. "Periodicity" is not used to denote duration in trading. Go define the term.

I really don't care who wins or loses. It's more a pride of authorship for anyone here who is experienced to not allow complete fantasy to remain unchallenged.