Buying/Selling Options

Options Coach, thanks for the words of advice and encouragement. I am learning to cope with the rough terrain here. But, as rough as it can get, there's a lot of comfort from knowing that there's also a lot of class in this crowd, especially from folks like Mav, Ursa, Daddy's Boy, and of course you. No doubt I've omitted several others who are also praiseworthy and deserving of my sincere thanks.

Bob
 
Quote from exQQQQseme:

Urs, no doubt the IV will drop probably with Thursday morning's opening prices. But, I strongly believe that the IV impact will mostly be for the options at or near the money and only for the January and February options. The April and July options haven't really spiked that much anyway. Having said this, I will of course do my diligence and check the IV charts mid morning Tomorrow (Jan 16) just to be sure.

Everything you say regarding the equivalencies is probably correct including the fact that I have the equiv of 8 July Puts.

Regarding the much discussed $120C purchase with potential delayed Butterfly, let's discuss where my head is presently at. Make no mistake about it, my bias and desire is for AAPL to drop, as evidenced by the present negative 340 deltas. The call purchase thing is simply a "just in case" contingency. But, obviously nobody knows for sure...certainly not me.

[.............]

In the end it does come down to personal comfort and experience, doesn't it?

Bob
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It is very true that comfort and experience should determine what strategies to deploy. My last post was merely intended to show that the AAPL position you ended up with is a perfect example why equivalences are important:
The fact that you own 8 long puts is in itself not that important. What is important is that hedging long bearish positions is unusual and, most important, that hedging will give you a long straddle/strangle. Those are about the worst to posess during numbers. It shows that viewing your position through its equivalences can give a whole different look at what to do.
It is true that the IV of later-month options is not as sensitive to near events, but be aware that the vega of these options (the IV-sensitivity of the premium) is magnitudes greater than of that of the near month. If their IV would drop too, the impact would be noticable.
Just for fun do a paper trade and buy 8 120 calls to hedge and look at the value of the total position after tomorrow.

Personally, if I owned 8 long puts to be bearish on AAPL I would just use them as such. If AAPL goes the wrong side I'd just close them out (or maybe buy back stock in your case). This can be easily set up with stoploss orders.

Ursa..
 
This reminds me, someone who was good at calling people knuckleheads then proceeding to give very good information in an easy to digest format was momoney. Haven't seen him around in awhile. Anyone know what happened? I really liked that guy.

Quote from exQQQQseme:

Options Coach, thanks for the words of advice and encouragement. I am learning to cope with the rough terrain here. But, as rough as it can get, there's a lot of comfort from knowing that there's also a lot of class in this crowd, especially from folks like Mav, Ursa, Daddy's Boy, and of course you. No doubt I've omitted several others who are also praiseworthy and deserving of my sincere thanks.

Bob
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What do you mean exactly by centering my vol?


Quote from Maverick74:

You need to take into account the vol skew. If MSFT had a neg call skew, that would mean the vol would actually rise as the stock went up, even if ATM vols were dropping. You need to make sure you center your vol. When referring to just vol, people are usually referring to the ATM vol. Then they run their vol curves around the ATM.

If MSFT had a pos skew, then the vol would have actually dropped as the stock rose. You need to separate the ATM vol from the vol skew. They are two different things.
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yeah Donna really knew how to derail a discussion LOL....

actually we miss her ;)



Quote from RichardRimes:



-mainly editing out all those really stupid comments from that "DonnaV" person.
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I would like to ask the gang to weigh in on what their favorite income strategy is. Mine is one which is done by very few people, but popularity is not a requisite to money making.

My favorite strategy is Covered Put Writing. That's right. Shorting the stock, and writing puts against it. Because it involves shorting stock you have to know the rules and also accept the fact that you cannot do this in an IRA or 401(k). Also, stay away from dividend paying stocks, or if you do play them, be aware of all aspects relating to dividend declarations.

Covered Put Writing - I can already hear the drums beating. Yes, I know that the risk graph is identical to a naked call write. No, I would never consider this with Google. Yes, when I do it with AAPL I do get nervous...hence an occasional mixture with long calls and OTM Butterfly calls.

I'll share with you all something I picked up from the writings of George Fontinills and also Larry McMillan. That is, keep your eye on IV and look for spikes. When you see a spike but there is no announced public reason, there still is a reason. Something is going to happen, but the public has not yet been clued in. As McMillan says, it is illegal to profit from undisclosed insider information, but since IV spikes are public information, there is nothing whatsoever illegal in attempting to take strategic advantage of such spikes.

About two weeks ago in the Scott Kramer forum at Optionetics, I mentioned that for some unknown reason, the IV of the short term options on AAPL was spiking SOONER than it normally does prior to earnings release. Sure enough. at noon a week ago, Jobs came out with his I-phone announcement and we all know what happened. You all know what my present AAPL position is. But what I have not previously shared with you is that about two weeks ago, when AAPL was at $85 and the IV spiked, I wrote 8 Jan $85 Puts against the 800 short shares. Nice thing about that was my fill price had an IV of about 60, whereas it normally would carry about a 42.

Early last week, after the stock took that quick 10 point jump, I was able to buy back the Puts for a nominal price. Yes, I am aware that I took about an $8,000 hit on the shorts, but that loss was significantly mitigated by the aforementioned IV play with the puts.

One thing you guys can take to the bank on my postings. While I won't always be strategically right, I will always be honest and sincere and will never BS you.

Bob
 
Just in case someone was wondering what I meant about an informative post without having to get nasty or jump on the original poster...

:)

Quote from MajorUrsa:

You current position is as you know equivalent to owning 8 long Jul$95 puts.
The premium you payed for the puts (calls) is your risk, the gain is unlimited.

When long puts are used as a bearish strategy it is normally done because of the limited-loss property that long options have. It is therefore not usual to consider hedging them.
But if you do hedge them, eg. by going long Jul$120C's you essentially will own a long strangle. I think long strangles are ok if you expect increase in IV, but since everyone is already eagerly waiting the numbers, IV will probably drop after they are announced. Long strangles are about the worst strategy to do before numbers., although they seem the most logical ones.

Another way to neutralize the -delta is to buy stock (or go less short in your case). If you buy 400 stock you will own -400s + 8c= 4p+4c. Again a long strangle, this time a straddle. Same issues here.

Seeing you now own 8 long puts and also seeing you want to study butterflies, you might want to convert this into a put fly instead of a call fly. By buying the 120 puts now and wait for the stock to drop (which is also more in line with the reason for having the long puts in the first place) you can the sell the middle puts and own a 'free' butterfly.

Again I want to stipulate that the latter don't exist. If you have a long call and it doubles in value and you sell the next higher call against it, will you own a free vertical? No, of course not, you used the profits from the first call to buy a new vertical. Important, this.

Enjoy your stay, glad you came back on your decision to leave :). Discovering the truth about options can be very discouraging, but if you keep going it also gets more and more interesting.


Ursa..
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Yeah, ET is missing its resident librarian and researcher...

Quote from spreadn00b:

This reminds me, someone who was good at calling people knuckleheads then proceeding to give very good information in an easy to digest format was momoney. Haven't seen him around in awhile. Anyone know what happened? I really liked that guy.
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This thread is getting pretty long so rather than further clutter this thread with my nonsense about the covered put write, I put it on a new thread.

Bob
 
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