Divergences

Quote from 4re:

Romik,
I am not sure what I pay for commissions. I have had this account for quite a while. They used to be considered pretty low but I am not sure. Sorry...

Yes, stocks do tend to have liquidity issues. In fact that is why you want to pick yuor stocks carefully. CAL usually trades about 5 million shares a day so I had big problems getting into this trade. Make sure the stock you pick trades more than 10 million a day and you should be ok.

Another big thing about options is what they call greeks. Long story short, they help you determine pricing, volitility and other crap. One method I have found to keep from having to figure all this crap and keep it simple. Find a high volume stock and look at the BB's. Wait until they are getting tight (meaning volitility has gone down. Then buy your positions before it pops out of the BB's. \

You close a position buy "selling to close" the option. You will see my orders to do so at the bottom of the second page.

Your divergence method with added BB's will get you going. You will have a bias towards which way you think the stock will go (as I did in this case). Place a higher amount of your position on that side. The other side should be for insurance (as I did on this one).

Gary
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thanks very much Gary, I have to decide what is the more appropriate vehicle for divergence based signals, I see the basics of your set-ups from your example. The immediate negative is the spread here, as I have a certain principle how I derive PTs based on divergence, remember I mentioned it before, so according to my estimates the call/put price might be out of the range of the estimate. In CAL example, it was clear, up to now at least, that having an options trade could be more beneficial than a straight short in shares. So, I will log into my broker account from now and will compare available calls/puts against PTs set in the divergence of future trade calls.

Thanks again Gary.
 
Quote from romik:

thanks very much Gary, I have to decide what is the more appropriate vehicle for divergence based signals, I see the basics of your set-ups from your example. The immediate negative is the spread here, as I have a certain principle how I derive PTs based on divergence, remember I mentioned it before, so according to my estimates the call/put price might be out of the range of the estimate. In CAL example, it was clear, up to now at least, that having an options trade could be more beneficial than a straight short in shares. So, I will log into my broker account from now and will compare available calls/puts against PTs set in the divergence of future trade calls.

Thanks again Gary.
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You are right. I only do this with stocks that have high volitility and that tend to make big moves. You can see that CAL went from 32 to present at 22. A 10 dollar move during this trade. I have it figured where the Q's would have to make a 3 dollar move for me to double right now. I don't see that it will do it in one month so I will be looking farther out and maybe buy the Oct. contracts for my next q's trade. Then again I might wait for a little bit before doing anything on it.
 
Quote from 4re:

You are right. I only do this with stocks that have high volitility and that tend to make big moves. You can see that CAL went from 32 to present at 22. A 10 dollar move during this trade. I have it figured where the Q's would have to make a 3 dollar move for me to double right now. I don't see that it will do it in one month so I will be looking farther out and maybe buy the Oct. contracts for my next q's trade. Then again I might wait for a little bit before doing anything on it.
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I knew it for a while that it makes sense using options (leaps perhaps) as an insurance when you hold shares, my cousins have reaped the rewards during the net bubble times by buying "boring" neglected stocks and buying leap puts on overvalued in masses, I don't know the exact ins and outs, they do not give lectures :), they did net around $5m though. I suppose they managed to time it really well.
 
Gary, why were puts more expensive than calls on CAL? Does that mean that MMs considered the odds of a decline in the price higher vs increase? Like in sports betting odds?
 
Quote from romik:

Gary, why were puts more expensive than calls on CAL? Does that mean that MMs considered the odds of a decline in the price higher vs increase? Like in sports betting odds?
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The MM's are not supposed to abuse that power (we both know what that means) but the main reason was because the price of the stock had already fallen from about 30 to 27 when I entered this trade. So the 40 calls were way out of the money and the 25 puts were closer to being in the money making the implied volitility higher. Now they are 3 dollars in the money. I am looking for about 21.50 in order to hit my target.

Now getting to the market makers for CAL. When I was trying to get my order executed you can see how they accepted my price for 10 contracts at a time for several times. They could see how I was setting up this trade and knew they were going to lose so they kept trying to keep the price up there and make me pay .40 instead of .30. Finally the stock price fell enough that they had to sell to me. Just to prove to myself I knew what they were doing. The next day I entered another order at the bid price and as soon as I looked at it again they had raised it by .10, again. They really don't want anybody to make money on these options.
 
Romik,
Just to let you know, I am going to be bailing on CAL this morning at the open. I'll be taking less than the double I was wanting but I need to start getting ready fro my next Q's trade and with the BB's getting more tight on than Q's than I have seen in a while I need to start entering the trade today and tomorrow. I'll be using the October contracts for the Q's.

Gary
 
Quote from 4re:

Romik,
Just to let you know, I am going to be bailing on CAL this morning at the open. I'll be taking less than the double I was wanting but I need to start getting ready fro my next Q's trade and with the BB's getting more tight on than Q's than I have seen in a while I need to start entering the trade today and tomorrow. I'll be using the October contracts for the Q's.

Gary
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great, all the best on that one!
 
Quote from romik:

great, all the best on that one!
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The market makers are jacking with me right now. They are trying to make me chase it on my exit. Everytime I hit preview order they drop the price. I hate them F---ers!!!
 
OK, I finally got out at 3.10 on my CAL puts. Since the calls are worthless and I made a profit on this overall trade I just leave the calls where they are. Who knows maybe they will pop it back up before they expire and I can pocket some money on them as well.
 
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