For Directional traders

I always look at those options far out of the money with the low premiums but I usually chicken out and get the ones close in.

I wonder how they options find their value because it seems to me that the pros mostly play spreads so calls like yours should become more valuable to those folks as the as GOOG call acts like it has in the past two days. But I guess I'm wrong: more to learn.

I played a XAU put yesterday to get my feet wet after being sick, sure didn't do what I wanted!!!! Wish I could've be on the game on the 26th!

Wonder what Monday is going to look like.

Good luck out there!
 
I don't have access to a chart program that let's me see candle patterns for a specific historic period other than the past up to this point - I was wondering if downturns on your XAU have characteristic clear candles scattered throughout the downtrend like there are darks in the uptrend. If that were so, I'd say it's good for some more downturn and hold your pos'n. But, I've never traded that stuff.
 
I'm more relying on a couple of pros and some long term chart reading peppered with a little global politics for analysis. I really think I need to do more reading about candles before I start relying to any degree on them for direction.

I'm holding it, it just didn't do what I wanted on Friday.

I got a nice day where I am, hope you do too.

Good luck Monday!
 
Quote from Rob on Business:

I need to add something else I realized after hours today. I've been making a costly mistake in the way I buy options and I need to quit it. GOOG moved up over $5 today yet my pos'n's value didn't change. That's because the strike price I bought is so far out - NOV390 that GOOG could barely hope to hit that by expiry and so time erosion is working as fast as the stock is climbing to get there. I did that in the past on GOOG's first sharp rallies earlier in the summer and profitted when I rode them in the steepest part of the rises because they can also make money faster than closer strikes. It's a scarey way to play, and it also is the reason I lost an incredible amount of money when the same corrected $14 in 2 days. I would be glad to recover that in my lifetime if trading doesn't beat me up first. So, from now on, God help me, I'll play safer options with a closer strike. I wonder if GOOG can hold out til Nov.1 before it corrects, as the first trading day of any month is generally a good one. If we open Monday with some good E.R.'s or economic outlooks, maybe that'll be enough to tide us over til Tues.
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What's your level of understanding of the options greeks, B-S model, price probability distribution?

Anyway, my advice is not to trade tips. These guys wouldn't be radio hosts if they could make money in the markets.
 
My level of understanding is zilch on those topics - I basically trade trends and rely a bit on volume, slow stochs, MACD, and Bolinger Bands with a 20day EMA. I must say I rely most on the BB and EMA lines, vol. next and then stochs. I watch a group of favorite stocks and try sometimes to read and play what you guys are doing. I know my next step should be to study some literature on the subject but haven't yet - do you have any rec's? I would like to be better at directional trades, know about writing, and know how to play combos, if that is profitable. My goal is to eventually earn a living during the winter at this, but my present businesses are taking my time and I just am not gaining fast enough with the meager acc't I have to devote all my time to it. Besides, I haven't found a mentor up here in Canada that could accelerate things - I learn best and fastest by watching and copying, which is how I got going in my businesses.
 
I often wonder about those radio, TV, and website "experts". Seems I'm the only one I know who's ever tried them - and for the most part, failed with them. I've been trading realtime since last Feb. and the first advisors I subscribed to were The Daytrade Team, in ILL. Well, that was a disaster - they advised calls on CAT when it was dipping, and bailed out of BYD while it was still moving, not making anything. I stayed in and made some money, but certainly wasn't game for anymore with them or anyone else. There are countless hawkers on the 'net peddling superior picks, strategies, inside info, etc. but I don't try them anymore. I must say that if I had a profitable system, I would probably sell some coaching and such, but certainly offer a no-obligation trial period up front, no card # req'd.
 
Quote from Rob on Business:

My level of understanding is zilch on those topics - I basically trade trends and rely a bit on volume, slow stochs, MACD, and Bolinger Bands with a 20day EMA. I must say I rely most on the BB and EMA lines, vol. next and then stochs. I watch a group of favorite stocks and try sometimes to read and play what you guys are doing. I know my next step should be to study some literature on the subject but haven't yet - do you have any rec's? I would like to be better at directional trades, know about writing, and know how to play combos, if that is profitable. My goal is to eventually earn a living during the winter at this, but my present businesses are taking my time and I just am not gaining fast enough with the meager acc't I have to devote all my time to it. Besides, I haven't found a mentor up here in Canada that could accelerate things - I learn best and fastest by watching and copying, which is how I got going in my businesses.
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If you don't understand options but are using them you're at high risk of losing money. They seem simple and are promoted by several gurus as income providers, etc., but in actuality they are much more complex. Besides the intuitive connection to the price of the underlying their value depends of other factors like time to expiration, interest rates, dividends and something called implied volatility. Understanding how all these work will help you even when you're wrong about the stock price performance, and on the flip side not understanding them will hurt you even when you're correct about the price.

To understand how to tackle trading, in general, not only option trading, I recommend two books:
  • Van K Tharp "Trade Your Way To Financial Freedom"
  • Alexander Elder "Come Into My Trading Room: A Complete Guide to Trading"
For options I recommend the book:
  • Lawrence McMillan "Options As A Strategic Investment"
I also recommend to check the forum:
  • http://finance.groups.yahoo.com/group/OptionClub/
One of the most important things in trading is money management. Without it, except if you're lucky, you'll lose your money before knowing why.

And a final advice: beware of all those that tell you that trading is simple, or that you'll get rich quick. You don't have to spend a lot of money to learn how to trade, i.e. on seminars or software, but you'll have to spend a lot of time learning and trying, and be patient. There are no short cuts, but it can be done.
 
Thanks, CMNS2, I will look up those books. I've never heard anyone yet say that being right about underlying and wrong about understanding on other related issues can work against you, yet it must be true judging by how much space you guys devote to talking about it. Those are things never talked about in the introductory seminars I attended and read. I know about expiry and time decay of course, but how much influence volatility has is invisible to me.
 
Quote from Rob on Business:

Thanks, CMNS2, I will look up those books. I've never heard anyone yet say that being right about underlying and wrong about understanding on other related issues can work against you, yet it must be true judging by how much space you guys devote to talking about it. Those are things never talked about in the introductory seminars I attended and read. I know about expiry and time decay of course, but how much influence volatility has is invisible to me.
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Implied volatility (IV) is a coefficient used in the Black-Scholes option pricing model / formula. Simply put: when IV is high options are more expensive, when it is low they're cheaper. Many people confuse it with historical volatility (standard deviation of the past stock prices) and future implied volatility (the IV estimated value at a given moment in the future). Given all the inputs of the B-S model (stock price, time to expiration, interest rate, dividend, strike) and the option price, the option IV can be calculated, and used to compare different options between them, and also to compare to the historical range of the IV for that stock.

Again, simply put: if the current IV is high relative to the IV historical values, the options may be overpriced, and people may expect the IV to drop (to revert to the mean). This would suggest to sell options now then buy them back after the IV drops (buy low and sell high). In reality you can't be sure what and when'll happen with the IV, you just make an "educated guess" based on whatever methods you like (technical analysis, star gazing, fundamental research, etc.).

Many option quote sites give you besides the option price it's current IV (derived from the B-S formula).

How can you lose money when the stock moves your way? Let's say you buy a call. The stock price goes up, but it's IV goes substantially down: this may cause your call to lose value. Possible scenario: GOOG earnings approach, you estimate a good report and buy calls, but because people are nervous about the news they buy avidly puts and / or calls pushing the IV higher. The news come out, they're good as you predicted, GOOG price goes up, but now people start to relax, they're not rushing to buy puts and / or calls, so IV drops. Depending on how much the stock price went up and how much IV went down, you may have actually lost a lot of money although you were correct. In this scenario, if you took the other side of the trade (you sold the call) you could actually make money although you were wrong about GOOG price.

This is why when trading options you have to predict not only the underlying price direction over your option time frame, but the option future IV relative to its current IV.

You can find a crush introduction in volatility in the following post: http://finance.groups.yahoo.com/group/OptionClub/message/5344
 
Thanks. I was looking for more stuff to read!

I really liked Swing Trading by Jon Markman.

He profiled several different swing traders with different styles and approaches both short and long.
 
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