high income/high risk
- Thread starter osho67
- Start date
High risk/high income is dangerous in options. Examples are naked straddles/strangles and naked options. Of ourse you can make a long call have high risk for you by putting all your money into it and loading up so the term is a little vague.
Well as I said selling ATM straddles can have high rewards on high IV stocks but the risk is huge too as there is a good reason the premiums are high to begin with. Options should be used to reduce risk in general so I would avoid naked premium selling strategies.
To me, the short answer to your high risk/high reward question is to sell puts AND sell calls. Learn the risks before you jump in. I sell naked puts, but not calls unless they are covered. There are tons of strategies to try from strangles to straddles, but KISS. By just writing puts I do well, when I try to sell naked calls too I don't. Find what works for you and don't waver, but continue to learn.
I add risk to my put selling by letting the total amount of underlying stocks I COULD own go as high as 200% of the cash I have.
In the end, if you can't pick a direction you think the stock will move you shouldn't sell an option on it unless you can be quick to get out if it moves against you.
My long(er) winded version of my model is here:
http://mytradersjournal.com/stock-options/my-trading-model/
Free spreasheets for determining ROI are here:
http://mytradersjournal.com/stock-options/excel-spreadsheets/
I add risk to my put selling by letting the total amount of underlying stocks I COULD own go as high as 200% of the cash I have.
In the end, if you can't pick a direction you think the stock will move you shouldn't sell an option on it unless you can be quick to get out if it moves against you.
My long(er) winded version of my model is here:
http://mytradersjournal.com/stock-options/my-trading-model/
Free spreasheets for determining ROI are here:
http://mytradersjournal.com/stock-options/excel-spreadsheets/
The CBOE, redoption, and optionscentral websites have a lot of info.
As always, my advice is for you not to trade options because you are not equipped or prepared to do so.
Two choices if you must trade options: learn everything about them over the next couple years before putting any significant money in them, or end up eventually losing your money to the pros.
osho67
I would like to read more about high risk/high income strategies in options. Plese recommend some books/articles or other educational material. Thanks and help much appreciated
##################################
they are all 100% risk straddle ,strangle ,butterfly,spread &
You can lose all 100% ,which invested in combination
synthetic is most conservativ .
Most high profit is- found company from nasdaq/nyse as
DNDN,FFIV,BIDU & in day before reporting .Better if day
of reporting = or near option expiration day
and put cash ,which you will risk to in the money call or put (1)
with some 50% intrinsic value or in debit spread (2)
Risk Potencial profit
1. 100% from position for in the money options for
price 2-3$ some 300-400%
2. 100% from position until 120-130%
More can be only for out the money options in equal case .
Enough ?
After you found your winning ratio (as example 30 from 100 ),
average risk/reward ,you can calculate which part of capital lyour must risk in each of this operation
I would like to read more about high risk/high income strategies in options. Plese recommend some books/articles or other educational material. Thanks and help much appreciated
##################################
they are all 100% risk straddle ,strangle ,butterfly,spread &
You can lose all 100% ,which invested in combination
synthetic is most conservativ .
Most high profit is- found company from nasdaq/nyse as
DNDN,FFIV,BIDU & in day before reporting .Better if day
of reporting = or near option expiration day
and put cash ,which you will risk to in the money call or put (1)
with some 50% intrinsic value or in debit spread (2)
Risk Potencial profit
1. 100% from position for in the money options for
price 2-3$ some 300-400%
2. 100% from position until 120-130%
More can be only for out the money options in equal case .
Enough ?
After you found your winning ratio (as example 30 from 100 ),
average risk/reward ,you can calculate which part of capital lyour must risk in each of this operation
The highest reward potential is to simply buy calls or buy puts on stocks and indexes.
There is unlimited profit potential with this simple option strategy.
You can limit the risk of those option trades by using a stop loss.
For example:
Lets say you think stock XYZ is going up substantially.
You take no more than 10% of your option trading account and you buy In the Money (ITM) Call options on stock XYZ that have very high intrinsic value and very little time premium built in, with about 2 months of time left on those options before expiration.
You then have a couple of choices regarding sell orders:
1: [ High Profit method ]
This method uses Fixed Sell Parameters which pre-determine the entry price, profit level and stop.
Lets say you want 100% option profit on your trade.
You can set up an automated order that buys the options at a
limit entry price and closes the position at a limit sell of +100%
above the entry price, or stops out the options with a -40% stop limit. Its called a Bracket Order. It does the work and you go do something else and not interfere with the trade.
[ Homerun Method ]
2: Unlimited Profit Trailing Stop Method:
Lets say your shooting for the absolute highest profit you can.
Step A: Initially you simply buy the options and then place
a -40% stop limit. If the options initially do not stop out and they continue to rise higher and higher in value, move to Step B.
Step B: Passively Monitor the option value. When the option value
hits +100% above your entry price, cancel the initial -40% stop,
sell one half of your contracts (this satisfy's one need to book some profits).
For the remaining open contracts, passively monitor the option value once or twice a day. Use this table for a mental stop:
[ Trailing Stop Table ]
Option Value.....Stop
+100%............ +50%
+150%............ +100%
+200%............ +150%
+250%............ +200%
+300%............ +250%
+350%............ +300%
...etc................
in other words, for every +50% the options gain, keep moving up the mental stop +50%.
Eventually one of two things will happen:
1: The options pullback -50% and you sell them at one of the prices in the Trailing Stop Table above.
2: The options runs out of time.
Of course all this assumes you were correct on your analysis of the stock or index moving up a substantial amount before you get initially stopped out.
With either of the two methods above, your ability to pick a substantial move in a stock or index can be wrong 60% of the time and you will still make decent money.
Lets use the High Profit method for example:
4 wins at +100% = +400%
6 losers at -40% = -240%
10 Trade Gain........ +160%
There is unlimited profit potential with this simple option strategy.
You can limit the risk of those option trades by using a stop loss.
For example:
Lets say you think stock XYZ is going up substantially.
You take no more than 10% of your option trading account and you buy In the Money (ITM) Call options on stock XYZ that have very high intrinsic value and very little time premium built in, with about 2 months of time left on those options before expiration.
You then have a couple of choices regarding sell orders:
1: [ High Profit method ]
This method uses Fixed Sell Parameters which pre-determine the entry price, profit level and stop.
Lets say you want 100% option profit on your trade.
You can set up an automated order that buys the options at a
limit entry price and closes the position at a limit sell of +100%
above the entry price, or stops out the options with a -40% stop limit. Its called a Bracket Order. It does the work and you go do something else and not interfere with the trade.
[ Homerun Method ]
2: Unlimited Profit Trailing Stop Method:
Lets say your shooting for the absolute highest profit you can.
Step A: Initially you simply buy the options and then place
a -40% stop limit. If the options initially do not stop out and they continue to rise higher and higher in value, move to Step B.
Step B: Passively Monitor the option value. When the option value
hits +100% above your entry price, cancel the initial -40% stop,
sell one half of your contracts (this satisfy's one need to book some profits).
For the remaining open contracts, passively monitor the option value once or twice a day. Use this table for a mental stop:
[ Trailing Stop Table ]
Option Value.....Stop
+100%............ +50%
+150%............ +100%
+200%............ +150%
+250%............ +200%
+300%............ +250%
+350%............ +300%
...etc................
in other words, for every +50% the options gain, keep moving up the mental stop +50%.
Eventually one of two things will happen:
1: The options pullback -50% and you sell them at one of the prices in the Trailing Stop Table above.
2: The options runs out of time.
Of course all this assumes you were correct on your analysis of the stock or index moving up a substantial amount before you get initially stopped out.
With either of the two methods above, your ability to pick a substantial move in a stock or index can be wrong 60% of the time and you will still make decent money.
Lets use the High Profit method for example:
4 wins at +100% = +400%
6 losers at -40% = -240%
10 Trade Gain........ +160%
In my opinion, which is an opinion only, selling calls is less risky than selling puts. The reason behind selling puts is that stock can go down only to zero, but can go up indefinitely, or the investor just wants to gain some time premium while waiting for the underlying to fall. The reason I say selling calls is less risky is from at least 2 perspectives. One, stock may go up indefinitely, but nearly always takes more time; exceptions are in cases of takeovers and buyouts. Two, stock market crashes from time to time, but does not favorably boom even once in history. There is no case in history that Dow rises 30% in a day and makes every investors million-or-billionares in one day. Therefore, I think that selling OTM calls on an index, which takeover or buyout is irrelevant, with sufficiently far away strikes and one month or less till expiration, is less risky than selling OTM puts in the same period of time.
Comments?
Comments?