how would you play expecting Tim's plan out?

[mizhael]

As a newbie, I kept losing track of market events. This morning when I woke up the market was all rallying up, induced by Tim giving out his plan.

Looking back, should I have kept track of this important event, I should have entered into some trades last week, say Friday.

My question is: what type of option strategy shall I play, last week, say Friday, in expectation of his plan today?

Any thoughts?

Thanks a lot!

 

[JJacksET4]

Quote from mizhael:

As a newbie, I kept losing track of market events. This morning when I woke up the market was all rallying up, induced by Tim giving out his plan.

Looking back, should I have kept track of this important event, I should have entered into some trades last week, say Friday.

My question is: what type of option strategy shall I play, last week, say Friday, in expectation of his plan today?

Any thoughts?

Thanks a lot!

Mizhael,

I just wanted to comment on this quickly. I think it is easier looking back after a day like today and think that a person should have bought some short term calls and especially on financials, but you have to remember that the market reaction isn't always (and in fact often isn't) what a person might expect.

For example, what if everyone had expected a great plan from Geitner and then when it came out, the market had hated it? Also, people have been so conditioned to "buy the rumor, sell the news" that it wouldn't have been shocking to see the market fall for a day or 2 even on news that was long run good for the market.

Anyways, just trying to point out that it's often easy to look back and say "oh, that was obvious - how did I miss that", but it is alot harder to know what the actual market reaction will be to news (this includes company earnings reports as well).

JJacksET4

 

[KINGOFSHORTS]

It will fade out like all these bear rallies. I wrote calls on the morning. The whole thing will fade out in a few days.


Nothing fundamental about are economy is better than last week. I would like to see some improvements in things like unemployment, earnings (good solid earnings not earnings based on tax advantages etc..),etc..

 

[spindr0]

Guessing the direction that the market will move on pending news is hit or miss. Riding the momentum of the reaction to that news is much safer bet.

If I was an investor rather than a trader, I'd say Ditto to what the King wrote. Until there's a fundamental improvement in some of the many economic data reports released weekly, the pain isn't likely to be over. But since I am a trader, I'm happy to see volatility and I don't care whether the market is up or down. OK, I lied. I prefer down.

 

[mizhael]

Quote from JJacksET4:

Mizhael,

I just wanted to comment on this quickly. I think it is easier looking back after a day like today and think that a person should have bought some short term calls and especially on financials, but you have to remember that the market reaction isn't always (and in fact often isn't) what a person might expect.

For example, what if everyone had expected a great plan from Geitner and then when it came out, the market had hated it? Also, people have been so conditioned to "buy the rumor, sell the news" that it wouldn't have been shocking to see the market fall for a day or 2 even on news that was long run good for the market.

Anyways, just trying to point out that it's often easy to look back and say "oh, that was obvious - how did I miss that", but it is alot harder to know what the actual market reaction will be to news (this includes company earnings reports as well).

JJacksET4

Yep, given that potential uncertainty, what might be a good option trading strategy? I guess that's what I was eager to learn about...

 

[hoffmanw]

Quote from mizhael:

Yep, given that potential uncertainty, what might be a good option trading strategy? I guess that's what I was eager to learn about...

Delta neutral strategy is perfect for this kind of situation.

 

[lolatency]

Quote from KINGOFSHORTS:

It will fade out like all these bear rallies. I wrote calls on the morning. The whole thing will fade out in a few days.


Nothing fundamental about are economy is better than last week. I would like to see some improvements in things like unemployment, earnings (good solid earnings not earnings based on tax advantages etc..),etc..

Agreed, but perhaps the move is exaggerated because the new plan changes the game for the financials. The non-financial sectors should still be fundamentally sick.

 

[dagnyt]

Quote from hoffmanw:

Delta neutral strategy is perfect for this kind of situation.

That's a terrible answer. And short-sighted.

Do you mean he should:

a) Buy straddles or strangles?

b) Sell straddles or strangles?

c) Trade a delta neutral iron condor? If yes, how far out of the money should his short be?

d) Own a call or put back spread?

e) Own a call or put front spread? If yes, what should the ratio be - how may extra naked options do you recommend selling?

f) What about an overwritten covered call? How far OTM is the strike?

etc

Mark

 

[riskfreetrading]

Quote from mizhael:

As a newbie, I kept losing track of market events. This morning when I woke up the market was all rallying up, induced by Tim giving out his plan.

Looking back, should I have kept track of this important event, I should have entered into some trades last week, say Friday.

My question is: what type of option strategy shall I play, last week, say Friday, in expectation of his plan today?

Any thoughts?

Thanks a lot!

You are doing well to look back and say "assuming I know what I know now, how could I have played it". If one cannot play it well in hindsight, it is even more difficult to play out without it.

I started the thread "Best Possible... To Play This Stock". It is similar to your question here. I have not seen an answer yet that strikes me as above head-and-shoulders.

Continue the good learning work! It similar to math proofs, you start, then realize you need to look at it from another point, until you corner it.

With your OR/Finance Maths, you are well placed to find your niche.

Cheers!

PS: I noticed you sent me a PM. I have not had a chance to get to my PMs yet. I plan to. If it is "urgent" just let me know, and I will process it before others.

 

[JJacksET4]

Quote from mizhael:

Yep, given that potential uncertainty, what might be a good option trading strategy? I guess that's what I was eager to learn about...

Mizhael,

I would hesistate to recommend any specific strategy because quite honestly different strategies have different risk/reward ratios, different margin requirements, different risk levels, etc. and the same strategy that might work for one person could fail for another person (i.e. a scared person might close down a risky strategy too soon).

Also, even if you feel a certain strategy is waranteed under a certain circumstance, unless you can look into the future, you can never really be sure.

Obviously, there are many options strategies each with ups and downs and with their own uses. I guess one of the first things would be for a person could decide if they are bearish/bullish or uncertain (and if uncertain, do they expect a small move or a large move?).

Then, view the different Bullish, Bearish, and Neutral strategies and decide which one(s) fit your risk tolerance, the amount you hope to gain and fit into what you can do in your account.

JJacksET