There is no golden rule that says if VIX > 30 than VIX will rise. Have a look at April-May 2010, September-October 2008, etc. Sometimes it takes years until the VIX falls to it's long-term average.
Is buying naked calls a stupid way of being long?
- Thread starter jr07
- Start date
Agreed with comments on vol determining the option price primarily. As for question from OP, what I would say is that understand well about option pricing, but then use trading it to your advantage - one way I do it more succesfully for options than for stocks, is that it forces me to execute my plan. Once you follow your discipline and manage money properly and close your trades IN TIMELY manner, you will make profit. Once you hit your $$ profit target then close the position, or get out when you hit the predetermined % loss to avoid any further losses.
The discipline to close the position in a timely manner especially when losing, is hard with stocks alone, at least for me. For stocks since there there is no "time decay" for holding the position long enough, your hope and wishes take over your original profit/loss plan, resulting in bad position/money management.
Have specific and reasonable targets before getting into a trade, know what you expect from that option trade before getting into one. I use options primarily to sell premium, then follow and force discipline on when I will close that trade, and make those trades work for you. Probability of you making money goes higher with that approach. Again, everyone has their own style, but by no means trading options with "long" outlook is stupid at all.
The discipline to close the position in a timely manner especially when losing, is hard with stocks alone, at least for me. For stocks since there there is no "time decay" for holding the position long enough, your hope and wishes take over your original profit/loss plan, resulting in bad position/money management.
Have specific and reasonable targets before getting into a trade, know what you expect from that option trade before getting into one. I use options primarily to sell premium, then follow and force discipline on when I will close that trade, and make those trades work for you. Probability of you making money goes higher with that approach. Again, everyone has their own style, but by no means trading options with "long" outlook is stupid at all.
so you dont think its a lot easier to be disciplined on stock trades rather than options positions? I find it a lot easier to fine tune my entries and exits on a stock trade. You can make the exit a function of a multiplier of realized vol, or fixed % target/stop loss, or at pivot points such as around support/resistance. Options do not afford you such luxury. You could say you get out when you lost or made a % of your original premium, yes, but how you get there is completely non-linear plus you are always facing a huge % spread to exit the position which you better built into your thought process but even the spread is a complete function of liquidity and volatility.
You did not notice he stated that he sells premium? He also stuffed his message with some long call words, but in reality he seems to be a seller, and I agree with what he wrote about options forcing one to be patient. A seller has in general no choice but wait for time to pass. For a buyer of premium, waiting is not a good thing most of the time, yet to win you have to wait a lot when you are right. So it is hard to know when to wait and not to wait.
Trading is a personal thing.
There is some truth in there for market EFTs. If market rallies vol drops, and call sellers have a built in hedge. You would rarely find people admitting that they make most of the money selling premium.
Beginners probably do not realize it. Those who do probably make a second mistake: leverage.
asiaprop,
Following one's own trading plan for stocks based on technicals for stock as you mention is sure very much helpful, but same analysis for that stock can be applied to help open/close option positions for those stocks as underlying. The key point is how you enforce discipline - if I am trading option with front month, or just one more month exp. out, I have limited time to work with that trade, and hence I am "forced" to make my decisions to close the position quickly, as opposed to stock - there is no such time limit. IBM has moved between 80+ and 130+ for example over last several years and I have time to get profitable while I earn dividend anyway on stock - so I hold it, not true for option positions. Again, this is personal style, whatever works for one's own style know it, and make it work to make money. Bottomline.
There are other fundamental points I did not mention since they were obvious I thought. One of them is don't get killed by spread. That is absolutely correct and good point. Just trade highly liquid options, either choose those with spreads of penny wide, or a nickel at most, and even for those if they are liquid enough fills are pretty good (i.e. AAPL).
Following one's own trading plan for stocks based on technicals for stock as you mention is sure very much helpful, but same analysis for that stock can be applied to help open/close option positions for those stocks as underlying. The key point is how you enforce discipline - if I am trading option with front month, or just one more month exp. out, I have limited time to work with that trade, and hence I am "forced" to make my decisions to close the position quickly, as opposed to stock - there is no such time limit. IBM has moved between 80+ and 130+ for example over last several years and I have time to get profitable while I earn dividend anyway on stock - so I hold it, not true for option positions. Again, this is personal style, whatever works for one's own style know it, and make it work to make money. Bottomline.
There are other fundamental points I did not mention since they were obvious I thought. One of them is don't get killed by spread. That is absolutely correct and good point. Just trade highly liquid options, either choose those with spreads of penny wide, or a nickel at most, and even for those if they are liquid enough fills are pretty good (i.e. AAPL).
How much of your capital did you risk on this thing? I would not underestimate the premium sellers--- they can be sophisticated spreaders with deep pockets.
from the first post I clearly read he buys premium. Thats the problem that the OP had, that he wanted to buy upside because of beaten down stocks but that buying calls exposed him to a long vega position. We may reference different posts, but I referred to the OP and his first post PLUS title of this thread. ;-)