Correct. Mid point is what your broker wants you to do and it's wrong most of the time. First look at the opposite call/put. The spread should be narrow and that's the real bid/ask relative to extrinsic. Then there is the real value which you will learn over time. Look at the ranges over time and Where it could go and what is your target. I'm Long options cause there are many premium sellers that short blindly Low vols. Think about trading stock and buying opposite call/put and take advantage of put/call parity. Then you will find the real/fair market.
Is There A "Do and Don't" List For Option Trading?
- Thread starter Scataphagos
- Start date
Correct. Mid point is what your broker wants you to do and it's wrong most of the time. First look at the opposite call/put. The spread should be narrow and that's the real bid/ask relative to extrinsic. Then there is the real value which you will learn over time. Look at the ranges over time and Where it could go and what is your target. I'm Long options cause there are many premium sellers that short blindly Low vols. Think about trading stock and buying opposite call/put and take advantage of put/call parity. Then you will find the real/fair market.
Nothing inherently wrong w you trying to catch the mid point but stymie is right- gotta brush up on your synthetics and lock insome trades thru the other option. That beign said, I'd still avoid the wide spreads even though you might occasionally get lucky and get a MM to hit your midpoint. If that spread is on a typical day then something bad happens and you have to get out, that spread will widen more... then you are screwed! You are giving up 15 cents to get in and 25 cents to get out +commission and that will eat up big % of your profits AND that is on the good trades. Imagine the bad trades?
Selling an ATM put on a stock or ETF is less risky than buying 100 shares of the underlying. So if you think that's too risky, you shouldn't be trading more than 99 shares of stock / ETF.
Thank you for your reply.
Thank you for your coaching.
What you said is correct and I often paid dearly for bid/ask spreads. I could normally hit the mid point when entering a trade but exiting one was often a different story.
there is no "don't" when it comes to learning
do everything, try different things, try the same thing under different conditions
understand why people said that things, in what conditions/ what context/ what goal?
make mistakes..
lot of it :]
But as Stymie said, net sum of overall trades were very profitable (convexity) in spite of having to pay the MM high bid/ask spread during exits. I don't mind paying them their fair share, just do not want to overpay.
What's so special about %R? There are other "range indicators" with similar indications.