SJoptions is cheap
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Looking for a good mentor for option trading...
- Thread starter mizhael
- Start date
Quote from dagnyt:
OK. You understand some of the math.
What do you know about trading? Not just options, but trading?
What do you know about the practical uses of options? Do you have any idea of the strategies available to you, or do you just buy options?
Do you have market timing skills? You'll need that if you buy options.
Can you trade without letting your emotions make the decisions for you? Do you panic when things go awry, or can you make intelligent decisions when you have a losing trade?
You are looking to reach the 'next level.' Have you mastered the very basic level? Do you know how to choose which trade to place and why you make the decision to trade a specific option or option spread? Do you understand the risk of the trade and how to manage that risk and collect your profit? I'm not just asking if you know how to buy low and sell high (or sell hig and buy low). Do you understand why the trade is made, how options differ from stocks, and what you are trying to accomplish (besides making a profit) from the trade?
Maybe you need to concentrate on something very practical at this time - such as understanding specific strategies, which options to choose when adopting those methods, how to manage the risk of such positions.
In short, don't assume the math background gives you a big edge when it comes to getting started in a trading career.
I am not putting you down. [If you take it that way, I apologize.] I am just asking if you have mastered the basics before worrying about the next level. Too many beginners get lost by moving too quickly.
Mark
The Rookie's Guide to Options
Well said Mark! Thank you so much for pin-pointing out many of my current problems. I am not very familiar with the practical side of trading and I am staring at the market every day and hopefully to learn from experience.
I am quite patient and unemotional and not worrying about loss at all.
I don't have market timing skills, for stock or option. I want to develop, but don't know how. I have trouble managing entrances and exits. For example, I bought MS Feb 20 $25 Call at around $0.15 and today when it hit $1.50 I sold out and closed my positions. But I have no idea about how much higher it can go further. Maybe it can go much higher. I did a bunch of Black Scholes calculation and reckoned that even the stock MS may go higher further, given the time value that I am losing, esp. over the weekend 2 days, I might as well just sell it at $1.50 and not to wait longer. What do you think about my reasoning? Could you please give me some pointers?
I do know the option combination/strategies in theory, but don't know how they are used in practice under different situations. Currently I am just at a preliminary level and I just buy call and put and make directional bets. When I won small, I also lost small. When I won big, I also lost big. That's why I am still struggling with the break-even line. For example, I am still under water for the BAC Call Feb 20 $15.
For example, I know longing a straddle makes me a profit when the price movement is bigger than the break-even point. But that's very abstract thing, right? How do I predict whether the price movement will be bigger or smaller than a number? Betting on price is like a first order thing, we can at least conceive it conceptually and see it vividly in the real market. Betting on price movement that will be larger or smaller than a certain amount and betting on volatility is like a second order thing, very abstract. Volatilities cannot be seen. Even if the stock moves vibrantly today, it doesn't mean the implied vol will be higher (the implied vol is a future expected vol type of thing). On the other hand, this makes option trading fun. How to run these strategies and how to manage risks, those are exactly the questions I ask myself. And I am vigorously reading books and thinking about these questions. But so far I am still at a very preliminary level.
"what you are trying to accomplish (besides making a profit) from the trade?" that's a good question. I derive fun and mental satisfaction from these daily volatility and in-and-out type of movements. Both large profit and large loss make me happy and excited.
I am not trying to assume that knowing some math will be naturally give me an edge. I honestly think I am just a humble student of the market and am learning hard every day, thru win or loss. On the other hand, I was just trying to say that maybe I can be a little bit useful if anybody wants to run some sort of statistical data analysis or strategy lab, humbly speaking.
Thanks a lot Mark for your pointers and yes please continue guiding me through this jungle. I really appreciate your thoughts!
Quote from mizhael:
Immediately when I sold all my MS Feb. 20 $25 call at $1.50, it jumped to $1.90. How regretful I am!
If you are that regretful, maybe you don't trade without emotions as well as you believe you do.
Once you sell your options, it's no longer your position. Learn to be concered with positions you own, not with positions that you used to own.
All you can do now is decide if and when to open a new position, and which stock to trade.
Mark
Quote from mizhael:
I am not very familiar with the practical side of trading and I am staring at the market every day and hopefully to learn from experience.
I am quite patient and unemotional and not worrying about loss at all.
I don't have market timing skills, for stock or option. I want to develop, but don't know how.
The practical side is the important side. You must understand what you are doing, but the money comes only after you open a trade and close the trade.
So, your 'next level' is not so much moving onto more complex stuff, but taking the time to learn the basics.
Try paper trading some strategy that appeals to you. Don't use real money yet. Perhaps a bull or bear spread. Perhaps an iron condor or butterfly. Right now it doesn't matter. The goal is to find something that is comfortable to trade and for which you understand how the position makes or loses money.
Do not believe that you can develop market timing skills. It's possible, but not for many. The professional money managers cannot do it. Most mutual funds underperform their benchmark indexes. Why should you be able to do better? Maybe you can, but I don't see how.
Many technical traders have systems that seem to work for them. SPIN is able to trade with or against the momentum for an active stock and catch enough moves to profit. I have no idea how he learned to do that, and more power to him. Do you think you can do that? I don't know.
I have trouble managing entrances and exits. For example, I bought MS Feb 20 $25 Call at around $0.15 and today when it hit $1.50 I sold out and closed my positions. But I have no idea about how much higher it can go further. Maybe it can go much higher. I did a bunch of Black Scholes calculation and reckoned that even the stock MS may go higher further, given the time value that I am losing, esp. over the weekend 2 days, I might as well just sell it at $1.50 and not to wait longer. What do you think about my reasoning? Could you please give me some pointers?
No pointers. I never make directional plays by buying options. Never.
Your reasoning:
1) You made a vry nice profit. Congratulations.
2) Maybe it can go much higher. Maybe it can go much lower. Why do you care now? You no longer own the position.
3) Why in the world do you believe a Black-Scholes calculation tells you the stock 'may go higher?' It cannot do that.
4) Here's a pointer: When you believe your profit is satisfactory, take it. Or at least take most of it.
5) Buying options is a difficult prospect. I don't see how you can expect to be better at knowing when to enter/exit a trade if you are not good at timing the market. Timing is the basis for enter/exit decisions for those who believe that have that skill.
I do know the option combination/strategies in theory, but don't know how they are used in practice under different situations. Currently I am just at a preliminary level and I just buy call and put and make directional bets. When I won small, I also lost small. When I won big, I also lost big. That's why I am still struggling with the break-even line. For example, I am still under water for the BAC Call Feb 20 $15.
Here's my tip for you: FORGET THE BREAK-EVEN LINE. When you own any position, your original entry point DOES NOT MATTER. You own the position at today's price under today's market conditions. Do you ike the position? Do you want to continue to own it? That's what matters. is it a good play at today's price. IF you don't like the position, sell it. Why does it matter if it's a profit or loss. If you hold all your losses they will expire worthless.
BAC was a bad one. Too bad. Move on with your life. If you expect to have more winning trades than losing trades when you buy options,you are going to be greatly disappointed.
For example, I know longing a straddle makes me a profit when the price movement is bigger than the break-even point. But that's very abstract thing, right?
Buying straddles is NOT for you. You must not only guess how far the underlying will move, but the time frame and future implied volatility of the options must all be considered. Forget it for now. I'd say forget it forever, but you may not feel that way.
On the other hand, this makes option trading fun. How to run these strategies and how to manage risks, those are exactly the questions I ask myself. And I am vigorously reading books and thinking about these questions. But so far I am still at a very preliminary level.
Gambling is fun. But, you don't want to gamble do you?
Yes books help (Rookie's Guide to Options!). So does practical trading experience. Paper trading is not for sissies. It's a perfectly good way to learn.
"what you are trying to accomplish (besides making a profit) from the trade?" that's a good question. I derive fun and mental satisfaction from these daily volatility and in-and-out type of movements. Both large profit and large loss make me happy and excited.
Be very careful. this can be addictive and if you are not profitable, this gambling can ruin your life. Have a bit of patience. You have a good attitude and a high interest in learning more. So learn more now. Trade more later.
I am not trying to assume that knowing some math will be naturally give me an edge. I honestly think I am just a humble student of the market and am learning hard every day, thru win or loss. On the other hand, I was just trying to say that maybe I can be a little bit useful if anybody wants to run some sort of statistical data analysis or strategy lab, humbly speaking.
Thanks a lot Mark for your pointers and yes please continue guiding me through this jungle. I really appreciate your thoughts!
You are welcome
Mark
http://blog.mdwoptions.com/options_for_rookies/ [/B]
Quote from dagnyt:
If you are that regretful, maybe you don't trade without emotions as well as you believe you do.
Once you sell your options, it's no longer your position. Learn to be concered with positions you own, not with positions that you used to own.
All you can do now is decide if and when to open a new position, and which stock to trade.
Mark
Yep, I had a short regret because I should have used a trailing stop for that one! Ouch! But I was no longer regretful at all any more. Thanks for your reminder!
Quote from dagnyt:
Thanks Mark so much for your detailed and very helpful pointers! It took me a few moments to fully digest your thoughts.
What's your definition of market timing? Why is it so hard?Do not believe that you can develop market timing skills.
BAC was a bad one. Too bad. Move on with your life. If you expect to have more winning trades than losing trades when you buy options,you are going to be greatly disappointed.
It's actually already worth almost nothing. So maybe I should hold onto it, while book a loss already, but in hope it will at least rebound a bit, just a bit?
Buying straddles is NOT for you. You must not only guess how far the underlying will move, but the time frame and future implied volatility of the options must all be considered. Forget it for now. I'd say forget it forever, but you may not feel that way.
Why? I haven't explored the straddle yet. That's exactly my next level pursuit... so far I am just doing some buy-and-hold. And next maybe I should sell some options and do some strategies...
Yes books help (Rookie's Guide to Options!).
Okay, let me get hold of a copy and take a read! I am sure it will be a nice read. I have already known the BS, vols, greeks, etc. :=)
Thanks a lot and have a great weekend!
Quote from mizhael:
What's your definition of market timing? Why is it so hard?
Buying before rallies.
Selling before declines.
If someone could do that consistently, he'd become a billionaire in a short period of time.
Don't know why it's difficult. Just know I cannot do it.
I haven't explored the straddle yet. That's exactly my next level pursuit... so far I am just doing some buy-and-hold. And next maybe I should sell some options and do some strategies...
Not telling you to sell. Especially not naked.
I am offering my opinion that trying to earn profits by purchasing straddles is a very, very difficult game. So much has to go your way to make any money.
When holding options, the clock is the enemy. Thus, your <i>timing</i> must be accurate. That's what I mean by timing the market.
Okay, let me get hold of a copy and take a read! I am sure it will be a nice read. I have already known the BS, vols, greeks, etc. :=)
Thanks a lot and have a great weekend!
Good weekend to you.
.
One more point: I believe my opinions about timing and buying options represent the 'truth' but others disagree. I'm not adamant in stating that selling is 'better' - but selling options with hedged strategies that limit risk, will produce far more winning trades than buying options.
But, if you are pychologically disposed to being a buyer, then that's the path for you.
Mark
Quote from dagnyt:
Thanks a lot Mark.
One more point: I believe my opinions about timing and buying options represent the 'truth' but others disagree. I'm not adamant in stating that selling is 'better' - but selling options with hedged strategies that limit risk, will produce far more winning trades than buying options.
But, if you are pychologically disposed to being a buyer, then that's the path for you.
Maybe I can understand this way - when we are investors with smaller fund, we are not that risk-averse, and we are more risk-taking. We aim at strategies that are a bit fast in terms of reward, etc. But when we have $1m in account, then we become risk-averse and begin to turn to strategies that can lead to stable return and limited risks. At this stage investors may favor more scalable trading strategies. Many "fast" small-investor type of strategies no longer work any more. But "selling covered options will always be scalable"... Am I understanding correctly? Thanks a lot!
Mizhael
I too have recently begun to dip my toes into option trading with similar results. Maybe we could discuss our trading methods and shorten the learning curve a bit =)
I too have recently begun to dip my toes into option trading with similar results. Maybe we could discuss our trading methods and shorten the learning curve a bit =)