Luck in Options Trading!

Quote from wabrew:

I do not know all these greek guys, but, are you saying that if GOOG had not moved on Friday (instead it closed at 308 - the price it was at when I entered my straddle) that on friday the straddles would have dropped 8.00?

On thursday at 12:00PM EST (see my attachment on my original post) the P/C's bid/ask were quoted as follows:

Nov 300 P 8.60-8.70 C 17.50-17.70 = Straddle 26.10-26.40
Nov 310 P 13.20-13.40 C 12.10-12.40 = Straddle 25.30-25.80
Nov 320 P 19.20-19.40 C 8.10- 8.30 = Straddle 27.30-27.70

Tell me what what you think the Nov 310 P/C 's would have closed at on Friday Oct 21 if the stock closed at 308. Show me the greek that can prove this.

I have attached another word.doc that shows the prices of the NOV p/c's when the stock was 338 (exactly 30 points higher) on Friday at 2:00PM
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You've likely never run a pricing model, and you've no idea of the importance of vega in the pricing of options. If you did, you wouldn't have made the assumption that your risk was $.30 on the position[or $.80 with execution].

I realize I come-off as a complete-ass, but you're confidence is somewhat misguided [skill, guts, luck; to quote you].

Options are priced in volatility, all other inputs [for ATM positions] are of minimal impact -- the premium received should be of lesser importance in youe decision to trade an ATM combo. The volatility paid should be your utmost concern. Straddles carry the greatest vega-sensitivity of any vanilla option position. Live by the sword, die by the sword. In OTC markets the premium shows up on your EOD run, but the market is quoted in implied vol, not premium. Options ARE volatility.

In answer to your question, which has already been answered: Take a look at last quarter's 305 straddle, pre-post release. That will show you the -ve risk of your long ATM straddle. The 305 straddle lost $10 with GOOG down 13 on the day. Imagine had GOOG traded to unch yesterday. Using last quarter as an analog, do you think the ATM GOOG straddle would've lost $.30, $.50, $1.00?
 
Quote from riskarb:

You've likely never run a pricing model, and you've no idea of the importance of vega in the pricing of options. If you did, you wouldn't have made the assumption that your risk was $.30 on the position[or $.80 with execution].

I realize I come-off as a complete-ass, but you're confidence is somewhat misguided [skill, guts, luck; to quote you].

Options are priced in volatility, all other inputs [for ATM positions] are of minimal impact -- the premium received is of little importance for a neutral-delta position. Straddles carry the greatest vega-sensitivity of any vanilla option position. Live by the sword, die by the sword. In OTC markets the premium shows up on your EOD run, but the market is quoted in implied vol, not premium. Options ARE volatility.

In answer to your question, which has already been answered: Take a look at last quarter's 305 straddle, pre-post release. That will show you the -ve risk of your long ATM straddle. The 305 straddle lost $10 with GOOG down 13 on the day. Imagine had GOOG traded to unch yesterday. Using last quarter as an analog, do you think the ATM GOOG straddle would've lost $.30, $.50, $1.00?
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I probably have a lot more grey hair than you do, and yes, I do not know the greeks. I trade from intuition which comes from many years of observation and I suspect much of what I do would be confirmed by greek analysis.

No, I do not think you are an ass. But my experience(My firm was the first one to buy a CBOE seat, in addition to the CBT seat we held, when they offered seats at $10,000 in 1973) tells me My original concept was correct.

I do not know where to go to see the bid/ask on P/C's for previous periods - but I cannot Imagine a $10 drop on an ATM straddle in GOOG over a one day period under any circumstances. Are you sure you are not quoting the straddle that only had 1-2 days to expiration? I am sure this years Oct 310 lost money on no move - sure - but can you tell me where to go to see the similiar straddle ( one with at least 30 days life left) from last quarter
 
Quote from wabrew:

I probably have a lot more grey hair than you do, and yes, I do not know the greeks. I trade from intuition which comes from many years of observation and I suspect much of what I do would be confirmed by greek analysis.

No, I do not think you are an ass. But my experience(My firm was the first one to buy a CBOE seat, in addition to the CBT seat we held, when they offered seats at $10,000 in 1973) tells me My original concept was correct.

I do not know where to go to see the bid/ask on P/C's for previous periods - but I cannot Imagine a $10 drop on an ATM straddle in GOOG over a one day period under any circumstances. Are you sure you are not quoting the straddle that only had 1-2 days to expiration? I am sure this years Oct 310 lost money on no move - sure - but can you tell me where to go to see the similiar straddle ( one with at least 30 days life left) from last quarter
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I can't help with your inability to conceptualize the vega risks... I sold the atm straddle last quarter; the strip vols[300/305/310 combos], as well as buying the 280/300/320 call butterfly. The fly can be looked as an inverted-straddle in terms of PnL, but it's really no more than a short straddle/long insurance[long strangle]. I paid $8 for the fly and it was worth North of $12 the following day. Long flies are short vega as well.

Back in 1998 or '99 I sold some ATM straddles on JDSU with the shares at 88. I sold the 85 straddle at $21[forgot the vol-line] and purchased it the day-after earnings for $12. This occured on an $88 share price with > 3 weeks to expiration. I mention it as it made last qtr's GOOG vol-decline look tame by comparison.

Buying straddles into earnings can be analogous to buying an insurance policy as a hurricane is landing at your front-door. Selling the straddle into earnings is underwiting that same-policy with the storm offshore with great uncertainly whether it will make land-fall or be swept out to sea. Sometimes they hit, sometimes they miss. Last quarter the storm moved offshore -- this week it was a Cat-5.
 
Quote from Profitaker:

(G)ARCH is a waste of time. It doesn't take into account upcoming events like earnings, trading updates, major economic news and so on. For that you need the subjective human touch.
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I would agree on individual securities but volatility on indices may follow a GARCH process.
 
Quote from dummy-variable:

short term success SHOULD be attributed to luck.
[/B]
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You telling me.

Bought a put for ^XAU then found out Greenspan was going to talk the next day, thought about cancelling it to see what he said.

Got drunk and forgot to cancel.

LUCKY I didn't: biggest winner of the week 15g!
 
Quote from Profitaker:(G)ARCH is a waste of time. It doesn't take into account upcoming events like earnings, trading updates, major economic news and so on. For that you need the subjective human touch.
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Quote from boxster332:I would agree on individual securities but volatility on indices may follow a GARCH process.
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Never really got into GARCH for the reasons I gave above so can't comment as to whether it's more relevant to indices than individual stocks. Perhaps others use it ? and care to comment ?
 
Multioption,

I think if one is entirely depending on luck, you would not last very long trading options or stocks for that matter.
As for my trading, I think I am using a sound basis using technical indicators after analyzing a stock fundamentally. Has luck factored into my trading? I guess you could say that with my last trade on IRF MG wherein I earned 200% within 10 days. It doesn't happen that fast for me for the most part. Usually, my options become profitable after 1-2 months so, in that case, I was the beneficiary of an early collapse in IRF.
That said, luck itself will not help you pick the right stocks or options to trade. Doing your homework and studying the stocks you are interested in trading will probably be more useful than
relying on blind luck.
 
A few weeks ago I posted a GOOG trade that a few of you took issue with because you thought the math was wrong.

At that time I said that I was looking to buy SBUX straddle just b4 earnings this month. I did not buy straddle on day b4 earns because the numbers were wrong.

I bot the Dec 32.5 straddle today at a 1.90 debit. I plan to hold 2-4 days. My rationale -- Stock really got ahead of itself, market looks like it wants to correct for a few days, and, the risk/reward ratio over 3 days appears to be minus .35 on no move versus +1.20 on a 1.5 point move down and +.70 on a 1.5 move up. SBUX closed at 31.15 today. I cannot compute greeks, but my gut tells me this will work.

Here are closing prices on all the near Dec SBUX options today--

Options Expiration: December 17, 2005

Symbol Bid, Ask, Straddle Bid -- Sell Call, Sell Put
Strike Price
Straddle Ask -- Buy Call, Buy Put, Bid, Ask, Symbol

SQXLE 6.10 6.30 6.10 25.0 6.35 0.00 0.05 SQXXE
SQXLY 3.70 3.90 3.75 27.5 4.00 0.05 0.10 SQXXY
SQXLF 1.50 1.60 1.80 30.0 1.95 0.30 0.35 SQXXF
SQXLZ 0.25 0.30 1.80 32.5 1.95 1.55 1.65 SQXXZ
SQXLG 0.05 0.10 3.85 35.0 4.10 3.80 4.00 SQXXG
SQXLU 0.00 0.00 0.00 37.5 0.00 0.00 0.00 SQXXU

Am interested on what RiskArb and Univited Guest think about this trade.
 
Well, it's already itm 1.40 on the put-side, so all looks well. Ugly bear-reversal on the index charts, but I wouldn't look for more than a touch of $30.00 -- $30.50 on the shares. You may want to buy 100 deltas at $30.50 and look for a rebound.
 
Skill, luck and guts! I guess I have no guts. I really thought the SBUX was going to go to 29.50-29.75 range.

I saw the SBUX volume start to increase as the stock traded between 30.50-30.60 this morning so I sold the put side of my straddle ( I usually do not keep the other side on) for 1.98 -- the b/a was 195-205 on the put . I used a mkt order - anyone else get fills at odd pennies on options?. This is a first for me.

I will only keep the call on for 1-2 more days. It's quoted .10-.15 and will go to -0- pretty soon if the underlying doesn't move up a little.

So my net profit was not as good as I projected. Usually with 15 days left on an ITM put there is still a little premium -- not this stock!
 
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