My OPTION TRADES..... part 2

Claudius · Dec 24, 2012

Put Master,

I suggest you read a website/blog called Citron Research by a guy called Andrew Left.
He has written two or three negative posts on NUS in the last six months.

You'll need to make up your own mind, but Andrew Left (the guy behind Citron) has a pretty good strike rate as a short seller.
- check out his wikipedia page.

Put_Master · Dec 24, 2012

Quote from Claudius:

Put Master,

I suggest you read a website/blog called Citron Research by a guy called Andrew Left.
He has written two or three negative posts on NUS in the last six months.

You'll need to make up your own mind, but Andrew Left (the guy behind Citron) has a pretty good strike rate as a short seller.
- check out his wikipedia page.

Thanks for the feed back. I'll check it out.
Given that the price of NUS was considerably higher over the past several months, I am inclined to agree with him.
But has he written any opinions with the price of NUS in the $40 or lower area?
Not to mention it's 2.3% dividend which he is paying.

Put_Master · Dec 24, 2012

Quote from Put_Master:

Thanks for the feed back. I'll check it out.
Given that the price of NUS was considerably higher over the past several months, I am inclined to agree with him.
But has he written any opinions with the price of NUS in the $40 or lower area?
Not to mention it's 2.3% dividend which he is paying.

Speaking of dividends, today NUS announced they will be increasing their dividend from $0.20 to $0.30.
That is a sig % increase.
Given that insiders own about 11% of the company, that dividend increase is not too surprising.
Hopefully it will also help support the stock price from dropping below $30.

tradingjournals · Dec 24, 2012

Quote from Put_Master:

I'm hoping for an assist from theta and a price decline, to lower the Jan call credit to $4 or less,... while hoping to avoid a potential price rise and/or spike in IV, which will work against me.

Why would a spike in IV work against a short ITM call? Shouldn't it be the opposite?

Put_Master · Dec 25, 2012

Quote from atticus:

Not to be another armchair qback, but a 4-5x loss of credit is a year's worth of trading at your average hold, or worse. >>>

I have no idea how you came to the above conclusion, in terms of the current paper loss in NUS being a years worth, or more?
If you are basing it on strikes of $11 - $12, with the average trade earning a potential 15%, that might be true.
But how many of my strikes over the past year have been that low?
Maybe 3 or 4 %.

However, just for a bit of context, if I were to assume the one month $30 NUS trade, with it's potential 14% return, and current paper loss, were representative of all my trades,... it would represent about 5 months worth of trading that one "unit of cash".
But just for clarity, that one "unit of cash" is separate from all the other units of cash working other investments.
That being, it's a small % paper loss, in the context of my overall portfolio value.

Conclusion,... the current NUS trade paper loss, represents about 5 months worth of trading that one particular unit of investment cash.
Not a year or more,... unless all my future trades are going to be strikes in the $11- $12 area, earning a 15% return.

<<< I take a lot of exotic bets at 3:1 risk. A poor ratio, but a hit rate well in excess and a potential 33% return on debit. None of these vanilla bets have a R/R that can approach that. You need to define the risk as a function of the initial credit, not that you can absorb the delta1 risk indefinitely if put the stock. >>>

I prefer to view R/R in the "context" of (probability and possibility).
That being, the "probability" of the initial trade being successful.
And the "possibility" of turning a deteriorating trade into a successsful one. (covered calls, dividends, stock recovery).

Analyzing R/R strictly from the view point of sterile numbers, "without context"... is not something that interests me.
For example, a 3:1 R/R on a one month trade, and a 3:1 R/R on a 6 month trade are considered equal R/R.
But are they really equal? Certainly not in terms of probability and possibility.
I just don't see the value in viewing R/R as a stand alone criteria.
I prefer to set minimum % return goals for a trade, and then view the R/R in the context of "probability and possibility".
I prefer common sense and analysis over formula.
But i also agree that chasing down a deteriorating stock is also not always the best R/R solution..... but it's nice to know the "option" is there.

atticus · Dec 25, 2012

Quote from Put_Master:

Quote from atticus:

Not to be another armchair qback, but a 4-5x loss of credit is a year's worth of trading at your average hold, or worse. >>>

I have no idea how you came to the above conclusion, in terms of the current paper loss in NUS being a years worth, or more?
If you are basing it on strikes of $11 - $12, with the average trade earning a potential 15%, that might be true.
But how many of my strikes over the past year have been that low?
Maybe 3 or 4 %.

However, just for a bit of context, if I were to assume the one month $30 NUS trade, with it's potential 14% return, and current paper loss, were representative of all my trades,... it would represent about 5 months worth of trading that one "unit of cash".
But just for clarity, that one "unit of cash" is separate from all the other units of cash working other investments.
That being, it's a small % paper loss, in the context of my overall portfolio value.

Conclusion,... the current NUS trade paper loss, represents about 5 months worth of trading that one particular unit of investment cash.
Not a year or more,... unless all my future trades are going to be strikes in the $11- $12 area, earning a 15% return.

<<< I take a lot of exotic bets at 3:1 risk. A poor ratio, but a hit rate well in excess and a potential 33% return on debit. None of these vanilla bets have a R/R that can approach that. You need to define the risk as a function of the initial credit, not that you can absorb the delta1 risk indefinitely if put the stock. >>>

I prefer to view R/R in the "context" of (probability and possibility).
That being, the "probability" of the initial trade being successful.
And the "possibility" of turning a deteriorating trade into a successsful one. (covered calls, dividends, stock recovery).

Analyzing R/R strictly from the view point of sterile numbers, "without context"... is not something that interests me.
For example, a 3:1 R/R on a one month trade, and a 3:1 R/R on a 6 month trade are considered equal R/R.
But are they really equal? Certainly not in terms of probability and possibility.
I just don't see the value in viewing R/R as a stand alone criteria.
I prefer to set minimum % return goals for a trade, and then view the R/R in the context of "probability and possibility".
I prefer common sense over formula.

More...

5-6 months, so much better! Your loss is defined (spot =0).

It is in context. Static pricing of a single touch option is probabilistic.

Put_Master · Dec 25, 2012

Quote from atticus:

5-6 months, so much better! Your loss is defined (spot =0).

It is in context. Static pricing of a single touch option is priced probabilistically. A DNT can be priced by the prob of the proximal strike and then discounted by the moneyness of the distant strike (dirty). I don't price in that method but to aid in the example given.

A 30/100 single touch has a 30% prob. of spot trading through the barrier. Half of the for expiring ITM.

While 5 months is nothing to be pleased about, as it represents 5 potential trades for that particular unit of cash,... it's still more than 50% better than your initial numbers.
I just wanted to clarify those numbers.

In terms of the probabilities you discussed above, if you are refering to using probability calculators, I consider them somewhat useless for basic naked put selling.
They are a "one size fits all" contraption
If I plug in the exact same numbers for 2 different stocks, I will get the exact same calculated response... even if one stock has zero tech support at that strike, and the other has dozens of times it successfully bounced off that strike.... (to use just one example.)

If someone needs a prob calculator to evaluate the probability of a basic trade being successful, that is a cause for concern.
One really should be able to use basic common sense and analysis, to evaluate the prob of a trade being successful.
And the longer the trade is, the more meaningless the prob calc is.
I think they risk giving investors a false sense of security (probability).
Just my opinion.

atticus · Dec 25, 2012

Quote from Put_Master:

If someone needs a prob calculator to evaluate the probability of a basic trade being successful, that is a cause for concern.
One really should be able to use basic common sense and analysis, to evaluate the prob of a trade being successful.

You don't get it. I am referring to the pricing of touch options (first gen exotics). The prob of touching the KO barrier under a risk-neutral measure (you choose one). That probability is = the delimited payoff, n/100.

Put_Master · Dec 25, 2012

Quote from atticus:

You don't get it. I am referring to the pricing of touch options (first gen exotics). The prob of touching the KO barrier under a risk-neutral measure (you choose one). That probability is = the delimited payoff, n/100.

Of course I don't get it.
I rarely understand what you are talking about.
My responses are more often based on assumptions of what you are refering to, vs the reality.
Occasionally I get lucky.

tradingjournals · Dec 25, 2012

Quote from Put_Master:

given it's current 10% otm safety cushion

Quote from tradingjournals:

How to quantify " its current 10% safety cushion" in absolute measures and numbers?

Quote from Put_Master:

If someone needs a prob calculator to evaluate the probability of a basic trade being successful, that is a cause for concern.