My option trades

[Don Bright]

Quote from falconview:

You lost me there.

Just buying back and selling the first front month, sold options. Leaving the third month alone. Which are long calls. Not running to expiration, but trying to catch the fluctuations on the first month.

OK, you "can" close the position near expiry altogether if you like. You'll notice, most of the time, that the near term will be near zero, and the far out hasn't move very much....and won't until expiration when it becomes the near term.

I prefer to let the short call go out worthless, then on expiry day, sell the long and go short, but the next term out. Just keep doing that as the stocks stay in a trading range. Remember, we're at low vols these days.

Is that better?

Don

 

[falconview]

Perfect !

Oh Great Teacher, master of all things in options!

Think I have it and will give it a whirl. Thinking I understand it enough to do it with real money. As I understand theta, having traded credit spreads for six months, until wiped out by Black Swan events. ( paper trading ) Generally speaking I like collecting time decay. Just that you are so vulnerable with credit spreads. Either that or I got traumatized. Like last night with trying Ryan´s gambling method, when I could not afford to lose.

- Oh yeah! Maybe not completely, was wondering how you know how many contracts to sell to adjust your delta neutral. How do you figure that?

Having heard ATTICUS many, many, many, times talking about GAMMA, I also wonder what I´m looking for in GAMMA? I know the number changes for the speed of the delta, but what has that got to do with trading, that I can´t see from my bar chart and technical indicators. Would using different time frames make a difference in using GAMMA numbers? Not at all sure how you apply a GAMMA number. It just tells you what is happening right now. But so does a bar chart. Unless I´m missing something?

 

[Don Bright]

Quote from falconview:

Perfect !

Oh Great Teacher, master of all things in options!

Think I have it and will give it a whirl. Thinking I understand it enough to do it with real money. As I understand theta, having traded credit spreads for six months, until wiped out by Black Swan events. ( paper trading ) Generally speaking I like collecting time decay. Just that you are so vulnerable with credit spreads. Either that or I got traumatized. Like last night with trying Ryan´s gambling method, when I could not afford to lose.

- Oh yeah! Maybe not completely, was wondering how you know how many contracts to sell to adjust your delta neutral. How do you figure that?

Having heard ATTICUS many, many, many, times talking about GAMMA, I also wonder what I´m looking for in GAMMA? I know the number changes for the speed of the delta, but what has that got to do with trading, that I can´t see from my bar chart and technical indicators. Would using different time frames make a difference in using GAMMA numbers? Not at all sure how you apply a GAMMA number. It just tells you what is happening right now. But so does a bar chart. Unless I´m missing something?

Each option contract has an assigned delta based on vol, time to expiry, and current interest rates. Be sure to consider whether you're long or short interest (meaning are you borrowing money to do all this stuff, or are you trying to put your long cash to better work than the street interest rate). Again, check your sheets, after a while you won't need to look at sheets, but sheets are good for analysis with different pricing and time frames of
course.

And, turn off the stupid bar charts, LOL. Meaningless crap to take your attention off reality. Seriously.

Don

 

[Don Bright]

When you run your sheets, you'll see gamma at work when you look out 20 days or so, the bell curve (hopefully) will give you a range of profitability in the middle. As the days and/or price move, you'll see where your deltas go.

I'll try to put up a chart from GS sheets. Give me a few minutes.


Don

 

[falconview]

"And, turn off the stupid bar charts, LOL. Meaningless crap to take your attention off reality. Seriously."


What an interesting idea and approach. SCARY!

 

[Don Bright]

Let's see if this works, not a great example, but GE is pretty safe, LOL.

Hmm, not great... but, you can see what happens to profit based on stock price moves, and deltas are shown below.

Look at the bottom group of numbers, you'll see a 0 right in the middle, showing today's deltas. Look how the delta's move if the stock does, check the "days out" and all that too. You see how this "front spread" works, we don't want it to move down much, but if it does, we get "put" stock at a good price based on dividend returns. Pretty simple, eh?

I hope you have similar analysis available.

Don

 

[Don Bright]

Quote from falconview:

"And, turn off the stupid bar charts, LOL. Meaningless crap to take your attention off reality. Seriously."


What an interesting idea and approach. SCARY!

"Fear is the other guy's problem" -Dan Akroyd in Trading Places.

LOL

Just don't get too caught up in the minor stuff, just set alerts at price levels and keep your mind active looking at trading stocks or whatever you do in your real job. That's all I'm saying. This stuff is the simple stuff, you know where your risk level are.


Hope this helps,

Don

 

[falconview]

I´m not sure if I´m doing this right. Thankyou by the way, you have gone to a lot of trouble and I do indeed, appreciate the mentoring.

Calendar Spread, on paper

Sold 3 QQQ Calls March @63 Delta .47 and Gamma .22

Bought 20 QQQ May 65 Calls @ 2.30
Delta .50, Gamma .07
_________________________________

I tried to balance it neutral to my vague understanding of what is going on here. By dividing the price of the sold calls first month into the premium price of the third month. So I got 3 contracts sold and 20 contract bought. Not sure if this is right?

 

[falconview]

This didn´t look right. I have recalculated it, so that there are sold 73 calls and bought 20 calls ( on paper ) So the dollar value is as close to neutral as possible.

 

[Nine_Ender]

Quote from Don Bright:

Just turned 62 on Valentines day (born at 2:14AM on 2/14, LOL).

OK, back to whether to buy or sell.

From Investopedia:

While there are certainly many viable options-buying strategies available to traders, options expiration data obtained from the CME covering a three-year period suggests that buyers are fighting against the odds. Based on data obtained from the CME, I analyzed five major CME option markets - the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 - and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.

Read more: http://www.investopedia.com/articles/optioninvestor/03/100103.asp#ixzz1nytSffu6

And, if you do the math, well, you see what I mean. Betting on stocks staying in a range instead of some wild breakout, just seems like the "prudent thing to do."

I just hate seeing that time decay fade everyday if long. Love it when I see it hit the account daily.

Again, just FWIW,

Don

Don, I've heard this argument before, but my trading experience suggests that buying calls can be an extremely effective strategy if you are highly selective and only trade in the right market conditions ( eg strong steady market trend in one direction ).
Or in special one off situations around special events like earnings. However, in the latter case, the options are often overpriced as you say.

In fact, you can make money even if 80%+ of your trades expire worthless. The trick is to identify opportunities with huge upside that are being underpriced by the market. You need to sit out entirely if the conditions are not right.

I warned the op on this thread because I think he's not being highly selective anymore. If the overall market stops trending reliably, as is very likely, buyers will often be overpaying for options that no longer have much opportunity to really pop. This is the danger zone for this kind of strategy, the easy money already happened. Too easy perhaps.