My option trades

[falconview]

Forex Forex

Ryan, in my view is not overtrading. He is practicing diversification of bets. Hoping, one or two will be home runs, and the others will either not lose much, or breakeven. But the idea is that a good winner, wipes out all losses and the averages are positive overall.

Interesting to see it work. I´m working on my own version of testing what he is doing, to see if I can do it with something similar but based on technicals, since I lack the subjective knowledge and skills.

First test today.

 

[ryanpatrick]

Quote from monti1a:

Hi Ryan,

Where are you getting your short float info?

I'm looking at yahoo finance and only see 7.19M shares short and not 14M...although % of float is still 24%

Sorry it is 7M, I get mine from www.nasdaq.com. I think it shows up on that site first, but I must have looked at another stock's short interest, and then I confirm the % float at www.finviz.com

 

[ryanpatrick]

Quote from ForexForex:

I think the WTW trade will weigh you down in the future, perhaps if you were not such a glutton you might get better results.

What? Not getting? I was well prepared to take the full loss...if you don't risk anything then you wouldn't expect to receive anything back. Still, like I mentioned before, my preferred trade would have been spreads on WTW....at least on the downside.

After rereading WTW's announcement yesterday, I do think management was very coy. They knew the numbers weren't good and knew that they'd be set to lose some in their portfolio on WTW shares because the past 4 quarterly reports clearly shows that WTW is a 10% mover at the very least. So instead of letting the shares ride, they use a WTW loan to set up a share buy back program for up to $720M at a price of no less than $72. Think about that....lol, it gives management time to sell at least a good portion of their shares at this what now looks like inflated price level. But what can I say, I'd probably be selling my shares at $72 too if I had inside info and didn't have time to exit.

 

[ryanpatrick]

As for a weigh down forex, this was just a little under $700 in total risk. If there were a day that would have weighed down on me, it would have been GOOG and PH when I took about a $1500 loss early in when my account was barely at $4000. At this point in time, my confidence in these option trades are much higher, and I have started to see which strategy works with which stocks. I'd expect more losers like these maybe even another 1-2 this week. It won't stop me from putting up the trades where I know I have a slight advantage. Otherwise, how could I call a trade to its exact price action like how FOSL swung from its lows at the open to close at its highs of the day.

 

[ryanpatrick]

Jeff,

I'll keep you updated on these strangles and straddle plays....I still want to see how it plays out over the course of say 6 months. I won't put the play on every trade, but when I get a 50/50 on direction, I will test it our with 1 contract in either direction. I consider WTW a high beta stock, so this one will put put into the high beta strangle/straddle plays. Things I'll keep note of is that there were only 3 days left on options, the earning report, and the outlier dutch auction announcement of management buying back $720M in shares.

 

[atticus]

Quote from ryanpatrick:

The way WTW closed out AH, not sure if it can make a 10% pop tomorrow, but sure liked the way it dropped to $67 or its AH highs at $84. If any of those two price points can hold, I'll take this as a positive.

As for in over my head on this trade, sure....the odds are clearly against me here with 3 days remaining. I did say I was willing to risk this $680 of my profits from the two locked in trades today. I also did say that if I were in it to really make a profit from this trade, then I'd have gone with a put spread on the put side and limit cost from $680 to $500, which would have made it worthwhile. I think we get upside tomorrow though. Why would WTW want to buy its own share at current price levels if it didn't have some sort of plan to increase the share price even higher. If enough fund managers see it that way, then we get a solid pop, at least to $85, possibly a drag into $90. Persuading investors to jump in will be key as FY12 guidance was barely inline.

It's why you need the headroom to gamma-trade with shares in the AH session. Imagine buying the $67 or selling the $84 print yesterday. The put spread wouldn't have worked out either.

Gamma hedge gains of $100 or a loss of $500.

Fundamentals = hope and pray. I think you need to assume that it's efficiently priced to expiration. You had a good week but you need a better plan for these combos.

 

[jeffalvinson]

Ryan,

Implied Volatility on options the day after an earnings report usually collapses and this appears what has happened to WTW, combined with the fact that there isn't adequate time left on the options.
You bought out of the money, therefore you paid for very little time premium and mostly implied volatility, but you didn't pay for intrinsic value because there wasn't any option value that was in the money.
So basically all you paid for was the option's volatility.
Now that the earnings report is over, the volatility is gone and the option prices are free-falling.
When I did this kind of earnings trade, I always bought lots of time.
To buy lots of time on a high volatility stock like WTW was yesterday
(162.91%), is simply too expensive!
This is why I would always pick low volatility stocks with cheap options and lots of time (60 days minimum b/4 exp.).
And I would buy them weeks in advance before the Implied Volatility started to rise.


Jeff

 

[falconview]

Well explained Jeff. Mind you I dont get it in the same mental format as your explanation. But nevertheless, I do correlate to what I call premium ballooning. Cause and effect. Just my mental quirk.

Got 4 straddles in play on earnings via paper trading to see what happens? CBS, XEC, CTL, CAR.

My game plan was to close the losing side after 9 a.m. and then see what remains with the other side. Sort of waiting for the shakeout to show me which should be the winner? Then to figure out, the WHY and HOW? If I can. Interesting experiment. Letting the technicals rule. Instead of trying to figure out all Ryan´s 5 years of experience and insights.

A shotgun approach is interesting of itself.

 

[jeffalvinson]

Quote from falconview:

Well explained Jeff. Mind you I dont get it in the same mental format as your explanation. But nevertheless, I do correlate to what I call premium ballooning. Cause and effect. Just my mental quirk.

Got 4 straddles in play on earnings via paper trading to see what happens? CBS, XEC, CTL, CAR.

My game plan was to close the losing side after 9 a.m. and then see what remains with the other side. Sort of waiting for the shakeout to show me which should be the winner? Then to figure out, the WHY and HOW? If I can. Interesting experiment. Letting the technicals rule. Instead of trying to figure out all Ryan´s 5 years of experience and insights.

A shotgun approach is interesting of itself.

falcon,

Did you buy lots of expiration time on these paper trades?
The single biggest regret of all long straddle/strangle players is:
"The stock eventually did what I thought it would do, but regretfully I didn't buy enough time!"

Jeff

 

[atticus]

Quote from ryanpatrick:

Otherwise, how could I call a trade to its exact price action like how FOSL swung from its lows at the open to close at its highs of the day.

I once made a bet with my brother in law that I could quote the Dow print of the following day within one point. He gave me 200:1. I guessed it to the penny (Dow up 60 and change). Freak occurrence that paid $20k (2003). There was no edge there.

Congrats on doing so well, but you're either very inexperienced or very young (or both). This unfounded confidence will put you on tilt and you will blow up if you don't find humility.