You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
My option trades
- Thread starter ryanpatrick
- Start date
Quote from atticus:
It simply means into the skew (-delta, OTM).
Most knockout-puts (traded) are of the up and out variety. Down and out knockout puts are akin to a short backspread.
Which brokers provide such contracts to trade? Seem quite interesting. I know CBOE a while said they'll be issuing Credit Event Binaries.
I wouldn't trade them, but it'd be nice to see how they're priced and all that.
Does IB have any of those exotics? or are they all OTC?
Quote from atticus:
It simply means into the skew (-delta, OTM).
Most knockout-puts (traded) are of the up and out variety. Down and out knockout puts are akin to a short backspread.
I've seen a lot of knockout puts marketed as down and out - a cheap hedge. The skew causes the prob of touch to be high so the put trades for like a fifth of the standard callspread. But it's all bs because the mark to market sucks when you need the put the most.
got the nomenclature now. "Out" means "in time" not "out of the position."
Quote from newwurldmn:
I've seen a lot of knockout puts marketed as down and out - a cheap hedge. The skew causes the prob of touch to be high so the put trades for like a fifth of the standard callspread. But it's all bs because the mark to market sucks when you need the put the most.
got the nomenclature now. "Out" means "in time" not "out of the position."
Sure, and they're stupid. I was just stating that the up and outs trade a lot more in notional terms. Who wants a put bimodal where it counts, but as you say it's cheap. Of course a 1400P/1410KO up and out will also trade at a small fraction of the vanilla. I've only traded up and out KO puts (down and out KO calls too), and typically as a hedge against a bull NT.
Down (-delta) and out (OTM). Referring to a skew-trade. As opposed to an ATM position.
Quote from babutime:
Which brokers provide such contracts to trade? Seem quite interesting. I know CBOE a while said they'll be issuing Credit Event Binaries.
I wouldn't trade them, but it'd be nice to see how they're priced and all that.
Does IB have any of those exotics? or are they all OTC?
IB has some European structured product but I don't think they're available to US residents. There were some domestic binaries but I don't think anyone makes a market in them now.
Don
I´m almost afraid to ask another stupid question here.
On selling the PUT in a stock, if the price of the stock goes through the put, you get assigned the stock. That I get.
What happens with an index? Say in a credit spread? The sold side, what happened to it? I would have thought that it would go at least one strike, to the point where you lose all your money secured in the credit spread.
I´m almost afraid to ask another stupid question here.
On selling the PUT in a stock, if the price of the stock goes through the put, you get assigned the stock. That I get.
What happens with an index? Say in a credit spread? The sold side, what happened to it? I would have thought that it would go at least one strike, to the point where you lose all your money secured in the credit spread.
In review of last week, I got whipsawed. Caught the trends, but they were too short, to cover with. Since learned something new about that though, and hopefully will be able to ride it out in future. So not a too bad week,for learning otherwise.
Quote from falconview:
Don
I´m almost afraid to ask another stupid question here.
On selling the PUT in a stock, if the price of the stock goes through the put, you get assigned the stock. That I get.
What happens with an index? Say in a credit spread? The sold side, what happened to it? I would have thought that it would go at least one strike, to the point where you lose all your money secured in the credit spread.
...falconview, have you checked out the cboe website?, good, free resources...
http://www.cboe.com/
THE STRUGGLE FOR AN AMATEUR TO LEARN GREEK STYLE METHOD OF TRADING.
So many things to learn.
I´ve been studying the GREEKs this weekend. As an amateur trader, I did the normal thing, which is using charts and indicators. There is a whole business in selling trading by charts and indicators. Lots of software to instill that thought and modus operendi.
The GREEKS tend to be confusing and seemingly complicated, which frightens amateurs like me, away from them.
After listening to the various conversations on this forum, I have slowly been getting a feel for the Greeks over past several weekends. Self taught reading.
What I´m finding is that trading by using charts and indicators is a totally different way of trading, than that of professionals like Don and Atticus who trade the GREEKS.
In a charting system with indicators, you tend to bet based on direction, by best guess. Forecasting the future.
As I read this weekend, I find traders using GREEKS do not even bother too much with charts and indicators, but trade around a core number of contracts. Say 5 or 10. They then ADJUST their trade by selling some off, as the changing greeks indicate to them. They get their profit by adjusting to ATM neutral balancing. It is certainly a complicated way of associated actions, to tell you what to do, despite whatever the actual price my be doing. They do not forecast the market action.
The price is of course when I read this stuff, is basically just one component of a two component trade. The trade being a package of volatility, as Atticus has said. So you have intrinsic value ( positive price movement ) and adding to that you have volatility, or premium ballooning caused by supply and demand in the auction place.
Anyway I´m taking notes like crazy here on a Sunday morning. Will try to apply this different way of trading around a core position, by using the Greeks as I apply my old way for now, by charting and indicators. Can´t move to fast into GREEK trading, got to acquire the practicals by osmosis, by hands on doing. Takes time for the subconscious to do this stuff automatically.
One thing I´m wondering about, is when do you adjust? I think Don had said about every strike? I do believe in the QQQ, most of the action, both from volatility and price action ( intrinsic value ) is roughly .50 cents to .70 cents in value, both from vega and delta. So I believe I would need to find a correlation between these numbers to figure when to adjust. Need a goal post of some kind. Because both .50 cents profit and .70 cents profit targets are less than a one strike move. Will watch the Vega for a correlation.
One of the sharp things Atticus had said, was think of the option contract as a package of volatility. Since we are trading both two components, the price action as in delta movement and the volatility as in vega.
If the price and volatility as expressed in Vega dictates you take some contracts off the core trade, by SELLING them, as Don has said, I want the vega number that would tell me I have the profit I want from the trade. I do see the adjusting in that, by SELLING some of the core trade. I´m sitting here, wondering what you do when the price action goes the wrong way for a trade, then do you BUY more contracts? Don has said do not adjust by buying? So that is a sticking point at the this moment in time of my current thinking.
--ARE WE HAVING FUN YET GIRLS AND BOYS? --- I am!
So many things to learn.
I´ve been studying the GREEKs this weekend. As an amateur trader, I did the normal thing, which is using charts and indicators. There is a whole business in selling trading by charts and indicators. Lots of software to instill that thought and modus operendi.
The GREEKS tend to be confusing and seemingly complicated, which frightens amateurs like me, away from them.
After listening to the various conversations on this forum, I have slowly been getting a feel for the Greeks over past several weekends. Self taught reading.
What I´m finding is that trading by using charts and indicators is a totally different way of trading, than that of professionals like Don and Atticus who trade the GREEKS.
In a charting system with indicators, you tend to bet based on direction, by best guess. Forecasting the future.
As I read this weekend, I find traders using GREEKS do not even bother too much with charts and indicators, but trade around a core number of contracts. Say 5 or 10. They then ADJUST their trade by selling some off, as the changing greeks indicate to them. They get their profit by adjusting to ATM neutral balancing. It is certainly a complicated way of associated actions, to tell you what to do, despite whatever the actual price my be doing. They do not forecast the market action.
The price is of course when I read this stuff, is basically just one component of a two component trade. The trade being a package of volatility, as Atticus has said. So you have intrinsic value ( positive price movement ) and adding to that you have volatility, or premium ballooning caused by supply and demand in the auction place.
Anyway I´m taking notes like crazy here on a Sunday morning. Will try to apply this different way of trading around a core position, by using the Greeks as I apply my old way for now, by charting and indicators. Can´t move to fast into GREEK trading, got to acquire the practicals by osmosis, by hands on doing. Takes time for the subconscious to do this stuff automatically.
One thing I´m wondering about, is when do you adjust? I think Don had said about every strike? I do believe in the QQQ, most of the action, both from volatility and price action ( intrinsic value ) is roughly .50 cents to .70 cents in value, both from vega and delta. So I believe I would need to find a correlation between these numbers to figure when to adjust. Need a goal post of some kind. Because both .50 cents profit and .70 cents profit targets are less than a one strike move. Will watch the Vega for a correlation.
One of the sharp things Atticus had said, was think of the option contract as a package of volatility. Since we are trading both two components, the price action as in delta movement and the volatility as in vega.
If the price and volatility as expressed in Vega dictates you take some contracts off the core trade, by SELLING them, as Don has said, I want the vega number that would tell me I have the profit I want from the trade. I do see the adjusting in that, by SELLING some of the core trade. I´m sitting here, wondering what you do when the price action goes the wrong way for a trade, then do you BUY more contracts? Don has said do not adjust by buying? So that is a sticking point at the this moment in time of my current thinking.
--ARE WE HAVING FUN YET GIRLS AND BOYS? --- I am!
Quote from falconview:
THE STRUGGLE FOR AN AMATEUR TO LEARN GREEK STYLE METHOD OF TRADING.
So many things to learn.
I´ve been studying the GREEKs this weekend. As an amateur trader, I did the normal thing, which is using charts and indicators. There is a whole business in selling trading by charts and indicators. Lots of software to instill that thought and modus operendi.
The GREEKS tend to be confusing and seemingly complicated, which frightens amateurs like me, away from them.
After listening to the various conversations on this forum, I have slowly been getting a feel for the Greeks over past several weekends. Self taught reading.
What I´m finding is that trading by using charts and indicators is a totally different way of trading, than that of professionals like Don and Atticus who trade the GREEKS.
In a charting system with indicators, you tend to bet based on direction, by best guess. Forecasting the future.
As I read this weekend, I find traders using GREEKS do not even bother too much with charts and indicators, but trade around a core number of contracts. Say 5 or 10. They then ADJUST their trade by selling some off, as the changing greeks indicate to them. They get their profit by adjusting to ATM neutral balancing. It is certainly a complicated way of associated actions, to tell you what to do, despite whatever the actual price my be doing. They do not forecast the market action.
The price is of course when I read this stuff, is basically just one component of a two component trade. The trade being a package of volatility, as Atticus has said. So you have intrinsic value ( positive price movement ) and adding to that you have volatility, or premium ballooning caused by supply and demand in the auction place.
Anyway I´m taking notes like crazy here on a Sunday morning. Will try to apply this different way of trading around a core position, by using the Greeks as I apply my old way for now, by charting and indicators. Can´t move to fast into GREEK trading, got to acquire the practicals by osmosis, by hands on doing. Takes time for the subconscious to do this stuff automatically.
One thing I´m wondering about, is when do you adjust? I think Don had said about every strike? I do believe in the QQQ, most of the action, both from volatility and price action ( intrinsic value ) is roughly .50 cents to .70 cents in value, both from vega and delta. So I believe I would need to find a correlation between these numbers to figure when to adjust. Need a goal post of some kind. Because both .50 cents profit and .70 cents profit targets are less than a one strike move. Will watch the Vega for a correlation.
One of the sharp things Atticus had said, was think of the option contract as a package of volatility. Since we are trading both two components, the price action as in delta movement and the volatility as in vega.
If the price and volatility as expressed in Vega dictates you take some contracts off the core trade, by SELLING them, as Don has said, I want the vega number that would tell me I have the profit I want from the trade. I do see the adjusting in that, by SELLING some of the core trade. I´m sitting here, wondering what you do when the price action goes the wrong way for a trade, then do you BUY more contracts? Don has said do not adjust by buying? So that is a sticking point at the this moment in time of my current thinking.
--ARE WE HAVING FUN YET GIRLS AND BOYS? --- I am!
Please don't paraphrase. I stated that options are volatility expressed in dollars. Premium and vol% are interchangeable. BSM (or any model) can solve for one if the other is known.
I don't gamma trade outside of a dispersion portfolio which isn't applicable here. In my vol-book I make outright vol bets. I occasionally hedge in index futures or (index) vol.
Flattening for (pick one) greek exposure isn't a profit-center. You have to be right on volatility. YOU WILL STILL LOSE IF YOU BUY VOL AT 40 AND IT DROPS TO 35. Your adjustments will only increase the loss due to slippage, commissions, microstructure bullshit, etc.
You're confusing intrinsic value with what? I don't know. What about the 30-delta OTM call? It has no intrinsic value. What of the 90-delta ITM put? It's also can be priced in vol, but it's a discrete component as the bid-ask spread will overwhelm the extrinsic value in the price of the option.
Falcon, the last thing you should be doing is gamma-trading a position. You should at least answer why you're entering into the position in the first place.
Open an account at interactivebrokers. You'll need $10k. Under suitability click on "speculation" during the online account origination process.
When funded, buy one XOM 80/85/90 fly (I will show you how in email or Skype). You can price it as one bid-ask on the quote line and even chart the position. Look at your risk-graph and watch it trade day to day. Under their "Risk Navigator" you can what-if for a change in time, price, vol... You trade the fly because it's complex and light on gamma.
You will only learn this heuristically. It simply isn't in your brain-pan to look at it analytically. We're all wasting our time here.