My Options Play

[Optionpro007]

Quote from cnms2:

I've struggled with stop orders in the same manner you seem to have. Eventually I decided: I have to pay for my peace of mind. So I use a stop order with a limit wide enough to allow for the regular slippage, maybe a dime more. This order is intended to protect me from a large gap. Under normal conditions I'll exit with a limit order when I see that my reason of entering the trade was not confirmed by price, IV or time frame. My stop limit orders are rarely hit, but I keep them as an insurance policy. On the other hand using near ITM options the risk is limited even in a catastrophic situation. This is other reason for which I don't like DITM options.

Interesting. You are right, DITMs take too much capital, but at the same time my plan has been to hold positions much longer that you seem to do and I need the most and cheapest time available...

You mentioned gaps. And from what I could gather you max stop is a dime above or below you real stop.

How do you content with $2 and $3 gaps ? They obviously go right through your limit stop at the open. Do you work with a 50/50 ratio of winners and losers on this to break even?

Thank you very much for your thoughts.

Great to have this exchange of ideas...

Cheers !

 

[cnms2]

Quote from optionpro007:
...
You mentioned gaps. And from what I could gather you max stop is a dime above or below you real stop.

How do you content with $2 and $3 gaps ? They obviously go right through your limit stop at the open. Do you work with a 50/50 ratio of winners and losers on this to break even?
...

I decide the underlying price at which I want to jump ship. I calculate the option price at the end of my time frame based on the worst case IV. This is my limit part of my stop-limit order and I size my position based on this risk. To the limit price I add the current slippage of the ATM options, plus a nickel or a dime, and I set the stop side of my stop-limit order. It occasionally happened that the option price gapped and my limit order wasn't filled. In such situations, after the fact, I cancelled that order and I manually placed another limit or even a market order, and I took the hit.

I didn't understand your last question. Please rephrase.

 

[Optionpro007]

Quote from cnms2:


I didn't understand your last question. Please rephrase.

I spoke to NUTSEAL about his earlier.
Based on probability, if we are playing a game of chance and know what the outcome is or must be based on a number of correct and wrong trades(in our bread and butter trades), what happens when "miracle" and "disaster" trades happen?

I understand you keep your stops as tight as possible, but invariably those stops will be run by gaps going for and against us.

I figured that if in the long run these "M&D" gaps cancel each other the underlying system would have enough breadth to sustain it's success indefinitely.

Catch my drift ? Also, if you are looking for a 5% profit target per trade, and you happen to have a 100% loss in one of them it will be several months before you can recover based on your numbers. Or I must be missing something.

With my system to recover a 100% loss I just need one good trade, since my profit targets are much higher than yours....

Gute Nacht

 

[cnms2]

Quote from optionpro007:

I spoke to NUTSEAL about his earlier.
Based on probability, if we are playing a game of chance and know what the outcome is or must be based on a number of correct and wrong trades(in our bread and butter trades), what happens when "miracle" and "disaster" trades happen?

I understand you keep your stops as tight as possible, but invariably those stops will be run by gaps going for and against us.

I figured that if in the long run these "M&D" gaps cancel each other the underlying system would have enough breadth to sustain it's success indefinitely.

Catch my drift ? Also, if you are looking for a 5% profit target per trade, and you happen to have a 100% loss in one of them it will be several months before you can recover based on your numbers. Or I must be missing something.

With my system to recover a 100% loss I just need one good trade, since my profit targets are much higher than yours....

Gute Nacht

I don't put on trades for only 5% profit either. I select a trade that has a reward / risk ratio of at least 1.5-2, and I size it so that my stop-loss is about 1-2% of my account. This usually represents about 1/3 to 1/2 of the option value. The option value is the maximum risk in case my stop loss doesn't work. Near the money option gamma protects me too, because as the options gets OTM its delta decreases.

If R is my stop-loss risk, my maximum risk is 2-3R and my profit target is 1.5-2R. Usually I close my trades that don't work without hitting their stop-loss, sometimes for a smaller profit.

 

[Rob on Business]

Quote from Multioption:

APA Nov 65 Call
Filled price: $3.00
# contracts: 40
Delta: 0.703

Expectation: A sharp rise to $69, then $70+

Hi Multi - glad to see your next pick on this stormy thread. I am somewhat alarmed you pick the energy sector - most energy stocks are timidly following the wildly fluctuating prices of gas and crude these days since Oct.3. We all are expecting the price of gas to rise with the inclement weather approaching and a corresponding rise in gas handling cos. shares - but I wouldn't expect it too suddenly as you are on this one. Just my thoughts... from someone who's never kept any money from this game.

 

[Multioption]

Quote from Rob on Business:

Hi Multi - glad to see your next pick on this stormy thread. I am somewhat alarmed you pick the energy sector - most energy stocks are timidly following the wildly fluctuating prices of gas and crude these days since Oct.3. We all are expecting the price of gas to rise with the inclement weather approaching and a corresponding rise in gas handling cos. shares - but I wouldn't expect it too suddenly as you are on this one. Just my thoughts... from someone who's never kept any money from this game.

Thanks for your input! I'm fine as long as the trade remains in ITM terrritory! I have my eyes on the trade while searching for other trading opportunities!

 

[iceman1]

Quote from Multioption:

Thanks for your input! I'm fine as long as the trade remains in ITM terrritory! I have my eyes on the trade while searching for other trading opportunities!

multi_option

the problem with APA trade and oil this month - is the open interest may imply lower prices - check out front month calls/puts - this was my concern and was going to tell you that 65 may be an arb level or at least that it might swing back to below 65

-- which is not to say it cannot still be pinned nearer to 70 - next week. Not looking good so far for bullish oil trades.

 

[uninvited_guest]

Quote from Cluseau:

Limits orders to buy on the bid or sell on the ask are worthless to this guy. He sees no possible way that one can utilize this type of order.

Your order gets filled when stock moves AGAINST you, if you are correct in stock direction your order sits UNFILLED.

We have had at least 2 situations of this already on this thread after I original posted the flaws of this sort of order (AAPL, APA).

 

[uninvited_guest]

Quote from Multioption:

APA Nov 65 Call
Filled price: $3.00
# contracts: 40
Delta: 0.703

Expectation: A sharp rise to $69, then $70+

How is this trade going?

Perhaps your TA needs some tweeking.

 

[Multioption]

Quote from uninvited_guest:

How is this trade going?

Perhaps your TA needs some tweeking.

Still manageable. Let's wait and see how it pans out!