My Options Play

[dummy-variable]

Quote from steve46:
Finally, in order to be on the "right side" of a trade, you need to have some basis for knowing (or at least making a good guess) which side is the "right side".

what i meant by my comment that gamblers are good for my trading is that in general if someone does not know how options operate they are creating opportunity for those that do know.

Some of the information that I refer to can be had by discussing the subject with local traders who are in the business. [...

i'm in the business as a pro (read my earlier comments - i was a market maker on the cboe) and have never heard of anyone seriously using option volume as any kind of indicator. there are many bogus "indicators" that are literally sold to the gullible. for instance some bozo came up with the concept of "put/call ratio." this concept is nonsense since it doesn't reflect how options are used. if i sell naked puts that increases the put open interest. does that mean i'm bearish? if i open an ATM butterfly composed of all calls, the call open interest goes up. is that bullish?

 

[thenewguy]

Quote from cnms2:

I see what you mean.

Different people look at the same thing and draw different conclusions. Multioption's approach appeals to me because of the lower margin requirement and smaller slippage and commissions (than stock+put), better reward / risk ratio (than vertical spread), better downside protection (than naked stock), less price downside and volatility risk (than further expiration). For these I have to pay something, as you correctly explained. Probably I wouldn't have picked PEET because it is so thinly traded.

I suspect Multioption planned to close his position after about a week anyway. As it happened, although last week the market was down and PEET gapped immediately after opening the position, the technical signal proved correct, just its magnitude was smaller and the reward / risk only 1/1.7.

To make $100k from $20k in less than 3 months Multioption had to take a higher risk: 6.8k/20k=34%. But as $20k is not all his account, maybe less than 1%, it's ok.

Let's be patient and see how the next trades unfold. I'm here to learn , confirm or correct my thoughts, and a little excitement (will he reach the $100k goal?).

Just one more thing... There are other risks that I'm not fully comprehending either. The amount of money may not be much different for what you can lose, but the probability changes alot when you move from equities to options. Also, it's important to note that the bid/ask spread on the stock was probably 2 or 3 cents when he bought in, and the bid/ask spread on the option was 40 - 50 cents (I think, foggy memory). Think of trying to bail both positions if they immediately went against us.

Once again, I'm hoping he can do it, I certainly believe it's possibly, and I'm here to watch and have some fun too. But I would not for a second downplay the risks involved.

- The New Guy

 

[thenewguy]

Quote from dummy-variable:

what i meant by my comment that gamblers are good for my trading is that in general if someone does not know how options operate they are creating opportunity for those that do know.




i'm in the business as a pro (read my earlier comments - i was a market maker on the cboe) and have never heard of anyone seriously using option volume as any kind of indicator. there are many bogus "indicators" that are literally sold to the gullible. for instance some bozo came up with the concept of "put/call ratio." this concept is nonsense since it doesn't reflect how options are used. if i sell naked puts that increases the put open interest. does that mean i'm bearish? if i open an ATM butterfly composed of all calls, the call open interest goes up. is that bullish?

Hey, OT question for you. What makes a MM hit a price between the bid/ask? I mean, theoretically you never should, right? I assume you set the bid/ask to a model that gives you the better probability of a win in the trade, so why do you guys sometimes take something offered in the middle?

Hope you don't mind me asking!

- The New Guy

EDIT: Also, I've always found the put/call ratio very weird. To me, it almost should indicate the opposite on what's really happening, as I assume that it's mostly MM writing the options? I really am not sure of that either, but if that were the case, they should statistically have the advantage, therefore should be a mild indicator in the opposite direction.

 

[cnms2]

Quote from thenewguy:

... Also, it's important to note that the bid/ask spread on the stock was probably 2 or 3 cents when he bought in, and the bid/ask spread on the option was 40 - 50 cents (I think, foggy memory). Think of trying to bail both positions if they immediately went against us. ...
- The New Guy

FYI, current quotes:

Symbol Last Change Bid Ask
PEET 32.17 0.05 32.15 32.24
Nov30put-UKQWF 0.55 -0.20 0.40 0.60

They're not that bad.

 

[thenewguy]

Quote from cnms2:

FYI, current quotes:

Symbol Last Change Bid Ask
PEET 32.17 0.05 32.15 32.24
Nov30put-UKQWF 0.55 -0.20 0.40 0.60

They're not that bad.

Those are the Nov puts... We bought the Oct 30 calls.

Edit: also, 20 cents on this play was $800 difference, or %10 of the initial trade. That's a pretty big spread to me... Imagine if you bought in, then PEET was double downgraded and you were fortunate enough to get out at the bid before it tanked? That's a %10 loss without the underlying even moving!

Edit 2: Of course, if I could do basic math I'd know that if he bought 40 puts at .60, and had to get out at .40 that $800 would be %33 instead of %10

 

[uninvited_guest]

Quote from Multioption:

Can I show you something? Check this out...

I'll rather not trade than getting myself into something I'm not sure of!

Enjoy yourself!

Multioption the screen shot that you posted of your past trades is from June 2002. What happened during the last 3 1/2 years? Did you blow out your account after?

 

[wabrew]

Come on guys -- 28 pages of chit chat and other misc stuff

-- only one trade --

give the guy a chance to either, do what he said he was going to do, or .... not.

 

[uninvited_guest]

Quote from wabrew:

Come on guys -- 28 pages of chit chat and other misc stuff

-- only one trade --

give the guy a chance to either, do what he said he was going to do, or .... not.

Two trades.

But what happened after June 2002? Why stop trading for 3 1/2 years?

 

[Multioption]

Quote from uninvited_guest:

Multioption the screen shot that you posted of your past trades is from June 2002. What happened during the last 3 1/2 years? Did you blow out your account after?

I did not blow out, I withdraw (sic) my capital for a big project. Still trying to make $1.2M between now and August next year. It is possible! I have more screenshots that could shed more light to my confidence in direction trades, but I'm on the move right now (travelling).

I have a question, and a very important one: Why do many options' traders consider direction unimportant? I can remember very well many options savvy who have attempted to make money using complex strategies but ended up failing and woefully. Examples: QWave and Terry Tips.

With all the greeks, variables, and what have you, Option remains a derivative, so what's important? Underlying security or options?

 

[uninvited_guest]

Quote from Multioption:



I have a question, and a very important one: Why do many options' traders consider direction unimportant?

They are selling options and hoping for time decay to work in their favor. If your buying options direction is very important and within a certain time and % move.