need some direction

[masterjaz_99]

For the past 3 weeks I've had 4 days a week thats been -$30, and then maybe one +50, so just to start seeing some green being posted would be a good start, I have the following trades

Bull put spread in AMAT sold the 21 bought the 20 because of high IV a month ago, expires in 15 days and is a 42.50 loser

Bull put spread in APOL, was high IV, sold 31 bought 30 expires 15 days and is a $56 loser

Bear call spread in CSCO sold 23 bought 24, that ones almost even, 15 days exp.

Bear call XLK, 15 days left, sold 36 bought 37, $26 loser

Iron condor XRT 85 86 C, 77 78 P, 15 days left, waiting on this one, down $4

YHOO bear spread, 37 38 C, down 15, 15 days, waiting on this one too

Pandora, 21 22 bull put spread, 15 days left, this ones working out

I'm looking for high probability steady small gains, just feel like I'm in a losing streak and getting stuck, need some green to lift my spirits.

So yesterday I put on a few weekly spreads in SPY, expiring today, all with 80% OTM, risk 80 to make 20, and those are working out, will let them expire worthless. This seems to be the first thing that has worked out well so far! I just keep being sway by "market correct is coming!" talk and have been bearish on most things and have lost.

Jones,
Most of these trades are directional. Do you have a reasonable reason for picking the direction you did? I too follow Tasty Trades but early on realized many of Tom's trades are based on hunches. Following Case, remember the YHOO trade, he f'd that one up huge betting directional. Think if you have a directional edge, if not, you should not be trading verticals.

Know that following anyone blindly will not result in profits. Tasty Trade at MOST should be for idea generating. I am testing (paper and live) a couple ideas I gained. Money measures is a show as is Tasty Bites, but realize, they really only backtest the '09-current bull market.

The good news is you are trading small, this keeps you in the game, even with losses. But you cannot keep doing the same thing over and over and expect to become profitable. Take a step back, watch and learn some more, and keep at it.

Good Luck

 

[rickty]

Consider the trade you mentioned: "MAY 9 iron condor 90% OTM would collect .76"
You're risking (with 5 point wide spreads) $424 (=500-76) to make $76, not the greatest risk to reward ratio but it does mean that you will have a return of 15% (76/500) in one week. If you do this consistently you will make money in the long run. And 90% of the time you will win.

I haven't bought premium, just been selling it. So I could do something like sell todays SPX, a vertical, Buy the 1870 Sell the 1875, would only collect .46 but its 88%OTM.

Next weeks MAY 9, doing a 90% OTM spread would collect .50cents

If I do an iron Condor with both sides being 90% OTM expiring today would collect .56, MAY 9 iron condor 90% OTM would collect .76

Is that the general idea rickty?

 

[therealjones]

Well, I think I am starting to see how I need to trade. Yesterday I sold a few spreads in SPY, one with a 70% OTM one with 85%, even though one was risk 80 to make 20 and the other risk 87 to make 13, both expired worthless and the math worked in my favor. Usually I would have done a 50% risking 50 to make 50 and would have seen that work against me today! I think I just have to detach myself more from the risk/reward and attach myself more to the probabilities and math!

 

[masterjaz_99]

Well, I think I am starting to see how I need to trade. Yesterday I sold a few spreads in SPY, one with a 70% OTM one with 85%, even though one was risk 80 to make 20 and the other risk 87 to make 13, both expired worthless and the math worked in my favor. Usually I would have done a 50% risking 50 to make 50 and would have seen that work against me today! I think I just have to detach myself more from the risk/reward and attach myself more to the probabilities and math!

Careful to not view the probabilities in isolation. There is an innate relationship between probability and risk-reward. Change one, the other changes. Remember, to be profitable, you have to overcome the balance of these two variables. Also, remember that the probability is a function of price.

For example--

50% probability should basically be 1:1 risk-reward. If the risk was greater than reward, the price would adjust as nobody would take the trade. Price adjusting would change the probability. If the reward was greater than risk, everyone would take the trade, price would adjust, with the probability follow suit.

80% probability should be 5:1 risk-reward, and so on. Liquid, efficient markets have these basically priced correctly.

2 issues--

1. If the downside probability does occur, it will wipe out many trades where the upside probability was correct. 50%, it is 1 to 1, but if you are trading 80-90% probabilities, then 1 trade can wipe out 5-10 winners. This WILL happen.

2. You must also believe the pricing/probabilities are incorrect. Given the logic in issue #1, your win/success rate must be greater than the calculated probability, otherwise you would be breakeven at best. This is where Tasty Trade number of occurrences comes into play. The more trades you make, the better your total win % value will be to 'true' and the better you can approximate if your trades, over the long run, will be profitable.

Tasty trades glosses over the details of understanding what is luck, what is an edge, and how to determine each.

For example, a strategy I traded last week required me to defend 3 of 18 trades. This week it was 7 of 22. Firstly, I am trading many times to derive concrete statistics. Secondly, had I assumed week 1 was correct and put big money in week 2 = carnage. Moral of the story, trade small, test, and keep accurate notes on trades. Then and only then can you, and you alone, determine if a strategy, style, or method of trading is successful.

Good luck (I know this was a bit of a Friday PM ramble...)

PS--I forgot to add, while the taking profits at 50% backtests well and Tasty Trade likes using this, just think of what this does to your risk-reward and probabilities. I won't go through the details here, but think on it...

 

[Doobs789]

Hey everyone, I've having a rough start so far with options trading, learned about it from tasty trade and so far I've lost about $250. I have an 11k account and am looking for some trade ideas and direction.

I can't sell naked options, so iron condors and verticals are what I pretty much have to play with. I see some people who sell weeklies in SPY or QQQ, I'm just looking to start getting a good couple of trades going.

Any advice would be great! Thank you

You certainly can make a decent return on an acct of $11k, but you must have a method and stick to it. Your risk needs to be measured, you're not going to make a living on an account of that size.

Structure trades so that if you are wrong you can still trade another day. You probably shouldn't have more than $3-$4k margin tied up. Also, do not over-trade, commissions will wipe out your profits, or most likely, exacerbate your losses. There is nothing wrong trading directionally, or buying premium. At this level, any gains from volatility will be moot, you need to have some deltas. You aren't going to discover some magical edge out there, we all have to predict the underlying stock's price in order to make money. Most importantly, do not start taking big gambles just because you can do it cheaply. If you expect to double your account in a year you will most likely lose it.

Finally don't be enticed by those who routinely sell otm weekly options. They may seem to make attractive returns, but it is not a system, and will not be successful in the long run. Knowing that time passes is not an edge.

 

[therealjones]

So I'd like to begin a strategy selling spy weeklies, is there any rule of thumb on when to enter weekly trades? Such as the Friday before or the Monday before expiration? I placed some in spy Friday, using 80% otm, I've heard many people say they only hold for a few days! takes more risk off the table the closer to expiration.

One downfall I see with spy is how much commissions will cost vs the spx, however spy is more liquid.

What's a good time frame for doing monthlies? I was reading a blog I came across and he only does maybe 2-3 trades at a time selling monthly iron condors in spx and rut, the lazy trader blog or something like that, but he'll place July positions in May, aug positions in June etc

 

[doggyfx]

Hey everyone, I've having a rough start so far with options trading, learned about it from tasty trade and so far I've lost about $250. I have an 11k account and am looking for some trade ideas and direction.

I can't sell naked options, so iron condors and verticals are what I pretty much have to play with. I see some people who sell weeklies in SPY or QQQ, I'm just looking to start getting a good couple of trades going.

Any advice would be great! Thank you

It feels like you are seeking advice of what restaurant in your town is worth to visit. Financial speculations is harder than learning advanced math, because another pressure is your money you are risking with in that activity.Nobody will share with you with working ideas.

 

[Doobs789]

So I'd like to begin a strategy selling spy weeklies, is there any rule of thumb on when to enter weekly trades? Such as the Friday before or the Monday before expiration? I placed some in spy Friday, using 80% otm, I've heard many people say they only hold for a few days! takes more risk off the table the closer to expiration.

One downfall I see with spy is how much commissions will cost vs the spx, however spy is more liquid.

What's a good time frame for doing monthlies? I was reading a blog I came across and he only does maybe 2-3 trades at a time selling monthly iron condors in spx and rut, the lazy trader blog or something like that, but he'll place July positions in May, aug positions in June etc

So you completely disregarded my advice in the post above? Why do you think selling otm index options is such a great trade? Also, I'd be wary of taking advice from someone who describes them self as "lazy." Option trading is hard, it takes work and discipline. Stop looking for a shortcut.

 

[Brighton]

Why would you want to learn from a couple of old market maker dinosaurs who can barely articulate the simplest of option concepts?

What have you learnt so far that is of any practical use?

That's a good point. I also don't understand why newbies seem gung-ho on getting into weeklies right out of the gate, unless that's a common trade discussed on TastyTrade and Dough. Weeklies are an even worse idea for a beginner who has a full time job or is in college.

For a beginner that's going to sell to sell premium via credit spreads, I'd suggest something farther out in time and something not all that volatile. The early objective isn't to "kill it" - it's to not lose and to learn by watching how option prices, IV and the greeks change with time and with movement in the underlying.