Not a bad way to swing with options

Q

qlai

Swing trading via options seems to me like a legit way to gain an edge. I would appreciate people's opinions on below. It's somewhat similar to my (almost brilliant) "Catching a fallen knife with iron gloves" strategy, except they are taking all their risk on the entry and hope for a bounce.
One thing in particular that I didn't like/understand/appreciate is that they were partially hedging with short stock.

 
I thought this could be a way with a good change/risk ratio, but today i noticed a weird thing.
I was interested in a HAL OTM Put with a strike of 20 $. HAL`s closing price on 5.22 was
24,74 $.
The put`s price was 0,23 $. Yesterday HAL drops 4,97 % and the Put jumped to 0,66 $.
Today HAL drops 2,47 % but the put drops to 0,62 $, i don`t understand why.
I assumed the put would raise again, but i was wrong.
Could someone explain to me, what could have happened. Decreasing IV or something else
 
antares66 said:
The put`s price was 0,23 $. Yesterday HAL drops 4,97 % and the Put jumped to 0,66 $.
Today HAL drops 2,47 % but the put drops to 0,62 $, i don`t understand why.
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I assume you're long. You didn't give an expiration, side, etc. If you are close to expiration theta is working against you. If volatility suddenly dropped after the pop down you are long vega so you would've lost value there.


qlai said:
One thing in particular that I didn't like/understand/appreciate is that they were partially hedging with short stock.
More...

I tried this on a few trades and it worked ok. Transaction costs weren't great. However, if you are going for true delta neutrality you could hedge with stock for whatever the remaining is (assuming you can perpetually adjust). Nothing wrong with this, especially if the trade gets distorted.
 
antares66 said:
I thought this could be a way with a good change/risk ratio, but today i noticed a weird thing.
I was interested in a HAL OTM Put with a strike of 20 $. HAL`s closing price on 5.22 was
24,74 $.
The put`s price was 0,23 $. Yesterday HAL drops 4,97 % and the Put jumped to 0,66 $.
Today HAL drops 2,47 % but the put drops to 0,62 $, i don`t understand why.
I assumed the put would raise again, but i was wrong.
Could someone explain to me, what could have happened. Decreasing IV or something else
More...

Depends on Market Makers Algo's calculation, fluctuates by hours, trend timing is everything in Options... Only buy PUTs when the stock is trading positive for the day, and for maximum gains, when trend is as well... Buy calls when stock is trading negative for the day, when trend is down. Use a Trading Software and analyze Historical Data to catch best possible day at end of 4-5 day trend on top of overall momentum of past month, if you are serious of course.

Generally for Options, start to bid 30-40 minutes before closing when going to war with the machines if daily pattern has been consistent first few hours... They usually cave within last 5-10 minutes if you stay still and don't panic, premiums always get better for you as closing time approaches
 
Stockolio said:
Generally for Options, start to bid 30-40 minutes before closing when going to war with the machines if daily pattern has been consistent first few hours... They usually cave within last 5-10 minutes if you stay still and don't panic, premiums always get better for you as closing time approaches
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That´s interesting. But i still can`t understand the huge difference between yesterday and today. Falling stock but now i get a falling PUT.
 
If you are getting better Premiums from MM on PUTs, the machines think it will go up... I have no idea on company, but it has gotten drilled a lot recently. Here is Historical Data, could go down Monday, but if no major selling happens, it will be positive from next Tuesday on for few days

HAL History.png
 
Stockolio said:
If you are getting better Premiums from MM on PUTs, the machines think it will go up... I have no idea on company, but it has gotten drilled a lot recently. Here is Historical Data, could go down Monday, but if no major selling happens, it will be positive from next Tuesday on for few days

View attachment 203082
More...

I want to start tracking IV smile and following price movement. I'm sure there are studies about this but I'm just curious what the statistics look like. Any idea how accurate IV ends up being?
 
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