OEX weekly options

After 16 months of this, with only getting internet service back in Feb. March this year. I´ve learned a few things.

Yesterday I was going through my file folders of notes and recommendations, etc. Weeding out ideas and methods that had been passed over for replacement by new opinions and knowledge.

Most of the time was spent on the CREDIT SPREAD.

But I´ve played with credit spreads, debit speads, short strangles, short straddles, mostly at the recommendation of TJ and recently returned to my olden amateur roots of straight buying.

I know, the hype on the internet is that SELLING OPTIONS is SAFER and more lucrative than BUYING.

However in REVIEW, I´m finding that not to be true. I´m finding SELLING OPTIONS requires huge amounts of capital at risk. That the RISKS are huge. That the reward to risk ratio is not very good at all.

SAFETY is relative. I´ve come to the conclusion that STRAIGHT BUYING is FAR MORE REWARDING and has less RISK than SELLING OPTIONS. Selling options is deceptive. It rewards you over a long period, but then does a sneak guerrilla attack and wipes you out. I think I prefer the short battle, with an exit loss strategy, but makes oodles more money in a shorter period of time. The thing is to pick your battles, and have a retreat planned to get out. In the long and short run, BUYING is more profitable by huge amounts, than SELLING. Sorry to go against prevalent hype and wisdom all over the internet, but my short experience finds the contrary to be true. Properly done, straight buying is much better for the reward to risk ratio.
I´m weeding out my ideas and methods and concentrating now on defining exact conditions for a BUY type trade and if nothing is there, then perhaps do a credit spread of one kind or another. ( There are three types I know about to choose from in different market conditions) I think I´ll use the two short time period credit spread trade types and not the longer monthly. Ties up capital too long for no good return. I´ve not got the DEBIT spread to work yet at all. For some reason.
Anyway my research work is now to define the conditions for a specific trade and otherwise stay out of the market.

That should entertain and amuse Elite Trader ( grin )

I´m going to be in CASH money before XMAS I hope. Thats the plan anyway. In the meantime I still am using scratch paper trading for testing and the TOS web based funny money for something when it is proven to work. The account balance in TOS is sort of proof of the pudding sort of thing. Can´t fudge the results like one does in scratch paper experiments.
 
TJ or anybody else?

I would like to clear up my understanding of ASSIGNMENT.

1) Does assignment only occur at Expiration?

2) In a credit spread, does assignment occur in the OEX, or any other indexes during the trading month before expiration, if the short side of the credit spread moves into the money?

3) I´m only slightly aware of the dangers of assignment when a sold option enters into the money, but not the particular when? I ran across a little note in my weeding out of learning papers, that I had jotted down sometime, that I needed to trade the XEO and not the OEX so as to avoid assignment. One of my newer trading methods would move the sold side into the money, therefore I need to know how this assignment thing works more accurately and if it is dangerous during the monthly, then which of the indexes are best traded as alternatives to the OEX to avoid this happening.
 
Quote from falconview:

TJ or anybody else?

I would like to clear up my understanding of ASSIGNMENT.

1) Does assignment only occur at Expiration?

2) In a credit spread, does assignment occur in the OEX, or any other indexes during the trading month before expiration, if the short side of the credit spread moves into the money?

3) I´m only slightly aware of the dangers of assignment when a sold option enters into the money, but not the particular when? I ran across a little note in my weeding out of learning papers, that I had jotted down sometime, that I needed to trade the XEO and not the OEX so as to avoid assignment. One of my newer trading methods would move the sold side into the money, therefore I need to know how this assignment thing works more accurately and if it is dangerous during the monthly, then which of the indexes are best traded as alternatives to the OEX to avoid this happening.
More...

Falconview, it is my understanding that the assigment varies depending on whether the option is traded European sytle or American. American can be excercised at any time, european are only excercised on the friday before expiration.

So you need to know which way the option is traded. for example, RUT and MID are European, SPY is american. I think OEX is Americanhttp://www.investopedia.com/articles/optioninvestor/09/early-exercise-oex.asp If you read down, it seems you might want to consider an alternative option. Here is more http://www.cboe.com/micro/oex/introduction.aspx

As my strategy is to always close/roll a position early, for me I dont think it matters. If you want the play the game of having the market hit your strike price and then go back the other way it seems there might be an adavantage to the European ones.

Michael
 
Quote from falconview:

TJ or anybody else?

I would like to clear up my understanding of ASSIGNMENT.

1) Does assignment only occur at Expiration?

2) In a credit spread, does assignment occur in the OEX, or any other indexes during the trading month before expiration, if the short side of the credit spread moves into the money?

3) I´m only slightly aware of the dangers of assignment when a sold option enters into the money, but not the particular when? I ran across a little note in my weeding out of learning papers, that I had jotted down sometime, that I needed to trade the XEO and not the OEX so as to avoid assignment. One of my newer trading methods would move the sold side into the money, therefore I need to know how this assignment thing works more accurately and if it is dangerous during the monthly, then which of the indexes are best traded as alternatives to the OEX to avoid this happening.
More...

I would add to Stanford post (which is good) this:

1. I would also make sure to know in one unit the assignment is made (Cash or underlying). The distinction may not seem important but it is particularly for leveraged positions such as Stanford's writing strategies.

2. This may also surprised you: assignment can happen even if the option is out of the money. If American it can happen at any time, but if it is European I would not assume it would not happen.

3. Not all assignment happen on Saturday. The payout could be known on the morning of Friday (open). So be careful if for instance you were to trade DIA or DJX. I remember once that I got my money taken because the open price was way different from the price when I could see the major trading. It is a third party that gives the index. I think DJS (in case of dow).
 
Quote from falconview:

After 16 months of this, with only getting internet service back in Feb. March this year. I´ve learned a few things.

Yesterday I was going through my file folders of notes and recommendations, etc. Weeding out ideas and methods that had been passed over for replacement by new opinions and knowledge.

Most of the time was spent on the CREDIT SPREAD.

But I´ve played with credit spreads, debit speads, short strangles, short straddles, mostly at the recommendation of TJ and recently returned to my olden amateur roots of straight buying.

I know, the hype on the internet is that SELLING OPTIONS is SAFER and more lucrative than BUYING.

However in REVIEW, I´m finding that not to be true. I´m finding SELLING OPTIONS requires huge amounts of capital at risk. That the RISKS are huge. That the reward to risk ratio is not very good at all.

SAFETY is relative. I´ve come to the conclusion that STRAIGHT BUYING is FAR MORE REWARDING and has less RISK than SELLING OPTIONS. Selling options is deceptive. It rewards you over a long period, but then does a sneak guerrilla attack and wipes you out. I think I prefer the short battle, with an exit loss strategy, but makes oodles more money in a shorter period of time. The thing is to pick your battles, and have a retreat planned to get out. In the long and short run, BUYING is more profitable by huge amounts, than SELLING. Sorry to go against prevalent hype and wisdom all over the internet, but my short experience finds the contrary to be true. Properly done, straight buying is much better for the reward to risk ratio.
I´m weeding out my ideas and methods and concentrating now on defining exact conditions for a BUY type trade and if nothing is there, then perhaps do a credit spread of one kind or another. ( There are three types I know about to choose from in different market conditions) I think I´ll use the two short time period credit spread trade types and not the longer monthly. Ties up capital too long for no good return. I´ve not got the DEBIT spread to work yet at all. For some reason.
Anyway my research work is now to define the conditions for a specific trade and otherwise stay out of the market.

That should entertain and amuse Elite Trader ( grin )

I´m going to be in CASH money before XMAS I hope. Thats the plan anyway. In the meantime I still am using scratch paper trading for testing and the TOS web based funny money for something when it is proven to work. The account balance in TOS is sort of proof of the pudding sort of thing. Can´t fudge the results like one does in scratch paper experiments.
More...

What ever your wife gave you as food/drinks/words/etc, keep taking more of it. Your above post is one of your most sharp posts so far.

You mentioned that debit spreads did not work. Debit spreads are directional (and also long in vola). Is it because of the option spread, or because of your direction performance?

I also liked your answer using W.'s response in relation to secrets'. I would use it with others. I think it is a very good one.

I would not be surprised if you were to revisit your above post sometime in the future, and maybe another conclusion such as something in between.
 
Quote from Stanford:

TJ, could you please explain the how the type of settlement could affect the strategy I am using? Many thanks Michael
More...

I am going to make a post on the blog, and add the link. If you need it urgently, send me an email, I can email it now.
 
Falconview: It is Sunday night. At around 7:15PM, my models came with end of up move and a short signal for EUR/USD with the pair at 1.4007. This has been a ferocious upmove. Models were timing the beginning of the previous retreats correctly, but after each of the previous retreats the upmove resumed. The confirmation has to come from the daily level. What do your models say?
 
TJ

I have mixed signals for both up and down moves. Nothing definite here. I´m wondering myself?
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WEEKEND SUBCONSCIOUS RESULTS - THINKING ABOUT WHAT TO TRADE AND HOW TO TRADE WHEN I MOVE INTO CASH.


Here are the FACTS!

a) Credit Spreads need 30 trades to DOUBLE your money. With no losses of course.

b) Straight buying long options, doubles your money in 5 trades, assuming no losses.

c) ONE Trade in a seasonal commodity by buying an option, on the stock of a company dealing with the commodity - DOUBLES your money. In my case it was a 3 month trade using a 2 year LEAP options.

( An 18% stock price rise, equated to a 100% gain in the option and you buy and forget about it for a few months. Do something else. )
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Now I´m a beginner and amateur. What would you advise me to trade and how?
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One opinion I formed as an amateur is that selling OPTIONS is a loser! Too little profit for too much capital tied up. The risk is stupendous, the losses huge and the rewards not worth the hype.

Second opinion, THE LESS YOU TRADE, the better you are, by being choosy!

Opinions based on the ACCOUNT BALANCE. Criteria: REWARD versus TIME and capital involved.
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**** Note: The people touted as MARKET WIZARDS strive to earn 40% a year. They seem to trade in a frenzy. What conclusions can you reach?
 
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