Option Spread Trader, New Beginning

I know that you are paper trading right now but looking at your posistion:
# AAPL STOCK QTY: -520 shares
# Aug 09 145 Call QTY: -36
# Aug 09 155 Call QTY: +14
# Aug 09 180 Call QTY: +1
# Oct 09 145 Call QTY: +36

Is this realistic? Whenever you place real trades in your account with real money are you going to be trading those sizes? If not, then you are not helping yourself at all by paper trading. You are just playing for fun. If you are going to start our with a live account with 100,000 then paper trade with 100,000. If you are going to go live in the future with 10,000 then paper trade with 10,000. You will not be helping yourself at all if you dont take it serious. Just a suggestion, i will keep an eye on this thread and participate as much as possible.
 
Quote from SpreadSeller:

Kedwards,

My advice to you is make sure your approach/method (I don't like the term 'system') is solid and ordered.

Treat the luxury of being in college right now as an opportunity to follow the markets day in and out.

S
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Hey SpreadSeller,

thanks for the words of encouragement :) These next two months will definitely be all about understanding options better before I have to go back for fall semester :( But even during the semester I'll have time to watch the markets.

Approach/method, I'm undetermined as of yet. Where I am at is 'making a plan for a plan' lol. As far as trading volatility, I'd like to do something along the lines of what 'IV_Trader' does with event related plays. In a post awhile back 'dmo' said you have to understand the usual ways options move and then make a play when you see an opportunity/anomaly. So, I suppose I would have to research extensively to make a database (I suppose professionals buy them) of equities and how they behave during earnings periods (usual ways), and then decide on a strategy when I see something that should materialize but hasn't, yet (opportunity/anomaly).

I've been trying to decipher how IV_Trader did this in his posts from the last couple years and it seems he had researched lots of equities, and decided on plays when the right conditions materialized (i.e. for reverse calendars he would look for +gamma, neutral theta, relatively neutral vega, <10 days to expiration, second month already ramped up, exit on frontmonth exp., etc. etc. (I'm still trying to understand it clearly)). Once I get to that point, I'll probably have a better shot.

Also, I'll look into Jeff Augen, thanks for the tip.

Hey mike,

yeah the position size is probably unrealistic, I was just trying to match up the greeks as much as possible and not really looking at position size. Thanks for the suggestion :)
 
So from what i am reading in your posts. You are wanting to trade these spreads more "speculative" 10 days till expiration and mostly playing volatilities? And you said neutral theta? Neutral detas? So basically are you betting on vols. Play vols is a hard thing to do especially around earnings. You will see them suck the premium right out of options as soon as the earnings are out.

All of my trades are positive theta and non directional. The way I use vols is more of an allocation method. I try to allocate to a neutral vega using the different spread. Since condors and butterflies give you negative vols and then diagonals and calenders give positive vols you can limit your vol risk as much as possible using diversity in the strategies.
 
Since condors and butterflies give you negative vols and then diagonals and calenders give positive vols you can limit your vol risk as much as possible using diversity in the strategies.
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Diagonals and calendar have not positive vega... they have two different expiration months and two different vegas.

You cannot hedge a negative vega with a time spreads. It don't works and is dangerous believe it.

Regards
 
Quote from MyEdge:

Diagonals and calendar have not positive vega... they have two different expiration months and two different vegas.

You cannot hedge a negative vega with a time spreads. It don't works and is dangerous believe it.

Regards
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BS, a calender has a positive vega. At least ALL the calenders that I have are always positive vega. I buy the back month and sell the front month. Here look at my total position report in my attachment. You can see that I am talking about total overall portfolio vega hedging. I am not sure that we are talking about the same thing. You can see that my condor has a negative vega and then my calenders give me a positive vega. Greek totals are at the bottom of the pic.
 

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Quote from mike007:

So from what i am reading in your posts. You are wanting to trade these spreads more "speculative" 10 days till expiration and mostly playing volatilities? And you said neutral theta? Neutral detas? So basically are you betting on vols. Play vols is a hard thing to do especially around earnings. You will see them suck the premium right out of options as soon as the earnings are out.

All of my trades are positive theta and non directional. The way I use vols is more of an allocation method. I try to allocate to a neutral vega using the different spread. Since condors and butterflies give you negative vols and then diagonals and calenders give positive vols you can limit your vol risk as much as possible using diversity in the strategies.
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Hey mike,

yes I want to play volatility, but it obviously has more elements to it...for example with reverse (short) calendars an important element is your positive gamma, giving you a long straddle type of position (benefit from a large move in either direction).

As far as what 'MyEdge' is saying, it's something I'd like to figure out myself, how to understand the relationship between, what I believe are, 'two different vegas'.

For example, you buy a long calendar: Sell July, Buy August. You are positive vega on the overall position. But in a high implied volatility situation like earnings announcements, the relationship between your front month short vega and backmonth long vega can change drastically, no?

'Dmo' alluded to that in this thread (2nd post):

http://www.elitetrader.com/vb/showthread.php?s=&threadid=159333&highlight=long+vega

As soon as I understand the relationship, I'll report back, lol :)
 
For the delta neutral long calendar, it's still negative at -$1364. The only positive is that AAPL volatility has been steadily rising, up to 44.03% from high 30s last week. ToS chart says around 46.23% vol, the position is breakeven. Guess I'll find out soon enough, AAPL earnings are on July 21st, so I have exactly two weeks.

The AAPL short calendar is negative also, -$364. Not really sure how to interpret the greeks or anything yet.

The SPY diagonal is looking strong with this downmove today, profit is at $1,669.85. I should probably buy back that July 90 Put, but I'd prefer to watch the position some more before making an adjustment.

Tomorrow I'll put on an Alcoa long calendar before market close for the earnings report.
 
Quote from Kedwards:

For the delta neutral long calendar, it's still negative at -$1364. The only positive is that AAPL volatility has been steadily rising, up to 44.03% from high 30s last week. ToS chart says around 46.23% vol, the position is breakeven. Guess I'll find out soon enough, AAPL earnings are on July 21st, so I have exactly two weeks.

The AAPL short calendar is negative also, -$364. Not really sure how to interpret the greeks or anything yet.

The SPY diagonal is looking strong with this downmove today, profit is at $1,669.85. I should probably buy back that July 90 Put, but I'd prefer to watch the position some more before making an adjustment.

Tomorrow I'll put on an Alcoa long calendar before market close for the earnings report.
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This is where we both differ. I am always long calenders not short so it gives me positive theta and vega. Also I do not have my short option in earnings months. I take the safe route in my trades. No more than 30-35% Imp. Vols on my trades. I am more of a range trader, not speculation on direction. Good juck with your trades and learning.
 
Well if I bought an AA Long Calendar it would have had a bearish bias at the 9 strike, so I did a double diagonal instead:

  • Sold 10 July 10 Calls
  • Sold 10 July 9 Puts
  • Bought 10 August 10 Calls
  • Bought 10 August 9 Puts
  • .76 Debit

Benefits from no movement. Although long calendars have worked on AA in the past, this time, with what I gather is uncertainty for commodity prices, AA may make a substantial move. Earnings after the bell.
 
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