that’s delta hedging and you are taking a vol view before and after your adjustments.
Options.,... Argh... no more!!
- Thread starter Jdesey
- Start date
that’s delta hedging and you are taking a vol view before and after your adjustments.
Because I can sell an OTM put and still make money even if it drops a little. I usually don't have that strong conviction that the rest of the market has got it wrong and I'm the genius that knows stock XYZ will rally 10% over the next 2 months. When I think I know, I'm often wrong. Selling puts and making lots of smaller profits has worked out better for me than betting it all on one number at the roulette table.
Depends on what you are looking for I guess. Generally you won't find high return without high risk at least legally. I like buying things that most here would regard as less risky and won't crap out if I'm wrong.
Why would you buy any stock you don't have a strong conviction in? Not trading is an option.
Further, you can synthetically create a short put. Instead of selling 1 listed put, you can buy 50 shares. you will have the same stock exposure at the current level but if the stock rallies you will earn a lot more on the rally and if you are really wrong, you will lose a lot less than being long 100 synthetic shares (through the short put). Again, you sell the put instead of synthetically creating it because you think the market has a higher view of vol than you do.
@newwurldmn @taowave
I think most of the differences here regarding option strategy and directional bias come down to how well one can pick stocks. As I said earlier, if you're really good at stock picking and timing, you would not take risk for a premium, but instead pay premium to gain exposure. How well can you guys pick and time stocks? I'll admit that I'm not that great at it, but since this is my idea, I'll go first. I'll give you five positions and the put or call that I would short and after the next option expiration, we can see whether taking a position directly on the underlying would have done better. Then both of you give me you positions, I'll give the alternative option (put or call to short) and we'll see what does better.
Here's my five positions:
1. Short XOP 135 put for April, XOP currently 121.51, $16.95 premium collected for the put
2. Short IBM 135 put for April, IBM currently 123.86, $11.70 premium collected for the put.
3. Short TTWO 180 put for April, TTWO currently 160.86, $21.90 premium collected for the put.
4. Short QCOM 190 put for April, QCOM currently 169.25, $23.45 premium collected for the put
5. Short NFLX 450 put for April, NFLX currently 380.03, $72.70 premium collected for the put
Bonus:
Short TLT 130 call for April, TLT currently $136.47, $7.60 premium collected for the call
Now each of you give me the top 5 stocks or ETFs that you think are most likely to either increase a lot or decrease a lot and I'll let you pick the timeframe. I'll give the single option trade for each one and we can see whether long stock only beats the option strategy after the expiration. I could obviously beat every position you give me by simply selecting the deepest ITM call or put. I'm not interested in doing that. I want to see by what percentage overall I can beat your picks by using options rather than simply long stock. So I'm willing to sacrifice some delta and rely on premium to provide a better total return.
I think most of the differences here regarding option strategy and directional bias come down to how well one can pick stocks. As I said earlier, if you're really good at stock picking and timing, you would not take risk for a premium, but instead pay premium to gain exposure. How well can you guys pick and time stocks? I'll admit that I'm not that great at it, but since this is my idea, I'll go first. I'll give you five positions and the put or call that I would short and after the next option expiration, we can see whether taking a position directly on the underlying would have done better. Then both of you give me you positions, I'll give the alternative option (put or call to short) and we'll see what does better.
Here's my five positions:
1. Short XOP 135 put for April, XOP currently 121.51, $16.95 premium collected for the put
2. Short IBM 135 put for April, IBM currently 123.86, $11.70 premium collected for the put.
3. Short TTWO 180 put for April, TTWO currently 160.86, $21.90 premium collected for the put.
4. Short QCOM 190 put for April, QCOM currently 169.25, $23.45 premium collected for the put
5. Short NFLX 450 put for April, NFLX currently 380.03, $72.70 premium collected for the put
Bonus:
Short TLT 130 call for April, TLT currently $136.47, $7.60 premium collected for the call
Now each of you give me the top 5 stocks or ETFs that you think are most likely to either increase a lot or decrease a lot and I'll let you pick the timeframe. I'll give the single option trade for each one and we can see whether long stock only beats the option strategy after the expiration. I could obviously beat every position you give me by simply selecting the deepest ITM call or put. I'm not interested in doing that. I want to see by what percentage overall I can beat your picks by using options rather than simply long stock. So I'm willing to sacrifice some delta and rely on premium to provide a better total return.
what you are doing is even less sensical. You are getting virtually no premium but giving up the upside that these stocks rally 10% in a month and a half. The SPX could easily do that in the next 2 weeks. You still have all the downside risk. Might as well just be long the shares.
Why would you be short netflix puts for 2.7 dollars of premium when the stock could easily selloff $10 dollars tomorrow? Because you think the stock will rally? Then why give up the chance the stock could go up past 450. If the stock goes to 450 at the end of march, you won't make $70 on the puts, likely you will make about $50.
You shouldn't be selling options unless you have a view on the volatility. Otherwise you are gambling and likely to be underperforming the market as a whole (because that one stock that moves 20% will pay for all those tiny premiums you received as edge.)
Btw - i don't really take delta views on stocks but i trade a lot of options and i am generally a net seller of vol. So take that into consideration when I am telling you not to sell vol unless you have a view on the vol. But my experience has been that if i am bullish on a stock its better to just buy the stock.
Im with NWD....I see no reason why you would short the deep puts over buying the stock..Some of those puts are dam close to parity..does not compute...
FWIW,my primary business is market making and 95 of my positions are verts/Flys with some ratios...If I am picking direction,it's via the underlying,risk reversal or a tilted fly structure...I rarely trade options without "edge",and if there's no edge,I trade the underlying
FWIW,my primary business is market making and 95 of my positions are verts/Flys with some ratios...If I am picking direction,it's via the underlying,risk reversal or a tilted fly structure...I rarely trade options without "edge",and if there's no edge,I trade the underlying
I trade nothing but options and have been in the market for 19 years. Have a rule set that you don't break, i.e a stop loss plan and a sell point plan. Mostly though you need to learn how to read a chart. jmho
For sure it can be paiful, especially if you don't have rules or don't know how to read a chart...I am still relatively new to options (only traded for 3 years now)...but have come to the conclusion that they are extremely hard to master to the point that it isn't worth the pain for most people. Learning what it takes to last in the options game is f*cking work because they are extremely complicated compared to equities...and how many retails can make it trading equities?
Options sellers really have the edge but you need a large account balance to make this work...spreads usually have a small return...and can be quite complicated. Knowing which spread to place in which situation and leg selection etc...takes a lot of experience and I really respect the guys who do this...but it is just plain hard and it hurts losing time and again trying to figure it out.
Long options are what attract all the people with small accounts due to their convex payout scale...and are just about the worst way for a new trader to attempt to make money. If you aren't excellent at timing big moves with equities...you will go broke trading long options. Zero doubt in my mind. Theta is like a tax on patience, tick tock tick tock...IV is like a bipolar jacked-off squirrel: "oh, you're holding calls and the underlying had a green day? great...too bad your position is now red because IV dropped a bit and Theta took a bite out of the premium...sucker".
My reaction anytime someone says they are giving options a go:
In the OXY example, yes. As mentioned though, I'll usually buy back the call and sell one further out, sell lower priced put before resorting to buying stock. I did not buy the underlying because I had a view on volatility as volatility does not have a directional bias. I bought the stock because I thought the underlying would keep rallying as it has so far.
Because I think the stock will go sideways or up and not likely to go down and if it does go down, I'm fine holding it. Generally, if I take a risk, I want to be paid.
If I'm willing to acquire stock (not intentional, but ok with holding it), I'll buy 50 shares and sell a higher strike call. Then if it challenges my call, I'll add more shares as necessary. More likely though I'd do a ratio.
NFLX would require a 18% move in order for the long stock to work out better. Yes, if they do rally more, then buying the long stock would have been the better move. But I don't think they will and neither does the option market based on the option market's expected move for April (I calculated roughly as the ATM straddle). Let's check back in April and see what happens.
I think each of those positions had at least a couple $/sh of extrinsic value. If you really believe that something like NFLX will rally more than 18% over the next 45 days or so, you can go out and buy the 450 calls. If you're not doing that, but still have a bullish view on NFLX over my time period, then you agree with my positioning...it would make more sense to just buy the long stock and sell the call, but I did this to prove a point using only one option.