Options.,... Argh... no more!!

ET180 said:
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.
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You are giving up edge when you trade ditm options. You will get a much higher chance of mid fill going long stock short call than going short ditm put. Just my 2 cents worth.
 
ET180 said:
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.
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so, now in NFLX you have created a vol view (either to support your current position or before you initiated your current position). Does the current trade best reflect your vol view?

btw - I agree with your vol view and I am positioned for it. But I will probably earn more per share than you will if my view is correct.
 
ET180 said:
...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
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If you are ignoring volatility, and simply attempting to profit from price rising by an unspecified amount over the next 6 weeks, have you compared your strategy (risk:reward, breakeven etc) to simply selling the AtM put?

It would seem that you are accepting a tiny premium (USD3) for a lot of risk (USD377 - so less than 1%), with a breakeven price (at expiry) close to current price.

Using your NFLX example, the April 380 Put is c.23, which would seem like a more favourable way for you to achieve my interpretation of your objective.

I'm not recommending this BtW(*), just suggesting that you model both if this is your chosen path.

(*) been there, got the t-shirt!
 
Why would I buy ONE NFLX 450 call as opposed to the Delta equivalent of the short put?

Are you basically saying that a short 450 put offers the most edge if one is bullish??? Or in your case,bullish up to 450??? Stocks been cut in half,if im taking 99 percent of the downside risk,im not synthetically shorting the 118 percent spot call for 50 bps or so.Havent looked,but I doubt the buywrite offers any "edge".

That's the point NWD and I are making...








ET180 said:
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.
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ET180 said:
Obviously, if you know the stock will go up then you should not sell puts but instead be buying calls. I never reach the level of certainty where I *know* a stock will rise or fall. There is always some level of doubt. Being right on the direction is hard. Being right on the direction and the timing is really hard.
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So, true. That is why I just follow the trend. Much simpler to do.
 
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