Options: First Paper Trade

ondafringe said:
Oh, okay. I can see where that would help with choice of timeframe. Will make that high on my ToDo list. Thanks.
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Also, and you may already know all of this, but to trade options you really should have a good...GOOD understanding of volatility. Extrinsic is so heavily effected by vol you are essentially setting up trades based on where it will be rather than just worrying about the price of the underlying. There are a handful of guys on this forum that are real options traders and I hope they will chime in and help you because to be honest I'm not shit when it comes to this stuff and only trying to save you from some of the pitfalls I fell into.

upload_2022-8-14_10-16-39.png


Please consider reading this book.
 
zghorner said:
Also, and you may already know all of this, but to trade options you really should have a good...GOOD understanding of volatility. Extrinsic is so heavily effected by vol you are essentially setting up trades based on where it will be rather than just worrying about the price of the underlying. There are a handful of guys on this forum that are real options traders and I hope they will chime in and help you because to be honest I'm not shit when it comes to this stuff and only trying to save you from some of the pitfalls I fell into.

View attachment 292026

Please consider reading this book.
More...

I have a basic grasp of volatility, but not in how it affects extrinsic. I'll add that to my ToDo list. Thanks for the book recommendation.

BTW, I agree with you about dest. I've read some of his stuff but, at my level, it was like reading a foreign language. lol
 
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zghorner said:
You really need to look into that more and know exactly why certain time frames are better or worse for various trades.
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I too heard/read this rumor, but to the best of my knowledge I can't think of a proof for it. This claim needs to be proven, IMHO.
So, please enlighten us with your wisdom and tell us more about this, so that we too finally experience the Aha!-effect... :D
 
earth_imperator said:
You must really be joking! :D That @destriero idi? Really? I was thinking he is just an elite spammer.
Just show me one of his postings that is really worth to read for learning something.
And what is his track record in trading? -100% ? :)
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I wasn't going to touch this, but...

Everyone on this board, who has been around for even a few months, knows @destriero, along with a handful of others, is/are OGs.

Keep in mind, no one is obligated to help us learn anything about trading options. We are not entitled to help. It just doesn't work that way. And to act like we are entitled, or to be critical of those in-the-know who don't -- or won't -- take time to help, can only serve to alienate us and decrease the likelihood of getting any help in the future, even from those who might have been willing to help.

Bigtime traders are extremely busy, and they may not be in a helpful frame of mind, or they may not want to be teachers. That is their right and it just goes with the territory.

IMO, the best way to increase your chances of getting help is to approach with hat in hand. And be appreciative of what help you do get, even though it may not be all the help you had hoped for. And as to questions left unanswered, we just have to dig up the answers on our own or figure it out by trial and error.

I'm not trying to tell you your business, so please don't take it that way. I just wanted to point a few things out that you might want to consider.
 
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earth_imperator said:
I too heard/read this rumor, but to the best of my knowledge I can't think of a proof for it. This claim needs to be proven, IMHO.
So, please enlighten us with your wisdom and tell us more about this, so that we too finally experience the Aha!-effect... :D
More...
I don't have much wisdom to share...hence why I gave up on options and moved to futures.

But i don't see how anyone can argue against the importance of DTE when putting on a trade. For a simple example...would it be better to sell premium on a LEAP...or a contract with 45 DTE if the goal is simply to collect premium?

Which is the better value to the buyer? Premium/dte = price per day. Would you, as the seller not wish to structure the trade to best favor you and sell a more expensive (per day) contract? Giving the buyer a year or two for some multi sigma move to occur really just sounds like a bad idea when you are short a convex instrument. Also, As mentioned before...theta increases at an exponential rate, with decay really ramping up at around the 45 dte mark...how is this not advantageous to the seller?

IMO vol is more important when it comes to options...but time must be taken into consideration...with that said, is volatility usually higher or lower on more near dated options? Buy underpriced, sell overpriced...

To be clear, I think selling premium is lame and only used the above as it is a simple example.
 
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earth_imperator said:
IMO the Risk/Reward ratio of such a spread should be <= 1.0, meaning MaxWin should be >= MaxLoss.
RRratio = MaxLoss / MaxWin
ondafringe said:
With credit spreads, I don't see how you can have anything but an upside-down risk:reward because premium received will always be less than your risk. Either that or I'm missing something.
earth_imperator said:
Opps. I was thinking of only ShortPut (w/o the LongPut part), and in that case the ratio indeed should be like I said.
I'll need to study/research/test also the credit spread case; I'll then post my findings...
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@ondafringe, Ok, just think of this fact: each strike does have it's own IV independently of the neighboring IVs.
Then logic says that it then very well can occur that the relation MaxWin >= MaxLoss holds.
If you say No then I'll look further into this... But I think just the above fact should already be convincing, IMO.

Update:
I now even have found a convincing real-world example. Inspect this: https://optioncreator.com/stbfe8i
MaxWin = 2.45
MaxLoss = 1.55
LWratio = 1.55 / 2.45 = 0.63
which proves what I said/claimed.
The trade is from the following real market data on the same day (8/9) as yours, about 1h before market close.
Put strikes 11 and 7 get used (not to mix with the Call strikes).

Here is the results of this trade for a MarginAcct using MaintMarginReq:
ShortPut(S=9.0700 DTE=38.00 K=11.0000 Pr=3.5500 IV=194.6294)
LongPut(S=9.0700 DTE=38.00 K=7.0000 Pr=1.1000 IV=194.0616)
-->
CostBasis=1.5500 MaxPL=2.4500(158.06%) MinPL=-1.5500(-100.00%)
WLrat=1.58 LWrat=0.63 BE(Sx=8.5500(-5.73%))


Code: 
{
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    "result": [
      {
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        "hasMiniOptions": false,
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}
 
Last edited:
earth_imperator said:
@ondafringe, Ok, just think of this fact: each strike does have it's own IV independently of the neighboring IVs.
Then logic says that it then very well can occur that the relation MaxWin >= MaxLoss holds.
If you say No then I'll look further into this... But I think just the above fact should already be convincing, IMO.

Update:
I now even have found a convincing real-world example. Inspect this: https://optioncreator.com/stbfe8i
MaxWin = 2.45
MaxLoss = 1.55
LWratio = 1.55 / 2.45 = 0.63
which proves what I said/claimed.
The trade is from the following real market data on the same day (8/9) as yours, about 1h before market close.
Put strikes 11 and 7 get used (not to mix with the Call strikes).

Here is the results of this trade for a MarginAcct using MaintMarginReq:
ShortPut(S=9.0700 DTE=38.00 K=11.0000 Pr=3.5500 IV=194.6294)
LongPut(S=9.0700 DTE=38.00 K=7.0000 Pr=1.1000 IV=194.0616)
-->
CostBasis=1.5500 MaxPL=2.4500(158.06%) MinPL=-1.5500(-100.00%)
WLrat=1.58 LWrat=0.63 BE(Sx=8.5500(-5.73%))
More...

Well, based on that, with extremely high IV, I guess it is possible. But wouldn't an IV of 194 be an outlier? And if you were only willing to trade those very high, outlier IVs, wouldn't you spend most of your time just waiting and not trading? Doesn't make sense to me, unless you planned on going all-in on that one trade, which is not something I would do.

Just thinking out loud. I don't know, I haven't even made a real trade yet. lol

But if the general recommendation is to look for a credit >= 1/3 of the spread width, that sounds to me like, for the most part, risk:reward on credit spreads is almost always upside-down.
 
Last edited:
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