shorting options question

can you please elaborate on vertical spreads?

correct me if i'm wrong, but isn't the main advantage with options is the ability to rebound even when the options was at one time equaled to 0? now if I was to buy both a call and a put, the both won't necessarily zero each other out since time decay plays a major role.

So pretty much, you really have to see a major swing one way or another...

it seems to me, you're pretty much back to really predicting is going to go up or down...

I would think, instead of doubling up on your investments with options....why not just compound your investment into high leverage futures index and go for a minimal amount of points....

wouldn't your chances be pretty much the same or even better with this way? considering there is no time decay and spreads are lower?
 
Whoa there, You have a lot of questions. That's great!, but it's pretty clear now that you will benefit greatly from reading a basic book on options. The financial times publishes a pretty good one, but there are many others. Once you have the basics down, then you can tackle something like Charles Cottle's book, which is pretty much the bible on option trading.

I'll try to answer a few of your questions, but I have reached the limit of my time and stamina. You asked about the main point of options. Actually, the main point is the leverage that is inherent in options.

Once you have entered an option position you should manage it according to what the market does by adjusting your position. That's not so easy to learn.

You asked about verticals. Verticals are very commonly used spreads. They can be constructed from either puts or calls. I'll give you one example. A long call vertcal, or bull spread, consists of buying a call at one stike and selling a call above it at a higher strike. This creates a spread between strike prices. This creates a profit window between the two strike prices and a profit ceiling at the higher strike. The cost of the call bought is partially offset by the proceeds of the call sold. Verticals are limited risk positions because the maximum you can lose is the net cost of the vertical, which is smaller than if you had simply bought a put or a call. There are the following variations: Short call vertical =sell lower call, buy the higher; long put vertical= buy higher put, sell lower put; short put vertical = sell the higher, buy the lower put.

Also you mentioned index futures. Many of us trade index futures. That's what i do. And they do offer considerable leverage, which means you can both make and lose a lot of money with a little money.

I do use options for specific purposes, but i am not an expert. There are, however, many option experts on ET. Go to the Option thread for that.

Bottom line, you can't learn everything you're going to need to know about options or futures in these ET threads. Get to a good book store and start reading.
 
actually, i've read quite a lot of books on options but it really all depends on your learning style as far as which method works best.

So many books go into depth on how to execute a specific style of option and all the different methods....they purposely fill up an entire books just to be able to have something to sell.

I have read so many things about options and just need to clear things up. Many times, until certain points aren't emphasized...it's pretty much like garbage in, garbage out. This is why I post questions on this board to reinforce what I read.

Trust me, many people reponsed to me thinking that it's the first time I have heard their position. It's hardly ever the case. Sometimes you have to appear candid in order to get genuine responses which helps seperate an individuals (authors) reason/understand which maybe just based on pure speculation against what maybe considered truely a universal understanding by many.

So yeah, I've read many books but here for reinforcement. It's no different then when an instructor asks the most obvious questions with the most obvious answers....it lets him know where the classes stands and even learns something from them.
 
I am assuming English is not your native language. That may be a problem for you, but it is not insurmountable. You may have to work on your English comprehension skills before you can get much out of the standard books on options and futures, because unfortunately many of these are written in English. Another possibility is to pay someone to tutor you in options and futures or possibly take a class.
 
You say you have read lots of book on options and you know about options, but you have started two threads (in the wrong forum no less) with ludicrously simple, uninformed questions. You are either not telling the truth or are here to intentionally waste people's time.
 
my opinion (and I am not an active trader, so take it with a grain of salt):

Selling puts (or covered calls, whatever) is fine if you don't leverage beyond what you can afford.

My principal, cardinal rule with this type of activity is always do it with a stock you don't mind holding for a while. If it ends up being put to you, you need to be able to just be happy that you got the stock as "cheap" (strike- premium) as you did, and just wait it out. This can be lucrative if you figure in dividends (and by lucrative I mean 14-20% annualized).

That said, stocks CAN go to zero, as unlikely as it seems, so using indexes with 1.3-2x leverage can work: similar returns, slightly more chance of having the ETF put to you (or you get stuck with it on the covered call side), but the likelihood of DIA going to zero is less than that of C or F or AGIX.

Another excellent method is to be long volatility, if you have the stomach for that kind of thing. Right now volatility is too expensive in my opinion (but I am to chicken to sell it). Once things settle down, just buy spreads and wait. You'll lose money most days, but when you hit it, watch out!
 
can you please explain what do you mean by, you can be long volatility? are you talking about the volatility futures/options?

also, when a stock is put to you....what actually happens? does it literately disappear from your screen and cash is put in it's place instantly?

Quote from texrex2002:

my opinion (and I am not an active trader, so take it with a grain of salt):

Selling puts (or covered calls, whatever) is fine if you don't leverage beyond what you can afford.

My principal, cardinal rule with this type of activity is always do it with a stock you don't mind holding for a while. If it ends up being put to you, you need to be able to just be happy that you got the stock as "cheap" (strike- premium) as you did, and just wait it out. This can be lucrative if you figure in dividends (and by lucrative I mean 14-20% annualized).

That said, stocks CAN go to zero, as unlikely as it seems, so using indexes with 1.3-2x leverage can work: similar returns, slightly more chance of having the ETF put to you (or you get stuck with it on the covered call side), but the likelihood of DIA going to zero is less than that of C or F or AGIX.

Another excellent method is to be long volatility, if you have the stomach for that kind of thing. Right now volatility is too expensive in my opinion (but I am to chicken to sell it). Once things settle down, just buy spreads and wait. You'll lose money most days, but when you hit it, watch out!
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Correct, English is not my native language...

I find that i learn much better through these forums. Believe it or not, but I do and I am right now. Everyone has their own style of learning.

Quote from piezoe:

I am assuming English is not your native language. That may be a problem for you, but it is not insurmountable. You may have to work on your English comprehension skills before you can get much out of the standard books on options and futures, because unfortunately many of these are written in English. Another possibility is to pay someone to tutor you in options and futures or possibly take a class.
More...
 
Quote from z32000:


also, when a stock is put to you....what actually happens? does it literately disappear from your screen and cash is put in it's place instantly?
More...

opposite...when a stock is "put" to you..... literally cash disappears from the screen and the stock magically appears....

A great way to learn is to start with a paper account, TOS offers a virtual trading platform with $100K of play money, however you have to have a regular account with them. OX offer's (or at least did) a play money account and you don't have to fund the real one. This way you can actually learn first hand what happens to your stocks/options.
 
actually I have used the paper trading account with IB. When I short options, I've never experienced a stock being "put" to me. Maybe there is no way to truely realistically simulate this...I'm not sure.

Quote from RichardRimes:

opposite...when a stock is "put" to you..... literally cash disappears from the screen and the stock magically appears....

A great way to learn is to start with a paper account, TOS offers a virtual trading platform with $100K of play money, however you have to have a regular account with them. OX offer's (or at least did) a play money account and you don't have to fund the real one. This way you can actually learn first hand what happens to your stocks/options.
More...
 
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