Hi Mark
Happy new year.
You wrote:
" stocks do not have delta "
Are you sure about that ?
Happy new year.
You wrote:
" stocks do not have delta "
Are you sure about that ?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Spreads vs naked
- Thread starter chrismontez
- Start date
Hey I'm feeling famous, Mark quoted me on his website :
http://blog.mdwoptions.com/options_for_rookies/
The quote is a little misleading though as I personally don't enter trades using a fixed amount per trade as my trades have different timelines and reasons for entering. And if I am going naked on a position and holding for 3 months or more, I will actually put less $ at risk than if I was putting on a spread beacuse I know that if I am right on the trade, the potential for profit is greater.
http://blog.mdwoptions.com/options_for_rookies/
The quote is a little misleading though as I personally don't enter trades using a fixed amount per trade as my trades have different timelines and reasons for entering. And if I am going naked on a position and holding for 3 months or more, I will actually put less $ at risk than if I was putting on a spread beacuse I know that if I am right on the trade, the potential for profit is greater.
Quote from chrismontez:
Hey I'm feeling famous, Mark quoted me on his website :
http://blog.mdwoptions.com/options_for_rookies/
The quote is a little misleading though as I personally don't enter trades using a fixed amount per trade as my trades have different timelines and reasons for entering. And if I am going naked on a position and holding for 3 months or more, I will actually put less $ at risk than if I was putting on a spread beacuse I know that if I am right on the trade, the potential for profit is greater.
Sorry - I was not clearer in my post. I did not mean to suggest it was your quote. It was part of the discussion that followed your original comment.
Mark
Nothing to apologize about.
Quote from taowave:
I have had the good fortune of meeting, and working(trading against as well as covering) with some of the largest "directional traders" at various hedge funds,and I promise you they do not look at things the way you do..Not even close......
I can accept what you say.
And the fact that I find it difficult to believe that professional, directional traders - those who trade SIZE - look at options as a method of replicating stock positions - does not make what you say less true. I am merely surprised.
If you look at your comments from my perspective, I thought you were an experienced stock trader who was new to the options world.
Best regards,
Mark
LOL.....
Mark,thruth be told,I am an experienced derivative trader desparately trying to break my "bad habits" from years of working in large investment banks and escape my natural "hedgers" mentality and become a "directional" trader...
As we all know,the vast majority of the supposed big dogs at IB's are not all they are reputed to be.
I think I may have clouded the issue by using the
word "replicating"...
In my eyes,if one wants to go long a stock,there are several ways one can do so.Buy the stock,Buy an option,buy a spread,sell a bullish option/spread.
Before I do any of that,I always start at how much capital I will risk per trade.I like to limit it to 2%.I then go thru the simple position sizing calculation looking at ATR and come up with a number of shares to buy and the appropriate stop.Typically,I will exit a position before being stopped..
This is always my starting point,and once I know the size of the stock position and risk level,I look to possibly "favorably" replicate it thru options.....
I dont see how one would not create an option position without an apx delta to the stock position I may possibly trade.I am aware of the gamma implication,and at all times I am aware of the effect of theta and vega.If the stock doesnt move,and I lose x dollars in Theta,or vol gets hit,there is a good chance I will stop myself out and move on..
This is why I say,that one should not compare a stock postion with a .6 call vs a .2 option spread....For 1 share of stock,you need apx 1.5 options with a .6 delta,and 5 spreads with a .2 delta. Think of it as you are a block trader on an equity desk.If a client smacks your bid on 100,000 shares,to be delta flat,you would sell an apx 100,000 deltas.Same thing if I am directional.Apples to apples.
I trade in this fashion as I believe in a systematised approach to trading.If not,one is betting that they are a very talented seat of the pants trader which very few traders are.Notice I am not saying to trade systems.But AI do believe one must be systematised..Every talented trader I have met has a very clear method to his madness..
Ild be curious to hear how you allocate your capital to trade(directionally)and what your starting point is..
Tao
Mark,thruth be told,I am an experienced derivative trader desparately trying to break my "bad habits" from years of working in large investment banks and escape my natural "hedgers" mentality and become a "directional" trader...
As we all know,the vast majority of the supposed big dogs at IB's are not all they are reputed to be.
I think I may have clouded the issue by using the
word "replicating"...
In my eyes,if one wants to go long a stock,there are several ways one can do so.Buy the stock,Buy an option,buy a spread,sell a bullish option/spread.
Before I do any of that,I always start at how much capital I will risk per trade.I like to limit it to 2%.I then go thru the simple position sizing calculation looking at ATR and come up with a number of shares to buy and the appropriate stop.Typically,I will exit a position before being stopped..
This is always my starting point,and once I know the size of the stock position and risk level,I look to possibly "favorably" replicate it thru options.....
I dont see how one would not create an option position without an apx delta to the stock position I may possibly trade.I am aware of the gamma implication,and at all times I am aware of the effect of theta and vega.If the stock doesnt move,and I lose x dollars in Theta,or vol gets hit,there is a good chance I will stop myself out and move on..
This is why I say,that one should not compare a stock postion with a .6 call vs a .2 option spread....For 1 share of stock,you need apx 1.5 options with a .6 delta,and 5 spreads with a .2 delta. Think of it as you are a block trader on an equity desk.If a client smacks your bid on 100,000 shares,to be delta flat,you would sell an apx 100,000 deltas.Same thing if I am directional.Apples to apples.
I trade in this fashion as I believe in a systematised approach to trading.If not,one is betting that they are a very talented seat of the pants trader which very few traders are.Notice I am not saying to trade systems.But AI do believe one must be systematised..Every talented trader I have met has a very clear method to his madness..
Ild be curious to hear how you allocate your capital to trade(directionally)and what your starting point is..
Tao
Quote from dagnyt:
I can accept what you say.
And the fact that I find it difficult to believe that professional, directional traders - those who trade SIZE - look at options as a method of replicating stock positions - does not make what you say less true. I am merely surprised.
If you look at your comments from my perspective, I thought you were an experienced stock trader who was new to the options world.
Best regards,
Mark
Quote from taowave:
LOL.....
This is why I say,that one should not compare a stock postion with a .6 call vs a .2 option spread....For 1 share of stock,you need apx 1.5 options with a .6 delta,and 5 spreads with a .2 delta.
I get your point of view. What you describe is an attempt to make an equal number of DOLLARS from the option trade as you would from the stock trade. Thus the need for the same number of delta. I would NEVER do that when trading options. NEVER.
I don't look at it in dollars. Options allow the investment of a MUCH smaller amount of cash - leverage - and thus, I look for much smaller total dollar returns. But, with a much higher <i>return on investment</i>.
Think of it as you are a block trader on an equity desk.If a client smacks your bid on 100,000 shares,to be delta flat,you would sell an apx 100,000 deltas.Same thing if I am directional.Apples to apples.
That's not a directional bet, and I wouldn't do that anyway. I would not want to over-write calls - too risky. i would not just buy puts - too expensive and too much negative theta.
I'd be forced to pick the right mix of those 100,000 deltas and buy some puts and sell some calls. Why would I do that unless I knew I could do it for an edge? If I wanted that position, I would not be taking the leg of buying stock first. I'd let my broker handle the order as a three-way.
I'd be curious to hear how you allocate your capital to trade(directionally)and what your starting point is..
You will not find it acceptable. I do not trade directionally.
My starting point is finding iron condors that fit into my comfort zone. I must like the premium (roughly $350 for a 10-point iron condor); the risk/reward, the probability of touching; and the deltas of my short options. If I cannot find a position that meets my needs, I either bend a bit, or sit it out.
I (currently) trade only RUT options. I have already allocated the amount of cash I am willing to invest by placing that much in my account. Thus, I am willing to go all-in with that cash.
I buy iron condors (sometimes I also buy extra strangles for protection). I try to have positions that expire in three different months, but the front month is closing only. I do not add to short-term positions. I prefer to get out of these asap.
I do not allocate a specific amount of my risk dollars to a specific spread. I have several going on at once - and none of the positions is large by itself - but the total portfolio uses a substantial portion of my maximum margin (Reg T margin. When I use portfolio margin, I'm nowhere near the maximum)
I manage portfolio risk, and close all winning spreads when they get pretty cheap - perhaps 25 cents, depending on time remaining. I adjust losers when I feel threatened or when I am no longer comfortable with the position.
I use the greeks to be certain I am aware of potential losses.
Mark