Trajan's second option journal
- Thread starter Trajan
- Start date
Went to starbucks and got some coffee. Order wasn't filled but the IV remained robust. I had bought the fifteens yesterday for .25 and sold .34 stock against them, so the trade looks even better today than yesterday.
People often ask questions in the options forum how do you trade delta neutral? Is it even worth it? The journal will demonstrate it either way. One important thing is the entry point for such a position is to enter it at a level of good reward in relation to risk undertaken. This the first time I feel I have it in a long time. Hence, the position is somewhat larger than I normall carry. My total risk in dollar term is just over $3000. That's how much I would lose if I held it till expiration and it got pinned at the strike. My plan is not to hold it till expiration, but rather for week.
People often ask questions in the options forum how do you trade delta neutral? Is it even worth it? The journal will demonstrate it either way. One important thing is the entry point for such a position is to enter it at a level of good reward in relation to risk undertaken. This the first time I feel I have it in a long time. Hence, the position is somewhat larger than I normall carry. My total risk in dollar term is just over $3000. That's how much I would lose if I held it till expiration and it got pinned at the strike. My plan is not to hold it till expiration, but rather for week.
Couple of reasons, one is the liquidity. I have been able to execute as much as 71 contracts sitting on the bid and offer.
Another thing is, I'm more comfortable with smaller premium options. It's weird and shouldn't matter. The drawback in this aspect is there isn't a lot of edge. I find on average about 2 to 3 cents per trade after commissions. Edge does exist and I can see it which is all that matters. In fact, it would be tougher trading on the floor than at home or in an office unless you were the DPM in this environment. I previously stated, in another thread, that in a 5 to 10 cent wide market, one side is at best typically mediocre. I want to only be on the side of the market that gives me edge. A local in the crowd doesn't neccessarily have control of the market he trades. While the profit may be small, I'm not taking a lot risk and in fact a lot of the trades, especially in last week, have been free money. I could have exited the trade today and pocketed a nice profit, however, I want to let this thing run and see if it could add significantly to the P/L. A point move either way from here would be nice.
Thirdly, margin requirements stand in the way sometimes. I have traded other stuff, such as msft and qqq options(and traded stock in IBM, but we won't talk about that). It comes to carrying small positions in one high priced stock, two or three small ones, or focus on a single one. I chose the last of three because it seems that when deciding what to trade, the best idea is to trade to your strengths. My strengths doesn't include stock trading per say, as my P/L in IBM will attest, it is to perceive value and see relationships. This is leads me trade in a manner similar to how I traded on the floor, as a marketmaker. Trading in this manner can be strictly limited by margin requirements for retail customers. There are ways around this and I'm aware of those. Something I'm seriously considering, either going prop or becoming a member of an exchange, off floor only.
Another thing is, I'm more comfortable with smaller premium options. It's weird and shouldn't matter. The drawback in this aspect is there isn't a lot of edge. I find on average about 2 to 3 cents per trade after commissions. Edge does exist and I can see it which is all that matters. In fact, it would be tougher trading on the floor than at home or in an office unless you were the DPM in this environment. I previously stated, in another thread, that in a 5 to 10 cent wide market, one side is at best typically mediocre. I want to only be on the side of the market that gives me edge. A local in the crowd doesn't neccessarily have control of the market he trades. While the profit may be small, I'm not taking a lot risk and in fact a lot of the trades, especially in last week, have been free money. I could have exited the trade today and pocketed a nice profit, however, I want to let this thing run and see if it could add significantly to the P/L. A point move either way from here would be nice.
Thirdly, margin requirements stand in the way sometimes. I have traded other stuff, such as msft and qqq options(and traded stock in IBM, but we won't talk about that). It comes to carrying small positions in one high priced stock, two or three small ones, or focus on a single one. I chose the last of three because it seems that when deciding what to trade, the best idea is to trade to your strengths. My strengths doesn't include stock trading per say, as my P/L in IBM will attest, it is to perceive value and see relationships. This is leads me trade in a manner similar to how I traded on the floor, as a marketmaker. Trading in this manner can be strictly limited by margin requirements for retail customers. There are ways around this and I'm aware of those. Something I'm seriously considering, either going prop or becoming a member of an exchange, off floor only.
Your replies are always sincere... and sensible (if I might say) and I appreciate reading your stuff. Your comments about retail margins are also apropos, and hit a chord with me.
Ice
p.s. I also have begun to see I am taking untoward risks trading options more by the 'seat of my pants' and thus with some positions often need to repair/trade out of them... thereby missing other trades. The latest was SIE... and SNDK... where I entered the underlying (only) in the 12 & 17 range... but felt a need to exit to nurse options position in other equities.
The rest as they say... is history
ThamksQuote from iceman1:
Your replies are always sincere... and sensible (if I might say) and I appreciate reading your stuff. Your comments about retail margins are also apropos, and hit a chord with me.
Ice
p.s. I also have begun to see I am taking untoward risks trading options more by the 'seat of my pants' and thus with some positions often need to repair/trade out of them... thereby missing other trades. The latest was SIE... and SNDK... where I entered the underlying (only) in the 12 & 17 range... but felt a need to exit to nurse options position in other equities.
The rest as they say... is history
Sold a ten lot of the 12s for 1.95, which leaves me a little short. My position had been leaning long 600 deltas because of false deltas which often occur when you have out of the moneys making you long. If the stock drops from here, I'll buy some stock against the position, if not, no big deal.