Weekly Call options-Suggestions?

[res321]

I find day trading to be too stressful and nail biting and a month to be too long. With a bit of success with extremely high volatility under $100 stocks with only few days left to expire, there are opportunities to collect a decent 6 to 7% weekly return on selling spreads or selling plain calls/puts. Annualizing a weekly return is much a higher than annualizing monthly returns. So time wise, why would one pick monthly or weekly, if returns are the only motivating factor.

What are some of the disadvantages in taking this route? I am talking a 6% weekly return on a delta of less than 10 (quite low risk), so its the volatility that's pushing the premium. Trying to see why should one not allocate more capital to this strategy? Any thoughts.

 

[FXforex]

I find day trading to be too stressful and nail biting and a month to be too long. With a bit of success with extremely high volatility under $100 stocks with only few days left to expire, there are opportunities to collect a decent 6 to 7% weekly return on selling spreads or selling plain calls/puts. Annualizing a weekly return is much a higher than annualizing monthly returns. So time wise, why would one pick monthly or weekly, if returns are the only motivating factor.

What are some of the disadvantages in taking this route? I am talking a 6% weekly return on a delta of less than 10 (quite low risk), so its the volatility that's pushing the premium. Trying to see why should one not allocate more capital to this strategy? Any thoughts.

IMO ...... Weekly options on high volatility stocks should be bought not sold. Avoid IC's, credit spreads and debt spreads. I would look at buying the 1 to 2 strikes OTM call or put options.

 

[res321]

As far as the bear view goes, I agree that selling is better. However, I have been taking a bear view with call credit spreads that price won't rise. Partly because I am working with a small account and margin requirement for selling naked calls is too high. Frankly I have not tried it but am a bit discouraged by certain horror stories. For example with 3 days left to expiry FEBWK4 DECK call credit spread is giving a decent 8 % return with a wide margin between stock price and short call. ANF is another one... Vol probably won't go down in such a short duration and especially that its peculiar to that particular security. The IC's, put and credit spreads on index's are minimal for short durations. And these are largely the only categories I am comfortable with.

I am thinking of taking much more aggressive or should I say large positions on high probab trades by allocating much larger capital at the expense of low Rate of return.

 

[FXforex]

..... For example with 3 days left to expiry FEBWK4 DECK call credit spread is giving a decent 8 % return ........

Who is your broker?

I noticed you also stated FEBWK4 with your AAPL trade, it should be Feb28. Looks like your broker caters to newbies and WK1, WK2, WK3, and WK4 are dumbed down terms to make it easier to figure out the expiration. I have never seen options quoted like that.

 

[NoVoodooHere]

OP, you refered to a delta of 0.9 & if you use a rule of thumb that this is equivalent to probability of expiring in the money, 6% is not enough. If you use a spread to limit your risk on same it is even less attractive. So that's in a generic sense, but if the underlying is well chosen, using your bias, it can make sense... Can't get around the fact that you need a correct bias.

No free lunches

 

[monkeyjoe]

For example with 3 days left to expiry FEBWK4 DECK call credit spread is giving a decent 8 % return with a wide margin between stock price and short call.

I think FX's point about buying these rather than selling has to do with the variance of returns. You can't really call it 8% return if you stand to lose 100% fairly often. With these type of plays you may want to think of them as bets and call the payoff odds instead of return.

"8% return" means you are giving the other side 100/8 = 12.5:1 odds on this bet. Since you are obviously not delta-hedging these things, this is a simple bet on where the price ends up. This is gambling - nothing wrong with that, but you can't focus only on gains... rather, you have to recognize that both wins and losses are probable.

Your only true "return" is the average value of your edge, if you have one. That is, if you offer someone 12.5:1 odds on a 20:1 bet, then you are profiting on average from the spread. Put in your words, if the 8% return only deserves to be worth 5% on average, then you make the 3% difference. That is your true return.

Calling it 8% ignores the losses you will incur over time by assuming they are zero. This is obviously not accurate. Further, before you go hog-wild on these spreads, you should consider the transaction costs you face, both in terms of bid/ask and also in terms of commissions. It is unlikely that any edge remains on average once you account for those factors. Just my $0.02.

 

[res321]

Who is your broker?

I noticed you also stated FEBWK4 with your AAPL trade, it should be Feb28. Looks like your broker caters to newbies and WK1, WK2, WK3, and WK4 are dumbed down terms to make it easier to figure out the expiration. I have never seen options quoted like that.

Its Optionxepress.

I am a bit confused by other posts. I thought delta was the probability that price would be at the strike price. So low delta is indicative of a lower risk trade. I was thinking in terms where let's say one contract returns only $25 at the loss of let#s say $75. Of course, you can roll down/up too mitigating some of your losses. But I end up writing more contracts. So instead 1 contract for 25, you write let's say for or 6 tying up more capital while taking a high probability trade. Happy to learn if I have this wrong.

 

[NoVoodooHere]

^ My previous post was expressed incorrectly, allow me to elaborate below:

So called "delta" is dO/dP where O is option price, P is underlying price. It is used as a rule of thumb to estimate p(expiring in the money). You stated delta of 10, I am assuming you meant 0.10, meaning 10% probability of expiring in the money.

My point is that your risk reward (see previous post by monkeyjoe referencing to a "bet") is 9:1. Actually I don't know, I am assuming a spread, because it seems crazy to not spread it, and that the 0.10 delta infers 9:1 on the spread (perhaps this is too much of a leap). But if your risk reward where indeed 9:1, & your p(success) is 0.90, then you would on average break even before commissions and spreads, and the cost of closing the spread if it where in the money at expiration. BTW OX will tag you $10/leg for an exercise. So I am not one of the great traders on this board, but the way I see it, you can't just randomly do this, you need a bias to increase your p(success) beyond that implied by the "delta". The market does its best to price the instrument at a value that accurately reflects the probabilities, in theory, over a large sample of trades, the result would approach what the market priced in. So no edge (bias), no chicken dinner.

No free lunches

Its Optionxepress.

I am a bit confused by other posts. I thought delta was the probability that price would be at the strike price. So low delta is indicative of a lower risk trade. I was thinking in terms where let's say one contract returns only $25 at the loss of let#s say $75. Of course, you can roll down/up too mitigating some of your losses. But I end up writing more contracts. So instead 1 contract for 25, you write let's say for or 6 tying up more capital while taking a high probability trade. Happy to learn if I have this wrong.