What am I missing?

[justrading]

Quote from Squilly_D:

Reading through this thread (and elite trader forums in general), it would seem that the majority here are directional traders 1st and foremost. I myself started as a retail option trader learning that direction is secondary (or third...depending on who you ask). I use option strategies to play chess, not checkers, but to each there own. It boggles my mind to see the use of options in their most non-optimal form:eek:...interesting indeed. This is not to say directional trading does not work, I just suck at it personally, but I'm killing it on non-directional front.

Yes do tell. I've read more than a million words on options trading and if I got a dollar for every word I read, I'd be up a million by now. I'm not. Nothing worked like it was supposed to.

Then one fine day I was having this long discussion with cdcaveman and Atticus dropped a piece of advice.

"None of this amounts to a hill of d*cks if you can't forecast price or vol with some degree of accuracy."

Bless his soul, this has made all the difference and I am now actually making money.

I looked at vol, from what I've read it is supposedly mean reverting. The guru of this approach seems to be McMillan; apparently he did not do at all well last year.

So that left me with price. Slice it three ways; up, sideways, down, then select the appropriate strategy. Sure the beast does not always behave the way one expects it to, but this is trading and if there is one thing I'm really good at it's trade management.

 

[newwurldmn]

Quote from Squilly_D:

Reading through this thread (and elite trader forums in general), it would seem that the majority here are directional traders 1st and foremost. I myself started as a retail option trader learning that direction is secondary (or third...depending on who you ask). I use option strategies to play chess, not checkers, but to each there own. It boggles my mind to see the use of options in their most non-optimal form:eek:...interesting indeed. This is not to say directional trading does not work, I just suck at it personally, but I'm killing it on non-directional front.

Don't get cocky. It's a great short vol environment.

And you will soon learn that short vol = long delta generally (even if you are theoretically delta flat).

 

[blakpacman]

Quote from newwurldmn:
Don't get cocky. It's a great short vol environment.
And you will soon learn that short vol = long delta generally (even if you are theoretically delta flat).

The market is very good at taking away what it had giveth.

 

[Squilly_D]

Quote from jones247:

Congrats on your performance... are you long vol or short vol with your non-directional trades?

Walt

I currently have 32 open positions (the way I'm tracking them at least) in 18 different underlyings: AU, BBRY, BBY, CLF, EWW, FB, FXY, GMCR, GRPN, NFLX, QQQ, TBT, TLT, TSLA, UNG, USO, VXX, and XHB.

Debit Spread 9
Covered Call 3
Credit Spread 2
Calendar 5
Short Strangle 2
Iron Condor 6
Condor 5

Fast Beta Weighted to SPY (in TOS), I know that I'm short Delta (can't give a reading right now due to N/A showing right now, not sure why, Gamma is also showing N/A). My portfolio Theta is 135.64

I Try and keep the Delta of my portfolio between -300 to 300 depending on how I feel about the market (input from different sources, technical, fundamental, macro, etc.)

 

[Squilly_D]

Quote from newwurldmn:

Don't get cocky. It's a great short vol environment.

And you will soon learn that short vol = long delta generally (even if you are theoretically delta flat).

I go with what the market provides. There were points through this year where my portfolio mainly contained debit spreads, calendars, and diagonal spreads due to the extremely low vol across the board. At the same time though, scattered throughout that, I was able to due earnings plays that gave quick bouts of higher vol per underlying.

 

[Squilly_D]

Quote from blakpacman:

The market is very good at taking away what it had giveth.

I agree. The way that I'm learning and through my limited experience, I take profits quickly. If a spread does not become profitable from the start, then I sit on it to see if it does (seeing if duration of my trade plays in my favor). This past 2 weeks, TastyTrade has conducted some studies (market measure segments) showing for different tradable* underlyings that taking some percentage of max profit was a better approach then trying to squeeze out the max profit. Statistically, they had a greater number of winners. They call this managing winners.

Finally, I manage trades at order entry, if I'm not willing to lose a certain amount, I don't put the trade on. This is for all the spread types. Short positions I treat differently and manage differently. I take the TastyTrade approach with those, but won't go into that for this thread.

Tadable - Underlying volume in the millions, options B/A spread per strike a penny wide (a few cents at the most), and large open interest per strike.

 

[Wait4proof]

Quote from jimmyjazz:

Eh, it was your link and the language they used.

I knew that "cheap" was from the article. I was just suggesting that they were being a bit dramatic - that's all. And, as per Maverick's take on Puts, I thought this thread was about 1-2 week trades, not investing. It's apples and oranges. Like I said before, I recommend ATM, not OTM. I believe that for the most part, OTM is gambling and DITM is way too expensive with crappy spreads. Whatever. You'll figure it out yourself one day.

 

[jimmyjazz]

Just re-read this thread after some time off. Fascinating. Apparently, I have learned some of the lessons that were being thrown at me but I was too thick to pick up on. Nothing like a little perspective.

In particular, I noticed the reference to a spread strategy beating out long options in the long run due to risk mitigation. I have, either through blindness or fierce determination to fit the world to my own world view, become frustrated with spreads because they seem to drift randomly (and negatively) all the way to expiry, at which point they will snap into the expected P/L profile. Am I imagining this? It drives me nuts. I cannot predict price behavior out a month, so a lot of spreads are seemingly off the table for me. I can get the quick-hitter high-delta trade when it happens, but that intermediate term kills me too, presumably because I get caught in a vol trap.

Man, I have learned a lot. And I have a lot to learn. Thankfully, I haven't blown up.

 

[TskTsk]

Options are incredibly complex, but in general your expected pnl with vol and UL movement will be:

delta * dS + 0.5 * gamma * dS^2 +vega * dIV - theta * dT

I found this is not perfect but it holds most of the time for most combinations

If you go deep OTM there are some other things like vanna & vomma as well

 

[jimmyjazz]

That's for an entire position, right? That's what you mean by "combination"? Seems like it should hold for the whole position if I get my signs right.

Now I'm wondering how that all asymptotically approaches the simple P/L at expiry, where the price of the underlying is all that matters. More math . . .