What Option Strategies would you use in a Run Away Market ?

K

kevinqc

After Fed's decision many markets are running away without any meaningful Retracements.

Even going to lowest time frames like 1 min & 3 min do not offer the shallow Retracement.

So how do you enter such markets where there is constant threat of a sharp correction. Verticle markets also drop vertically.

Are there any option strategies to protect yourself & at the same time take advantage of a Run Away market with Limited Risk ?

Thanks
 

Attachments

Quote from kevinqc:

After Fed's decision many markets are running away without any meaningful Retracements.

Even going to lowest time frames like 1 min & 3 min do not offer the shallow Retracement.

So how do you enter such markets where there is constant threat of a sharp correction. Verticle markets also drop vertically.

Are there any option strategies to protect yourself & at the same time take advantage of a Run Away market with Limited Risk ?

Thanks
More...

Sell a covered put against LEAPS
http://podcast.streetiq.com/streetiq?ChannelID=4273&Page=CHANNELINFO
only 4 short for 10 leaps...
Like that you are right in sideline, too in down trend.
Make the exact oposite with calls, sell only 7 short for 10 leaps.
Sell when nice move at youre advantage
 
Thank you both.

It does not have leaps so that option is not feasible.

Credit put spread sounds good but has a very limited profit potential.

Need your opinions on couple of strategies I was thinking

One with a limited profit but can be later changed which is a Collar. That is buying at the money put, selling out of money call & going long on stock. Total protection on downside but limited profit just like credit put spread but getting more out of hugely inflated calls with an option to buy back the call if stock goes up without too much retracement.


OR

How about just buying a put and going long on stock. Limited risk & unlimited profit potential.

OR

Synthetic stock. with limited risk, i.e. Selling at the money put, buying out of the money put and buying at the money call.

Just asking, I am not expert on options.

Thanks
 
Quote from kevinqc:

Thank you both.

It does not have leaps so that option is not feasible.

Credit put spread sounds good but has a very limited profit potential.

Need your opinions on couple of strategies I was thinking

One with a limited profit but can be later changed which is a Collar. That is buying at the money put, selling out of money call & going long on stock. Total protection on downside but limited profit just like credit put spread but getting more out of hugely inflated calls with an option to buy back the call if stock goes up without too much retracement.


OR

How about just buying a put and going long on stock. Limited risk & unlimited profit potential.

OR

Synthetic stock. with limited risk, i.e. Selling at the money put, buying out of the money put and buying at the money call.

Just asking, I am not expert on options.

Thanks
More...

1*
Just begin by selling naked puts , at the lower strike, 20/45 days expiration, to entry in position when exercised.
But during days after days , just Buy back the puts. Again and again Sell + Buy Back at just near lower price [the entire money stay into the account like a garantee]

2°
When in position, wait for a little move high of the stock, then sell the Calls - retracements, buy back the call , do the same, again and again, like every 5/7 days, see the picture below. Click the attachement. [Blue Cross You SELL the Call, Red circle, You BUY-BACK the call] note, never Buy a call, You sell that You have not!

3°
With some gains of selling Covered Calls against Stocks, Buy some puts contracts , like 3 or 4 by 500 shares, or more...
Because the "Sell To Open position" (STO) , covered call , protect Your account for a part of the value. Depend how far the strike in the money You have sell the call.

4°
If You have not stock, but LEAPS [calendar spread] just sell few less "short term" against it.

f.ex: If You have 15 Leaps, just sell 11 "short term" contracts agains the position.

5°
You can initiate on the same portofolio, in the same time
Covered Puts against LEAPS
Covered Calls against LEAPS

6* see one other thread: http://www.elitetrader.com/vb/showthread.php?s=&postid=1616193#post1616193

7° Call me if needed.. http://www.dot-circle.net/contact.html , skype user: phsplingart
 

Attachments

Hi kevinqc,
I'm going to post some comments below and hope they will help you in understanding your suggested positions.


'Credit put spread sounds good but has a very limited profit potential.'

A: A credit put vertical is the same as a debit call vertical and, yes, they have limited profit potential but have certain advantages over straight long options, particularly in high vol environments.

'One with a limited profit but can be later changed which is a Collar. That is buying at the money put, selling out of money call & going long on stock. Total protection on downside but limited profit just like credit put spread but getting more out of hugely inflated calls with an option to buy back the call if stock goes up without too much retracement.'

A: a bullish collar is the same as a bull call/bull put vertical. Your suggestion is to leg the collar, again this has certain risks and you have to be right in your timing and assumptions. Also your assumption that the calls are hugely inflated is generally not the case unless vol is very high (earnings announcement or market panic ...)

'How about just buying a put and going long on stock. Limited risk & unlimited profit potential.'

A: this is the same as a simple long call except you're spending more on commissions and slippage.

'Synthetic stock. with limited risk, i.e. Selling at the money put, buying out of the money put and buying at the money call.'

A: synthetic stock is a long call and a short put at the same strike, not quite what you've written above. The disadvantage of synthetic stock is that you've got significant slippage with your options plus extra commissions (2 legs vs 1).

In summary your positions are easier to understand if you think of their simpler synthetic equivalents. Which position/strategy you want to use depends, as always, on your market outlook in regards to price, volatility and time.
It's good to see that you're thinking about different possibilities - an excellent way to learn.
Cheers
db
 
Quote from artes:

1*
Just begin by selling naked puts , at the lower strike, 20/45 days expiration, to entry in position when exercised.
But during days after days , just Buy back the puts. Again and again Sell + Buy Back at just near lower price [the entire money stay into the account like a garantee]

2°
When in position, wait for a little move high of the stock, then sell the Calls - retracements, buy back the call , do the same, again and again, like every 5/7 days, see the picture below. Click the attachement. [Blue Cross You SELL the Call, Red circle, You BUY-BACK the call] note, never Buy a call, You sell that You have not!

3°
With some gains of selling Covered Calls against Stocks, Buy some puts contracts , like 3 or 4 by 500 shares, or more...
Because the "Sell To Open position" (STO) , covered call , protect Your account for a part of the value. Depend how far the strike in the money You have sell the call.

4°
If You have not stock, but LEAPS [calendar spread] just sell few less "short term" against it.

f.ex: If You have 15 Leaps, just sell 11 "short term" contracts agains the position.

5°
You can initiate on the same portofolio, in the same time
Covered Puts against LEAPS
Covered Calls against LEAPS

6* see one other thread: http://www.elitetrader.com/vb/showthread.php?s=&postid=1616193#post1616193

7° Call me if needed.. http://www.dot-circle.net/contact.html , skype user: phsplingart
More...

From never seeing any posts from you before... after seeing that graphic i find your advice a little questionable.

It's real easy to buy and sell at exact turning points right? Haha... not.

Honestly... I know it wasn't your purpose to show how to make money on the strategy, but to catch every single move like you just showed is a little funny. But, maybe you have some signals generated that I don't see for some reason.
 
Quote from daddy'sboy:

Hi kevinqc,
I'm going to post some comments below and hope they will help you in understanding your suggested positions.


'Credit put spread sounds good but has a very limited profit potential.'

A: A credit put vertical is the same as a debit call vertical and, yes, they have limited profit potential but have certain advantages over straight long options, particularly in high vol environments.

'One with a limited profit but can be later changed which is a Collar. That is buying at the money put, selling out of money call & going long on stock. Total protection on downside but limited profit just like credit put spread but getting more out of hugely inflated calls with an option to buy back the call if stock goes up without too much retracement.'

A: a bullish collar is the same as a bull call/bull put vertical. Your suggestion is to leg the collar, again this has certain risks and you have to be right in your timing and assumptions. Also your assumption that the calls are hugely inflated is generally not the case unless vol is very high (earnings announcement or market panic ...)

'How about just buying a put and going long on stock. Limited risk & unlimited profit potential.'

A: this is the same as a simple long call except you're spending more on commissions and slippage.

'Synthetic stock. with limited risk, i.e. Selling at the money put, buying out of the money put and buying at the money call.'

A: synthetic stock is a long call and a short put at the same strike, not quite what you've written above. The disadvantage of synthetic stock is that you've got significant slippage with your options plus extra commissions (2 legs vs 1).

In summary your positions are easier to understand if you think of their simpler synthetic equivalents. Which position/strategy you want to use depends, as always, on your market outlook in regards to price, volatility and time.
It's good to see that you're thinking about different possibilities - an excellent way to learn.
Cheers
db
More...

Hi daddy'sboy,

I have been thinking about the comments you made to each of my strategy & it seems that they make sense & I really appreciate it.

Are there resources where I can learn more about above strategies ?

Thanks so much.
Kevin
 
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