Sticking with Calls and Puts

[wayneL]

Addendum...

I don't think it's the optimum way to trade options, I prefer spreading.

 

[Sean K]

Addendum...

I don't think it's the optimum way to trade options, I prefer spreading.

OMG!!!

Who is this guy?

 

[warezwana]

hi warezwana

just wondering what you are refering to when you say you are virtual trading
have you opened an account with a broker and are doing paper trades only
or is your virtual trading somehow linked to the optionetics course

if the virtual trading is linked to the course i would expect that there would be a bias towards the platform showing consistent profit imo

My virtual trading is with OptionsXpress yes I have set up an account. As for Optionetics...no I dont use any of their software and, pffff once I did their course my trades ran straight into the losers bin. For the first month after their course EVERY and I mean every trade failed. After getting over the HUGE mind game, I believe I am on my way to coming back to better trading. Basically it was ignore everything they said and get back to my trial and error style of learning, mixed in with 18 hours a day reading things online. So sorry to anyone on this forum who reads my posts or questions... Must be frustrating I am sure for the experienced.

Howdy folks, thought I'd stop by for a chat
Right! Whether you can trade options strictly buying calls and puts. Of course you can.

This is encouraging coming from you Wayne.. Good to hear!

Whether or not it works better than trading shares can only be determined after the fact and will vary from trader to trader. If I'm going for a straight out swing trade, most of the time I'll just trade the shares, going for the options when I think it will enhance things.

As with everything, I see in terms of greek risks/rewards plus a couple of other things. Here are what I consider.

When buying straight out options we are buying delta and gamma. So if you normally buy in 1000 share lots, your delta exposure, if long, is 1000 deltas.

To get the same delta exposure you have to buy more options. To get 1000 deltas with an ATM option, you have to buy 2000 options (2 x ozzie contracts). This exposes you to other risks and potential rewards.

1/ Contest risk - because of the wider spreads in most options, and possibly higher transaction costs (depending on broker), the options will have higher contest risk. That means if you buy the option and immediately sell it with no move in the underlying, it is going to be a much costlier exercise than straight out shares. Advantage shares.

2/ Gamma - This work in your favour with the option. If the trade moves strongly in your favour, gamma is going to get you even longer if your in calls (ie your delta will increase) and even shorter if your in puts(-delta will increase). Likewise if the trade moves against you, gamma will make you less long and less short (delta and -delta reduces). - Advantage options.

3/ Time decay - Long options are a depreciating asset. The longer you hold, the more that extrinsic value fades away. - Advantage shares.

4/ Vega risk - Changes in implied volatility will add or subtract extrinsic value from your options. If you're long options, you are also long vega, ergo, long on volatility. - Advantage... depends.

These above considerations should also be taken into account when selecting which strike and expiry. There are a lot more decisions to make if you are trading the options that don't apply when trading shares.

Why did I learn Russian (Русский язык)... I should have learnt Greek instead

Some boohoo the greeks when swing trading options, but I still think you should know them; at the very least you will know how you got screwed... or where that windfall came from... and whether the option is the better vehicle than the shares, or visa versa.

I am trying to understand them and the way they effect my trades, this IS good advice Wayne for sure...
Thanks for your time.

 

[Cartman]

Howdy folks, thought I'd stop by for a chat (A few PMs piled up in my inbox... I will catch up with those )

There are a lot more decisions to make if you are trading the options that don't apply when trading shares.

Some boohoo the greeks when swing trading options, but I still think you should know them; at the very least you will know how you got screwed... or where that windfall came from... and whether the option is the better vehicle than the shares, or visa versa.

its a miracle !!! ----

the Messiah returneth from his meanderings in the wilderness (that would be England), to impart more knowledge to the lost traders of the arc ---

we beseech u to stay for a while oh great teacher and tell us what the heck we are all doing wrong !!

Oh great "Wayne of Wimbledon" --- show us the way !!

Welcome back Wayne !! ---- ps i'm pretty sure everyone thought u had carked it ----- were u resurrected..... or just hiding from the authorities ??

 

[mkelpie]

Feels good doesn't it Good luck with it all...



Are you plannning on doing their course?
Thanks for that I'll check it out...

Not a chance. I'd much prefer to spend my money on books. I'm only going because the seminar is 500m from my front door

 

[warezwana]

Not a chance. I'd much prefer to spend my money on books. I'm only going because the seminar is 500m from my front door

Smart, smart move... off to a sensible start

 

[Grinder]

Addendum...

I don't think it's the optimum way to trade options, I prefer spreading.

me too.

welcome back from the hiatus, hope all is well. Your've been sorely missed mate.

 

[mkelpie]

Smart, smart move... off to a sensible start

BTW, how's it been going for the last week?
I'm stuck with some BHP that I'm going to take a bath on, but have some CBA that should offset it.

 

[warezwana]

BTW, how's it been going for the last week?
I'm stuck with some BHP that I'm going to take a bath on, but have some CBA that should offset it.

Apart from buying some AAPL and COF yesterday which Ill be up tonight to check on and watch, I have just some old spreads which I hate through not knowing enough about them. SBUX one WAS doing well till I let it run to the flip side .... and just a few real old trades that became losing lessons about setting stop losses at the beginning

3hrs till opening, can't wait... I love trading and I cant understand why someone would do it if it wasnt exciting. Thats like going to work to a job that sucks.... Why do it!
Off to bed to read 'Catching the Wolf of Wall Street'... definately need some log off time, it's been a big computer/online week....

 

[wayneL]

I didn't know I'd be missed, there are plenty of good options brains on ASF these days.

Re straight out calls/puts vs spreading, there is a great chapter in Cottle's book called "Managing the Beast" or something like that, where he argues that adjusting positions rather than simply entering and exiting.

In his example a long call if adjusted and metamorphosed as time goes by:

1. long call ==\/
2. bull call spread ==\/
3. long call ==\/
4. bear call spread ==\/
5. ratio spread ==\/
6. reverse ratio spread ==\/
7. long guts strangle ==\/
8. long straddle ==\/
9. synthetic long put ==\/
10. ratio straddle

I trade like this when short gamma, rather than the predominently long gamma example, but it is food for thought and what you can do from a simple call, if you want to.

It seems that most traders who've been around a while (i.e. have survived) will use spreads at least some of the time. Most also prefer short gamma strategies... selling premium in on form or another.

Still, there are a few who stick to only long calls and puts.

It goes without saying, but be very careful to discern the difference between "claims" and reality. The option world is riddled with the former with no reference to the latter.

 

[polartw]

for swing trading, long call/puts have more advantage over shares or cfds.

1. limited risk when your bear. if you short share or cfd you have unlimited risk vs long put where risk is limited.
2. roll up/down technique much more efficient in taking profit while maintaining exposure as opposed to selling part of your holding of share/cfd.
3. time decay can be minimized by avoiding too close to expiry
4. vega will affect a bit of your profit/loss but usually not too worrying if you only long calls/puts and trade in a short time frame.

options are the better instruments compared against cfd and shares, even just for straight calls/puts.

 

[cutz]

for swing trading, long call/puts have more advantage over shares or cfds.

Yeah i dunno about that,

I assume you're trading the ASX because you have mentioned cfds but i tend to disagree with you there.

To obtain a delta of one you need to trade a face value of twice assuming your trading where the most liquidity is, then if the trade goes against you and you need to get out in a hurry (i.e stop loss), it could turn out to be a bruising affair, i.e. if the market swings hard the MM's may pull their quotes while they assess the situation.

 

[skyQuake]

it could turn out to be a bruising affair, i.e. if the market swings hard the MM's may pull their quotes while they assess the situation.

Yup, MM's aren't know for their altruistic quotes and spreads...

Thats why firms like Optiver, IMC, Tibra etc can pay their guys 6 figures+ every yr.

 

[investedz]

Hi warezwana

Congrats on the wins. Yes they do feel good.

Just letting you know I do some swing trading with options (only because my account won't let me short trade options yet). I did make some losses in the beginning, and didn't quite have the "beginners luck" as you did.

Later on I started getting better at the tech/fundamental analysis, which definitely boosted the profits.

As for your question on "beginners luck", my definition of luck is: If you place a trade without analysing the risk and reward potential, and hope it will win, and believe it wont lose.... and you end up winning.

Whether it is luck or not, maybe you do have a niche for the current volatile patterns in the markets that are happening now (in theory maybe it is a beginner's luck season?). Though as pointed out there are many seasons in the market, and it may soon change. (Maybe start of new financial year?). Different seasons means different results.

Some food for thought: One could walk a tight rope with no safety net. Beware the sudden change of wind.

 

[warezwana]

Hi warezwana

Later on I started getting better at the tech/fundamental analysis, which definitely boosted the profits.

Whether it is luck or not, maybe you do have a niche for the current volatile patterns in the markets that are happening now (in theory maybe it is a beginner's luck season?). Though as pointed out there are many seasons in the market, and it may soon change. (Maybe start of new financial year?). Different seasons means different results.

Good point on the 'Market Seasons'.. something I have been thinking about lately but something I wonder how or where I can learn these trick tips of the trade.... anyway good point.

My past trades I guess you would say would be based on looking at a chart and going with a trend but the last few weeks has seen me working with AmiBroker and trying my best to get something sorted to help pave the way...

Time will tell I guess with AmiBroker but hoping I will sort through the codes and end up with a successful system.

 

[freebird54]

I have been trading for years but only the lower risk selling puts [happy to buy] and selling covered calls.
Net profit 10,000-20,000 year.

I stick to the top ten/most traded/most volatile for premium i.e compare premium per share value [thus stock you have to buy for covered calls]

Is there a list anywhere that compares volatility/premium per $ invested for say the top 10 stocks? and updates often?

thanks.

 

[emilov]

Hey Guys,
Just wanted to add my 2 cents.

Firstly and generally, if it ain't broke, don't fix it. In other words, if what you are doing is working for you and you are happy with the profits, stick with it.

That said, there is another nice saying: don't confuse brains with a bull market. I've done that and lost. I'd had 20 successful trades in a row, not a single loss. I made 50k in 1.5 months and I thought I was god. Then I lost it all in 3 weeks because I'd come to believe that I couldn't miss. One thing is certain when trading: the market ALWAYS turns and changes. You have to know what you'll do in any unexpected situations, because they tend to occur often.

Long story short, keep doing what you are doing, but apply stringent money management and discipline (cut those losses short), always. And you should be fine.

 

[cutz]

Hey Guys,
Just wanted to add my 2 cents.

Firstly and generally, if it ain't broke, don't fix it. In other words, if what you are doing is working for you and you are happy with the profits, stick with it.

That said, there is another nice saying: don't confuse brains with a bull market. I've done that and lost. I'd had 20 successful trades in a row, not a single loss. I made 50k in 1.5 months and I thought I was god. Then I lost it all in 3 weeks because I'd come to believe that I couldn't miss. One thing is certain when trading: the market ALWAYS turns and changes. You have to know what you'll do in any unexpected situations, because they tend to occur often.

Long story short, keep doing what you are doing, but apply stringent money management and discipline (cut those losses short), always. And you should be fine.

Sorry to hear about that emoliv,

Problem is something may appear not broke for a while before you may get creamed playing with options,

Also it seem a lot of beginners get comfortable with naked puts + covered calls till a big loss undoes months worth of profits as you pointed out.

As it's been mentioned somewhere, naked option writers eat like chickens but **** like elephants.

 

[mazzatelli1000]

LOL

How often does this point come up, and how many people don't listen until they get whipped by a fat cat of nine tails?
And even then they don't change

 

[emilov]

Oh sure, I absolutely agree, when I was making profits, it appeared not only not broken, but glossy and polished .

That is why I insisted on applying stringent money management and discipline. And whoever sells naked options without UNDERSTANDING 100% the risks, well, they deserve to be creamed.

Like that one guy in "Market Wizards" who was making heaps of cash selling naked calls and then, in one terrible day there was a takeover announcement and EVERYBODY exercised their calls, even thought they were out of the money. He lost over 700,000 or something.