# Any option writers out there?



## positivecashflow

Hey all,

Just wondering if theres any option writers out there?

Cheers,

J.


----------



## positivecashflow

Ok.. so if there aren't any option writers, are there any option traders?

Cheers,

J.


----------



## Joe Blow

positivecashflow said:
			
		

> Ok.. so if there aren't any option writers, are there any option traders?
> 
> Cheers,
> 
> J.



PCF, I'm interested in options but since I can't trade them with e-trade I haven't actually done anything about it.

Can you trade them online? Who do you use?


----------



## positivecashflow

> PCF, I'm interested in options but since I can't trade them with e-trade I haven't actually done anything about it.
> 
> Can you trade them online? Who do you use?



Hi Joe,

Looking at the e-trade website, they have the facility to trade options online. I believe Comsec allow you to trade options online as well. I was browsing another forum and found this interesting post which talks about Rivkin Discount Stockbroking:



> If you know what you're doing, I've personally found Rivkin Discount Stockbroking to be absolutely fantastic over the last few years.
> 
> Here's why:
> 
> 1) Very competitive brokerage on Option trades (currently from $44.00).
> 2) Ability to have naked written positions open with reasonable margin levels (similar to OCH margin requirements).
> 3) If exercised, brokerage rate on the share buy/sell is at their discounted internet rate (min of $19.80, and as cheap as 0.077% on large dollar amounts (for e.g., buy or sell $100,000 worth of shares for just $77.00 brokerage - a BARGAIN!).
> 4) Web site includes live option quotes including market depth of option prices, plus ability to create watchlist of particular options of interest.
> 5) Extremely accurate order placement (always via telephone for option trades, however). The one and only time they made an error with me they corrected it to my satisfaction at their expense.
> 6) Local call cost from anywhere in Australia to place trades.
> 7) If you setup a cash management account, they pay reasonable interest EVEN ON YOUR FUNDS WHILE ACTING AS MARGIN COVER! This is pretty much double-dipping I think, but I'm not about to tell them that and spoil it.
> 
> 
> 
> 
> 
> 
> They will happily calculate and place multi-legged trades for you based on an overall net credit/debit. In other words, either your whole trade gets filled at the right net price or none of it does. Very handy for rolling written positions, setting up credit/debit spreads, etc...
> 9) They will Email you immediately upon trades being filled, plus notify you a week before expiry if you have options due to expire, plus Email your open position summaries as often as you like (I get mine daily).
> 
> I've used other brokers (both Full Service and Discount), and no-one else that I've tried is as flexible or as good value. Futhermore, I've found that full-service brokers would end up "advising" me in ways which would quite often lose money! I believe it makes much more sense to be completely responsible for your own trades, so overall I'm genuinely delighted with Rivkin Discount Stockbroking. Their website for anyone interested is:
> http://www.rivkinstockbroking.com.au
> 
> I should point out that I have absolutely nothing to gain by recommending them, other than I would like to see more and more people trading the Australian options market to help keep up the liquidity and reduce bid/ask spreads.



Anyways I am still on the learning curve and havent started trading yet... 

Cheers,

J.


----------



## positivecashflow

In all honesty, I would pursue writing options rather than trading them though (to start with).

Cheers,

J.


----------



## RodC

Comsec do allow online trades. (from $34.95 I think). 

I've set up the options account but with them but haven't used it yet. 

Writing options is my intention also (not trading/buying).

Rod.


----------



## Joe Blow

positivecashflow said:
			
		

> Hi Joe,
> 
> Looking at the e-trade website, they have the facility to trade options online. I believe Comsec allow you to trade options online as well. I was browsing another forum and found this interesting post which talks about Rivkin Discount Stockbroking:
> 
> Anyways I am still on the learning curve and havent started trading yet...
> 
> Cheers,
> 
> J.



I wasn't aware of that PCF. Thanks for letting me know.

I'm a bit like you, I'm still on the learning curve (probably a bit lower down than you) and feel as though I still need to increase my knowledge before jumping into derivatives.

I'm sure I'll learn much from the threads in this forum.


----------



## positivecashflow

Joe Blow said:
			
		

> I wasn't aware of that PCF. Thanks for letting me know.
> 
> I'm a bit like you, I'm still on the learning curve (probably a bit lower down than you) and feel as though I still need to increase my knowledge before jumping into derivatives.



I don't think anyone can beat me at being a newbie at all this...  (don't be fooled.. I know nothing!)



> Writing options is my intention also (not trading/buying).



Rod,

What will be your option writing strategy?


Cheers,

J.


----------



## RodC

Hi PCF,

I'm just planning on writing a few covered calls to increase my cashflow from my holdings. - Also helps cover the interest on the margin loan. I've just been actively "rejigging" my portfolio so that I have enough holdings of some "optionable" stocks to make it worthwhile after brokerage costs.

I've now got enough of a couple of different stocks to make it worthwhile (I hope), but I'm really treating it as a learning curve at the moment.

regards,

Rod.


----------



## positivecashflow

Hi RodC,

How are the shares you are currently holding which you wish to write the covered calls trending?

Cheers,

J.


----------



## still_in_school

Hi PositiveCashflow,

im an option trader, i dont write options, but i do buy and sell options, as for writing them i see them more as a risk, (i dont know what the market will do next week or so, so i need to be able to turn them over quickly, option market is a very fast game),

but, there are many successful, option writers out there.

but mainly i have sms alerts set + email alerts, but that is mainly because i do my charting the night before, and have only a few selected stock that i will be trading the following day) and watching, on predicted market movement, along with my option trading, i have stop losses that are set and its pretty tight...

just a few other things to note is, before i purchase any options, i talk to my broker first and give my reasoning why i think its a trade, and then having my broker comment, is further confirmation, if so or not to go ahead, (also, my broker will call me through out the day, if there are any options, he suggests or recommends trading)

the broker i use is Tricom, a little more expensive, but i rather pay a little more, in talking to someone, as options is a violitale market

prices are

$55 straight buy and sells
$65 recommending to your broker, and getting feedback
$75 full service

Cheers,
sis


----------



## RodC

Hi Positivecashflow,

The shares I'm holding are trending up or have been and are currently going sideways, I don't hang on to shares that go down - I get rid of them. They aren't particularly volatile so the option premiums aren't that large. My plan is to write out of the money calls with a 1-2 month expiry, all the exercise prices are higher than my purchase price so even if I do get exercised I will still be taking a profit. 

regards,

Rod.


----------



## Bingo

I write and trade options and have a turnover of around 10 transactions a month. Basically my rules are:

1. never write and uncovered call;
2. only write uncovered puts if sufficient funds are available to take deliverery.

I have been trading options for about 10 years and I have found that making a profit is difficult. I currently trade with Andrew West and the cost is $55 or 1%. The highest cost for me is being exercised (or as they refer to it as being assigned) where the trade is not treated as an on-line trade and therefore the discount rates don't apply. It can also occur as separate trades if they exercise on different days so that the minimum brokerage can apply to multiple trades. For example I was exercised on NCP on 5 contracts on 4 separate days last week. Regardless of the rules they tend to charge me 1% on all the trades which is not so bad.

I could write a lot as I have been injured (financially) on a number of occasions, but a few of the lessions learned:

1. A number of authors suggest that writing calls against owned shares is a way of making etra income. I have found this to be effective, however, be careful if the stock is a long term hold and you really don't want to sell. It can be a downer if you write an out of the money call and see the price go well past the exercise price and you lose the stock and see that you would have been far better off to simply hold the stock.  The argument is well I made money anyway. However in practice the fact is that for out of the money calls for 1 to 3 months the premiums are small relative to the share price and so you make small amounts when you win and miss out on lots when you lose.

2. What I tend to do is write put options and if they are exercised I then write calls options against the stock. I do this with stocks that I would be comfortable to own. A practical example.

* 6 January 04 - Sold 20 Mayne May 04 $3.25 puts at 19.5c   Income $3,822.60
* 27 May 04 Exercised - took delivery of 20,000 Mayne at $3.25 Cost $65,082.50
* 28 May 04 - Sold 20 Mayne Aug 04 $3.25 calls at 9.5c. Invome $1,822.60
* 25 June 04 - Sold 20 Mayne Nov 04 $3.25 puts at 16c. Income $3,122.60
* 26 Aug 04 - Call exercised. Delivered 20,000 Mayne at $3.25. Income $64,920

Profit to date $5,482.60 and should get another $3122.60 in November. 

3. I will no longer trade Mayne as I think the price has gone high enough, but this is only my judgement. The stocks I am currently in are Coles (which has been excellent) SRP (which I have been exercised both ways on numerous occasions), TLS and NCP.

4. Remember that you can be hurt. In my case AMP which just went to far.

A couple of final comments. Have a look at the ASX web site. From the home page put the cursor on ASX markets and select options. You can enter a stock code and get the option market prices. This has a 20 minute delay and is often unreliable. However, much better, under "calculators and tools" select "theoretical options price calculator". The rest is follow your nose. There is a demo which I suggest you do first. This tool gives you the theoretical option  prices for any stock and option series. The tool is interactive and you can change variables and get updated prices. When I first traded these tools were expensive and I now use this facility every day for strategy planning and quoting.

Also there is plenty of other information such as the tax treatment of option trading on the site.


----------



## positivecashflow

Hey all thanks for all your responses...



			
				still_in_school said:
			
		

> im an option trader, i dont write options, but i do buy and sell options, as for writing them i see them more as a risk, (i dont know what the market will do next week or so, so i need to be able to turn them over quickly, option market is a very fast game),



As an option writer time is on your side. You have sold a depreciating asset to the option buyer (the effects of time decay). By buying a depreciating asset isn't this more risky? As for exiting the market should the trend go against your view as a writer, there are defensive actions available as well to minimise your losses eg closing out, rolling down or rolling out.



			
				RodC said:
			
		

> My plan is to write out of the money calls with a 1-2 month expiry, all the exercise prices are higher than my purchase price so even if I do get exercised I will still be taking a profit.



How far from the current share price will you be writing your strike price?



			
				Bingo said:
			
		

> 1. never write and uncovered call;



If you were able to locate a downtrending share wouldn't the risk of writing a naked call be minimised?



			
				Bingo said:
			
		

> The highest cost for me is being exercised



How close to the share price are you writing your strike prices?  What about the time frame that you are writing your options?  From your examples below it is apparent that you are writing 3-4 month options.  A lot can happen in that time!  Isn't the point of writing options to not be exercised and therefore not pay the extra brokerage?  

Thanks for sharing your experiences Bingo.  I am on the learning path and I may be wrong in my assumptions.  Please correct me where I am wrong.  Thanks also for the heads up on the ASX site.  

Cheers,

J.


----------



## Bingo

If you were able to locate a downtrending share wouldn't the risk of writing a naked call be minimised?

It would be decreased, however, it is effectively unlimited and this is a risk I am not prepared to take. It could bankrupt you. Shares prices can move very fast and because option price move more then you losses can be high.

Take an example Mayne is currently $4.02 and the Mayne $4.25 calls are worth about 5c. If Mayne goes to $4.30 the calls go to 16c and at $4.55 to 28c. So you could sell for 5c to-day and be up for 28c (nearly a 600% loss) in a matter of days. Is this a likely outcome, probably no, it is possible, definitely yes. Have a look at my example on Mayne posted earlier. If I had not been covered on the calls I would have taken a significant loss. Mayne have risen from $3.30 to $4.02 in the last two months.

Let me give you a real life example that while it will probably never happen again, is food for thought. It also shows how long I've been in the game. The facts are as close as I can remember. The day before the 1987 crash I was very bearish. I rang my trader on the floor and told him I wanted to position for a market fall. I sold short period well in the money calls in NCP and BHP. A good decision.

I spoke to him the next day and he told me that he had failed to mention that the brokers acting for Bond were trying to sell 10,000 Oct $ 9.75 Put option contracts for 1c the day before. Before the crash BHP were about $10.30 and the contracts had two weeks to go - in other words the probability of them ever being worth anything was zero). This was when Bond was having a tilt at BHP. 

You could have bought these for $100,000. The next day they were worth around $4 i.e. $40M. This is extreme but can happen.


----------



## Bingo

If you were able to locate a downtrending share wouldn't the risk of writing a naked call be minimised?

It would be decreased, however, it is effectively unlimited and this is a risk I am not prepared to take. It could bankrupt you. Shares prices can move very fast and because option price move more then you losses can be high.

Take an example Mayne is currently $4.02 and the Mayne $4.25 calls are worth about 5c. If Mayne goes to $4.30 the calls go to 16c and at $4.55 to 28c. So you could sell for 5c to-day and be up for 28c (nearly a 600% loss) in a matter of days. Is this a likely outcome, probably no, it is possible, definitely yes. Have a look at my example on Mayne posted earlier. If I had not been covered on the calls I would have taken a significant loss. Mayne have risen from $3.30 to $4.02 in the last two months.

Let me give you a real life example that while it will probably never happen again, is food for thought. It also shows how long I've been in the game. The facts are as close as I can remember. The day before the 1987 crash I was very bearish. I rang my trader on the floor and told him I wanted to position for a market fall. I sold short period well in the money calls in NCP and BHP. A good decision.

I spoke to him the next day and he told me that he had failed to mention that the brokers acting for Bond were trying to sell 10,000 Oct $ 9.75 Put option contracts for 1c the day before. Before the crash BHP were about $10.30 and the contracts had two weeks to go - in other words the probability of them ever being worth anything was zero). This was when Bond was having a tilt at BHP. 

You could have bought these for $100,000. The next day they were worth around $4 i.e. $40M. This is extreme but can happen.

Bingo


----------



## positivecashflow

Bingo,

Do you use charting (technical analysis) to help you with your option writing strategies?

Cheers,

J.


----------



## Bingo

J,

Not in the past. I have always used fundamental analysis. What I have done is selected a number of stocks I am comfortable with and focus trades on them. I have now started to look at technical analysis to support my position.

A point from earlier comments. I target $1,000 as my minimum premium on any sale of options (this is to keep the trading costs as a reasonabe % of the premium). As I only sell puts positions where I can take delivery if necessary. I find I need substantial cash on hand for safety. It OK to say you will write short expiry date out of the money options but this requires you to sell a larger number of contracts and tale on a higher risk.

I have found that if you can pick a trend then longer term in the money writing is better.


Bingo


----------



## RodC

Thanks for your insights Bingo.

It's good to hear some first hand experience of option writing, not just theory. It sounds like you've figured out what works for you.

Rod.


----------



## GreatPig

Bingo,



			
				Bingo said:
			
		

> You could have bought these for $100,000. The next day they were worth around $4 i.e. $40M.



What happens in an extreme situation like that if the people who lost all that money go bankrupt and can't pay?

Who then pays all the winners?

Cheers,
GP


----------



## Bingo

GreatPig said:
			
		

> Bingo,
> 
> 
> What happens in an extreme situation like that if the people who lost all that money go bankrupt and can't pay?
> 
> Who then pays all the winners?
> 
> Cheers,
> GP




Good question. I thought they were guaranteed by the ASX, but this may not be correst.

Bingo


----------



## crashy

Hi

been writing options about 5 years

favourite strategy is the straddle


----------



## SuperTed

Option writer naked only....about 1 in 15-20 i will buy. The buy legs are only done when i can sense a large ( and I mean large) move other wise you dont make money from the buy side.

1/ I write only on liquid stocks eg Banks, RIO, BHP, NWS..NCM (if im feeling real gung ho)

2/ smaller caps like QAN, WOW, TLS can be a waste of time because its you and a market maker. So it can be hard to close out at a "fair" price. OR you have to write in the money to get premium (not good)
3/ Buy options only pre large movement (if wrong get out quick)
generally on announcement. NAB was a ripper.

4/ the covered call can be good if the stock is trending sideways, other wise a waste of time (this will spark debate..but im ready to be proved wrong ;-)


If you are a buyer and can do it full time and make a living, i either think you are blessed from upstairs or FOS.


----------



## The Barbarian Investor

Interesting thread guy's..

I find this subject interesting and the 'real life' stories of anyone involved in the options market is a bonus.

The Barbarian Investor


----------



## DTM

Hi Joe

I deal mainly in options through commsec.  It may have been me who took your money.  Sorry if I did.

DTM


----------



## tech/a

SuperTed said:
			
		

> If you are a buyer and can do it full time and make a living, I either think you are blessed from upstairs or FOS.




True of 99% of rhetoric posted on Options and Futures Mega success stories on most forums.
Particularly in Aust.

Just isnt the liquidity or volumes.
European and USA bourses ----very different.

Love the quote-----


----------



## malachii

I trade options (buying - not writing) part time - only when the option is a screaming buy.  Usually do ok most months but crashed and burned big time this month with TLS.  Options are like that though - they either give a great return (usually aim for 100% with 5 days) or they make a loss (like this month I'm down by the look of it about 100%!!!!!).  That's what happens when you dont follow stop losses.


----------



## DTM

I trade options through Commsec full time although I do dabble in shares.  I normally trade within the month, even days before expiry and always in the money.  If I can see a good bargain through charts I will buy straight away and normally in lots of 15 - 20 contracts.  If I start making 50% or more then I exit half my trades (try to take back as much of my initial principal investment) and let the rest run as profit.  For example, I bought BIL 6.75 Dec calls last week for .11 X 20 contracts.  The next day they were selling for .24 so I sold 10 contracts and took back my initial investment.  Yesterday I sold the other 10 contracts for .3 so all up made 150% in 4 days.  My best trades are ones where I can enter and exit the same day.  My best trade was LLC when they announced the merger plans with GPT.  I bought 10 contracts for .3 (October I think) and sold them the same day for .6 for 100% return the same day.  

Generally I have been doing well where 70 - 80% of the time.  I did make a mistake last month with NAB Nov calls as I got the expiry date wrong.  I assumed that the expiry date was Friday and it ended up being Thursday.  I had to exit at a loss on that Thursday, losing $3,000.  I would have made $8,000 if the options expired on Friday.

My current exposure is to BHP which is deep in the money although I think I may have made a mistake with RIN as I bought $10 and $10.50 Puts for December and it looks as if this one is going to come back to bite me on the bum as the price is around $10.62.

Cheers


----------



## SuperTed

LoL DTM ..... friday expiry day

Like you i write larger amounts of contracts. I used to write 10x, but have found that after subtracting entry & closing out costs the profit was to small. Now i write minimum 20x - 100x. (essentially halving brokerage if you want to look at it like that ;-)

This is based on if you have a very good strategy you may as well double more of a very good trade then fish for average onces to make up income.


----------



## DTM

That's a very good strategy.  Its a bit hard to find the good bargains on the ASX but when you do, you must do really well. How long do you hold your position for when you start hitting profit country?  What do you look for when looking for a bargain?  I'm still refining my trading and just burnt myself again this month playing with Puts (RIN and AMC).  I promised myself two months ago never to play with puts in a bull market, but all the charts I see look set for a major reversal.  I normally would give myself 2 months if I play with puts but RIN is every three months (therefore too expensive) whilst I couldn't resist with AMC when they started having all the Cartel problems coming out.

Interested to learn more.


----------



## SuperTed

I hold generally around 4-8 weeks, but depends on other variables if i am to exit earlier or later. I "write" so profit is essentially fixed at the time I sell MINUS buy back costs (if i dont wont to go to expiry that is).


----------



## DTM

Does that mean you're writing naked calls and puts?  Sounds risky if it is.  I wouldn't touch naked puts and calls.  I'm also very careful with spreads as my first ever trade was a call spread on TLS and got exercised days before the expiry date and on the last day before it went ex-dividend.  Sure learned quickly as it cost me 10K first up.  I also missed to sell my RIN 10.50 Dec Put last week when the price dropped to around $10.00 because I thought it would drop more (too greedy - lost my discipline).  Paid .065 X 20 ($1,300) and should have sold them at .4 X 20 realising $6,700 profit.  Anyway, just another story "it was this big but it got away".

It seems your postings are on when everybody else's asleep.  Are you trading the US markets or something?


----------



## wayneL

DTM said:
			
		

> Does that mean you're writing naked calls and puts?  Sounds risky if it is.  I wouldn't touch naked puts and calls.  I'm also very careful with spreads as my first ever trade was a call spread on TLS and got exercised days before the expiry date and on the last day before it went ex-dividend.  Sure learned quickly as it cost me 10K first up.  I also missed to sell my RIN 10.50 Dec Put last week when the price dropped to around $10.00 because I thought it would drop more (too greedy - lost my discipline).  Paid .065 X 20 ($1,300) and should have sold them at .4 X 20 realising $6,700 profit.  Anyway, just another story "it was this big but it got away".
> 
> It seems your postings are on when everybody else's asleep.  Are you trading the US markets or something?




DTM,

Why would you be prepared to do covered calls and yet believe naked puts are too risky?

The payoff diagram (and therefore risk) is exactly the same!!!!


----------



## wayneL

From Charles Cottles book "Coulda Woulda Shoulda"

Story: Covered-Write: A trader once came up to me on the floor
of the exchange and asked, “What do you think about selling
the 90 calls at about 9.00, and buying the stock here at about
96.00, one to one (one call for each 1oo2 (100) shares)?” His
reasoning was that if the stock stayed at current levels,
traded higher or at least stayed above 90 he would have a
profit of about 3.00 ($300) for each one to one spread. That
assumption is correct but I then asked him, "Hold that
thought to the side for a moment and instead consider, as an
alternative, selling the same quantity of 90 puts at 3.00
naked3?” He was quick to answer, “No, never, I would hateto be naked short puts!” I then showed him that the two
trades are virtually identical. Being naked short puts is very
suitable for certain investors in certain circumstances but it
seemed reasonable to assume that the trade was not for this
particular person. End

Had the trader in the example known that a covered write was like
a short put he would have realized that he himself would not do the trade.
This is where synthetics come in. It would have been a suitable trade
had the trader been willing to be short naked puts and had the financial
resources to cover the trade. However, this trader did not know, that [highlight]for
all intents and purposes, a covered write IS a short put.[/highlight] A full
understanding of the consequences of a position beforehand is essential.
No matter how the position is viewed (including synthetically), the trader
should be happy with it, know approximately how long he wants to
remain in the trade, and know how he will handle it under profit and loss
scenarios.

Cheers


----------



## crashy

DTM said:
			
		

> I did make a mistake last month with NAB Nov calls as I got the expiry date wrong. I assumed that the expiry date was Friday and it ended up being Thursday. I had to exit at a loss on that Thursday, losing $3,000. I would have made $8,000 if the options expired on Friday.




An option trader who doesnt know options always expire on a Thursday? How long did you say you have been trading these things?

mummy, Im scared!


----------



## crashy

wayneL said:
			
		

> for
> all intents and purposes, a covered write IS a short put.




Yes I am often bugged by this misperception also.

Another one is when traders think it is more risky to write calls or puts than buying the same number of shares.

For example, some traders will happily buy 20,000 TLS shares, but show them an option trade writing 20 contracts of calls or puts and they will freak out. Little do they know, the option trade is safer and less risky because the option premium provides a buffer.

The danger as always is excessive leverage. Traders will often abuse leverage and thats when the trouble starts. Its not the options fault.....


----------



## DTM

Hi Crashy


Am still a novice and am still learning.  With all the mistakes I've been posting its frightening what I've done, although I've still had more success than failures.  Basically I've been trading full time for the last 2 months.  Prior to that, I did an optionetics course 6 months ago and prior to trading, spent three months watching the screen and seeing the dynamics of the sharemarket and price movement.  I doubled my money in the first six weeks and would have tripled it but for those mistakes.  I do have a risk management system in place but its not so much based on a stop loss but on the price movement within a predetermined range and also where it ends up at the end of the day (unless its a huge drop).

I'm still learning and the more I learn the better I get.  Selling naked calls or naked puts is scary to me.  Yesterday, I excercised 25 X 1.20 Dec 04 call contracts for HHG.  I paid $625 for the 25 contracts and HHG is at 1.44 as I'm writing.  I hope that other person had the shares and if he hasn't then thats one of the reasons why I find writing naked calls scary. I tend to disagree that writing a covered call is the same as writing a naked call.  Covered calls do limit your profit, but it means you can't make a loss (unless the share goes down).  The other scary reason for naked puts is that companies like HIH and ION could leave you holding someone else's losses and theres no limit to those losses.


----------



## wayneL

crashy said:
			
		

> The danger as always is excessive leverage. Traders will often abuse leverage and thats when the trouble starts. Its not the options fault.....




Amen Crashy

Merry Christmas


----------



## The Barbarian Investor

*Last Thursday of the MONTH*

Expire on Thursday .. unless.. the last friday of the month is a public holiday, then it's the prior Thursday ..isn't it??

TBI


----------



## positivecashflow

DTM said:
			
		

> I tend to disagree that writing a covered call is the same as writing a naked call. Covered calls do limit your profit, but it means you can't make a loss (unless the share goes down). The other scary reason for naked puts is that companies like HIH and ION could leave you holding someone else's losses and theres no limit to those losses.



Yes a covered call does NOT have the same risk graph as a naked call... as wayneL mentioned, the covered call has the same risk graph (payoff diagram) as a naked put... so if you are saying that naked puts are scary, shouldn't covered calls be just as scary to you?



			
				DTM said:
			
		

> I did make a mistake last month with NAB Nov calls as I got the expiry date wrong. I assumed that the expiry date was Friday and it ended up being Thursday.



You must have gotten confused with the expiry dates of options in the U.S?


----------



## DTM

I agree with you that the premium you receive is the same but as you stated the risk graph is different.  The only scary part of a covered call is the share price dropping, but thats a risk everyone takes.  With naked calls or puts, when the price spikes, it is much harder to get out of your position in options than it is with shares.  With shares you can get out straight away.  A good example would be AMC which dropped 45 cents overnight from a closing of 7.55 and re-opening of 7.10 the next morning on 7 Dec '04.  The options markets don't really open until 11 am so you would have to watch as your losses built up.  Even when the options market dp open, it would be harder to get out because options become very expensive with price spikes (so your losses would be greater with naked calls or puts than if you only had the shares) and also the problem of liquidity.  With shares you can get out any time without attracting a premium price as options tend to do.


Anyway, I suppose it comes down to what you're comfortable with.  I still disagree that naked Puts are the same as covered calls just because they have the same payout.  The big difference to me is the difference in the risk graphs.  

If you're doing covered calls and you're comfortable selling naked calls and puts, then I don't see any reason why you wouldn't sell naked Puts with a covered call, thereby maximising your profit.


----------



## wayneL

<<Anyway, I suppose it comes down to what you're comfortable with. I still disagree that naked Puts are the same as covered calls just because they have the same payout. The big difference to me is the difference in the risk graphs.>>

Huh??

So you, with less than one years experience, disagree with Charles Cottle who has been an options market maker for 30 odd years? LOL

Try as I may I can't make the risk graph of a covered call look any different to a naked put. 

Did the clowns at optionetics teach you some esoteric technique the rest of the world...Charles Cottle included...doesn't know?


----------



## DTM

Maybe its from being a beginner or from what I've seen in the market place but I still wouldn't write an option unless I was 100% sure which way it was headed.  Even then, if you're so sure about the direction, the decision is always best taken with a grain of salt.

I don't quite agree that the risk graphs look the same.  Take ION for example (if it had options), if you had two positions on it, one a covered write and the other shorting puts, and on the day of the annoucement that ION went into Administration/Liquidation and the shares  were suspended on the ASX, the covered call's loss would only be limited to the price of the share therefore leaving the premium still in hand.  With shorting puts, your loss is not limited, ie, you may end up paying for the loss of share value.  Therefore the covered call graph would look more like a bull call spread.

The other reason I won't write options is that I work from a relatively small base of funds and can't afford to get exercised.  My trading strategy is to take opportunities when they arise not to wait for the option to expire. 

I am still learning and I did find optionetics helpful as the more I go back and re-read the materials, I pick up things I missed before.  The key for me was learning how to interpret market signals for myself.  Trading options and shares for me has been a life changing experience as it allows me to (1) make more money in two months than I would in a year ( I quit my job as an accountant), and (2), allow me to spend more time with my family then I would ever imagine possible.

I'm still a beginner and am on a huge learning curve.  Every point of view is invaluable to me and am happy to learn more.


----------



## positivecashflow

DTM said:
			
		

> Therefore the covered call graph would look more like a bull call spread



Hi DTM,

Check out the graph on Page 4-45 of the From Practice to Profits book (book 4), it looks nowhere near like the graph on Page 4-51 ...

Just remember if you write an option, that you must cover yourself by either buying an option with a strike price above it, below it or to the side of it...



			
				wayneL said:
			
		

> Did the clowns at optionetics teach you some esoteric technique the rest of the world...Charles Cottle included...doesn't know?



No they didn't...  

Cheers,

J.


----------



## wayneL

DTM said:
			
		

> Maybe its from being a beginner or from what I've seen in the market place but I still wouldn't write an option unless I was 100% sure which way it was headed.  Even then, if you're so sure about the direction, the decision is always best taken with a grain of salt.
> 
> I don't quite agree that the risk graphs look the same.  Take ION for example (if it had options), if you had two positions on it, one a covered write and the other shorting puts, and on the day of the annoucement that ION went into Administration/Liquidation and the shares  were suspended on the ASX, the covered call's loss would only be limited to the price of the share therefore leaving the premium still in hand.  With shorting puts, your loss is not limited, ie, you may end up paying for the loss of share value.  Therefore the covered call graph would look more like a bull call spread.
> 
> The other reason I won't write options is that I work from a relatively small base of funds and can't afford to get exercised.  My trading strategy is to take opportunities when they arise not to wait for the option to expire.
> 
> I am still learning and I did find optionetics helpful as the more I go back and re-read the materials, I pick up things I missed before.  The key for me was learning how to interpret market signals for myself.  Trading options and shares for me has been a life changing experience as it allows me to (1) make more money in two months than I would in a year ( I quit my job as an accountant), and (2), allow me to spend more time with my family then I would ever imagine possible.
> 
> I'm still a beginner and am on a huge learning curve.  Every point of view is invaluable to me and am happy to learn more.




OK DTM lets work through this:

I don't have ASX data so don't know ION's price at delisting etc. But lets create a hypothetical situation.

Lets say we have a stock trading @ $15 with option IV's @ 50%

Scenario 1: 
Purchase 1000 stock @ $15 = spend $15,000
Write 10 contracts Jan $15 calls(or 1 contract if in aussie) = collect $750 - $800 premium

Scenario 2;
Write 10 contracts Jan $15 puts = collect $750 - $800 premium

Next day stock delists and is wound up.

Scenario 1
Lose investment in stock position = -$15,000
Keep call premium = +$750 - $800
Total loss = ~$14,225

Scenario 2
Have worthless stock put to you @$15 = -$15,000
Keep put premium = +$750 - $800
Total loss = ~$14,225

!!!!So what's the difference??????!!!!!


----------



## DTM

Yes.  Good point.  No difference really.  I was thinking of the cash left in your hands if share was delisted.  I see now the difference is that with a covered call you're paying for your loss before hand whilst naked puts just means you pay for it afterwards.

Thanks for setting me straight.  A mental block has just been lifted!


----------



## crashy

DTM

 

My best advise to you is to cease trading until you can successfully tell your arse from your elbow (no offence). You are playing a very dangerous game against guys who are very experienced and ruthless. Do you really believe you can take their money while they are scheming to take it from you? 

They just love it when inexperienced option traders show up in the market after doing a course or reading a book promising a lot of easy money but holding back the truth. A steady supply of newbie option traders for me to take money from is what I seek as an option writer.

Either you skimmed through the material or this optionetics crowd is just telling you what you want to hear (and only half the story). 

You seem to be overly confident yet disturbingly inexperienced, a dangerous combination. Beginners luck runs out fast in this game. 

Quit while you are ahead. Come back to the market when you can debate the pros and cons of say 50 different strategies.


----------



## DTM

Hmm....  Sobering thought.  Even though I'm not aware of all the strategies, the one that suits me is just buying and selling ITM options which is relatively safe and success is only dependent on being able to predict price movement.  I realise that if I'm aware of all the other strategies I may be able to fix some of my failed trades.  I will eventually learn more strategies as I go but my system is relatively simple and suits me. 

Thanks for the advice and I will be careful.


----------



## obiwan

writing naked calls is risky, the risk is potentially unlimited. With volatility trending lower this year, option writers may take a bath when it spikes.


----------



## wayneL

obiwan said:
			
		

> writing naked calls is risky, the risk is potentially unlimited. With volatility trending lower this year, option writers may take a bath when it spikes.




Obi,

The assertion that naked puts have unlimited risk is not quite correct.

The downside risk is ultimately limited by the the underlying going to zero. It can go no further.

Therefore the risk of naked puts, though high, is quantifyable and not unlimited.

In fact, as Crashy has pointed out the actual dollar risk is less than the equivelent underlying position, due to recieving the put premium...as illustrated in the scenario above.

I also suspect option writers will be looking forward to a spike in volatilities as this will enhance the risk/reward of short option positions

Naked calls?...Now thats different!!!!


----------



## positivecashflow

DTM said:
			
		

> Even though I'm not aware of all the strategies, the one that suits me is just buying and selling ITM options which is relatively safe and success is only dependent on being able to predict price movement.



DTM,

Are you trading debit spreads or credit spreads? Are the options ITM close to expiry or > 30 days to expiry? Are they deep ITM or just slightly?


----------



## DTM

Hi PC

I mostly buy ITM options and within the 30 day expiry.  Currently most of my purchases have been calls (reflecting the bull market).

I am currently have two call spreads on at the moment, two on RIN and one on BHP.  I'm putting the spread on not in the hope that the price goes up but that the price goes down.

I will quickly explain my reasoning and won't try to bore you too much.  

B 10 X 9.00 March '05 calls  
S 20 X 9.75 March '05 calls

B 10 X 10. March '05 calls
S 20 X 10.50 March '05 calls

When I put the spreads on I received a good credit for the spreads.  Currently I am behind by 7K, ie the value of the short calls are higher than the value of the longs calls.

My reasoning for putting the spreads on is that I am hoping that the price will drop whereby I can purchase back the short positions for a much less price than what I received from the sale.  

I normally wouldn't do spreads because the Margin required ties up too much capital which could be better utilised in making money.  The reason I did put a spread on is that in my opinion (looking at the RIN chart), I think there will be a major correction in January.  Looking at the XAO, that also looks like its heading for a major correction.

What if I'm wrong?  If the price keeps going up then I will roll my spreads into the next quarter but at a higher strike price, eg sell the March 9.00 call and buy the 9.75 June call.  Buy back the 20 X 9.75 March call and sell 20X 10.50 June call (as an example).  I would roll the spread over for the minimum amount of debit or if I can, I will try and get a credit for it.

If I'm right, and the price drops down to around $10, then I would purchase all my short options at a much cheaper price but still be deep ITM with my long positions.  I wouldn't let any short position stay open as I prefer to get out ASAP, even at a cost.  The only time I would let it expire if it was two weeks out or something like that.

Hope this helps.


----------



## positivecashflow

Hi DTM,

Thanks for sharing.  I hope you understand the risks you're taking in your chosen strategy.  Good luck.


----------



## Oob

Etrade does allow online option trading, but only on stocks with high liquidity. I think about 80 ASX listings, with high volume, like Telstra, NAB etc.

They have some special rules about covered calls, like  they impound the underlying stock so they can access them if you are exercised.


----------



## SuperTed

From the Etrade website:

*What collateral is required by E*TRADE to write a Put?*

50% cash cover of the total exposure of the position is required by E*TRADE to write a put. 50% cash cover is calculated as being the number of contracts being written, multiplied by the shares per contract, multiplied by the strike price (exercise price) of the option series, multiplied by 0.5.


*Does E*TRADE offer the writing of naked ETOs?*

Not at this time.


*What collateral is required by E*TRADE to write a Call?*

A written (sold) call must be fully covered (stock specific) by the underlying shares of the ETO.
_______________________________________________________________

_I dont think any fulltime traders would even consider etrade. I have had my account for 4 yrs and never used it_


----------



## markrmau

SuperTed, who do you use for brokerage?

Also, I get the feeling that if you want to trade options, you should go to the us market for higher liquidity and lower spreads. Is this correct, or is there money to be made in Aus?

Thanks, Mark.


----------



## SuperTed

There is still money to be made here, even though it can be a stuff around at times. Trading in Australian waking hours seems one advantage to keep trading here (just a thought).

WayneL is the person to talk to about trading US.

I use Tolhurst. Of the big firms Commsec overs the best margin requirements for writing naked (1.5x OCH margins). I used to be with TDwaterhouse (20% cash cover).

Etrade, Sanford are still dreaming that they offer the best service to option traders.


----------



## GlobalIndexTrader

I have been writing options against Indexes for several years. The main ones I trade is the Dax and the Stoxx as they are European style cash settled markets which means you can only be exercised on the day of expiry. I sell naked calls all the time. When writing puts though i will always do it with some sort of insurance. As I sell time decay the calls are never a problem as the market slowly moves upwards, its when the market drops is when you can get unstuck hence why I buy insurance to cover my risk. As far as brokerage goes the option only has to move 3 points to cover expenses, the rest is profit.


----------



## wayneL

Hi Global,

Any reason why you don't trade some of the other spreads, depending on IV's and your view of market direction.

For instance, if IV is very low you can use verticals or backspreads to crank up returns and reduce risk.

Cheers


----------



## GlobalIndexTrader

I have used other styles more recently (calender spreads, butterfly) as the volatility has been very low. in fact only in the last few weeks has the settlement values increased enough over my time period to warrant entering the market at all. Since I dont directional trade I mainly only sell calls after a few up days and sell puts after a few down days. This seems to keep me far enough away from the market so that I can stay in long enough to exit giving me a greater annualised percentage than if i would have stay in until expiry.



			
				wayneL said:
			
		

> Hi Global,
> 
> Any reason why you don't trade some of the other spreads, depending on IV's and your view of market direction.
> 
> For instance, if IV is very low you can use verticals or backspreads to crank up returns and reduce risk.
> 
> Cheers


----------



## subawrx

A very good broker I use for option writing, including advanced spread strategies is www.optionsxpress.com.au. Prices competitive and you can execute spreads through the website unlike any other broker I know.


----------



## dutchie

Does anyone know how the ASX calculates margins on sold options (formula??).

Are there any other sites OTHER than ASX that calculates/lists margins

Cheers


Dutchie


----------



## happytrader

Hi Dutchie

I'm not quite sure what you are asking for here.  If you could explain further or present your objectives we might be able to help you.

Cheers
Happytrader


----------



## dutchie

G'day Happytrader

Thanks for the reply.

I found out how they work out margins on the ASX site.

The ASX also have a tool that works out margins for you but unfortunately there is some sort of glich so that I cannot use it properly (error message comes up and display is disjointed).

So I was wondering if there was an other site(s) which might have a similar tool.

Cheers

Dutchie


----------



## dutchie

Happytrader

Just worked out that its the browser thats the problem.

ASX margin estimator does not work when using FIREFOX browser

but works fine with INTERNET EXPLORER browser.

Told ASX and they will try and rectify problem with firefox in future.

Thanks anyway.

Cheers

Dutchie


----------



## jackson8

hi guys 
wondering if i can get some help i cant quite seem to get my head around time decay in options over different months
an example....

stock xyz last price $1.00

oct atm call premium $0.10    15 days to expiration
nov atm call premium $0.14    45 days to expiration extra .04
dec atm call premium $0,17    63 days to expiration extra .07

the oct option with only 15 days to go is worth more on a return value than the more out of date options   ..........shouldnt it be the reverse with the options further out of date haveing more time premium by ratio

probably something very simple that i am overlooking but would like some feedback

thanks gary


----------



## cutz

Hi Jackson8

Assuming all other variables remain unchanged time decay accelerates as the option approaches expiry.


----------



## mazzatelli1000

cutz said:


> Hi Jackson8
> 
> Assuming all other variables remain unchanged time decay accelerates as the option approaches expiry.




Beware 
This is most applicable to ATM options
ITM and OTM options do no possess as much time value, so time decay does accelerate towards expiry but then it flattens out just before expiry compared to an ATM option.

Hence especially when trading short OTM options it is advisable to to close out before expiry as there is little time decay to be gained for the large negative gamma one is exposed to.

Just my


----------



## sails

Hi Jackson8 - is your xyz stock going ex-dividend in November?  That could explain why the November calls are cheaper...


----------



## cutz

mazzatelli1000 said:


> Beware
> This is most applicable to ATM options




Yep, point taken,

I just fired up Hoadleys to get a visual on Theta for a couple of short puts i've got on, peak of curve ATM tapers off both sides.
Thanks for the tip on Gamma.

Cutz.


----------



## sails

jackson8 said:


> hi guys
> wondering if i can get some help i cant quite seem to get my head around time decay in options over different months
> an example....
> 
> stock xyz last price $1.00
> 
> oct atm call premium $0.10    15 days to expiration
> nov atm call premium $0.14    45 days to expiration extra .04
> dec atm call premium $0,17    63 days to expiration extra .07
> 
> the oct option with only 15 days to go is worth more on a return value than the more out of date options   ..........shouldnt it be the reverse with the options further out of date haveing more time premium by ratio




Ignore my last reply - didn't read the question properly   The effect of dividends on option pricing is often not understood, so I jumped to the wrong conclusion - hopefully this reply is more to the point...

If the option price is broken down into "theta" - then there is an average of .006 theta loss per day for October ($0.10 divided by 15 days), .003 theta loss per day for November and .002 per day for December.  

This means a calandar spread where you sell the front month you would technically gain .006 (just over half a cent) of theta per day and only lose .002 per day for December.  

In real life, it doesn't always work out so nicely as there are other option greeks at work - especially IV and gamma when it is close to expiry that can really upset the outcome.  Mazz has given some good insight to close out short options that are almost worthless prior to expiry. Also supply and demand will affect how the MMs price the options near expiry day.

Option IVs are currently at extraordinarily high levels - and IV affects the further out months significantly.  I wouldn't liketo be in calendar spreads when the air comes out of this IV balloon


----------



## mazzatelli1000

sails said:


> Ignore my last reply - didn't read the question properly   The effect of dividends on option pricing is often not understood, so I jumped to the wrong conclusion - hopefully this reply is more to the point...
> 
> If the option price is broken down into "theta" - then there is an average of .006 theta loss per day for October ($0.10 divided by 15 days), .003 theta loss per day for November and .002 per day for December.
> 
> This means a calandar spread where you sell the front month you would technically gain .006 (just over half a cent) of theta per day and only lose .002 per day for December.
> 
> In real life, it doesn't always work out so nicely as there are other option greeks at work - especially IV and gamma when it is close to expiry that can really upset the outcome.  Mazz has given some good insight to close out short options that are almost worthless prior to expiry. Also supply and demand will affect how the MMs price the options near expiry day.
> 
> Option IVs are currently at extraordinarily high levels - and IV affects the further out months significantly.  I wouldn't liketo be in calendar spreads when the air comes out of this IV balloon




Hey Sails, 

Now that Magdoran and WayneL are gone, you're the only guru left for us to turn to in option threads.

Hope you stick around!!!


----------



## sails

mazzatelli1000 said:


> Hey Sails,
> 
> Now that Magdoran and WayneL are gone, you're the only guru left for us to turn to in option threads.
> 
> Hope you stick around!!!




Thanks Mazz, but not a guru by any means and still learning - just happy to share what I know and as time permits.  No plans to leave


----------



## fimmwolf

why has WayneL gone?

I found his posts on options very informative. Particularly on the greeks.


----------



## cutz

Hi Sails ,

I’ve been working my way through the eBook by you recommended to me, Options Trading, The Hidden Reality, its been a bit of an eye opener and a lot more challenging to the material I have been reading so far. I was just wondering if it possible to get my hands on the full hardcover version through an Aussie retailer

Thanks,

Cutz.


----------



## mazzatelli1000

cutz said:


> Hi Sails ,
> 
> I’ve been working my way through the eBook by you recommended to me, Options Trading, The Hidden Reality, its been a bit of an eye opener and a lot more challenging to the material I have been reading so far. I was just wondering if it possible to get my hands on the full hardcover version through an Aussie retailer
> 
> Thanks,
> 
> Cutz.




Ahhhhh Charles Cottle - challenging yet interesting, the only options guru I know of that stresses synthetics.

Cutz, I believe that Charles Book is only available on his website or through second hand dealers such as eBay and Amazon.


----------



## sails

mazzatelli1000 said:


> Ahhhhh Charles Cottle - challenging yet interesting, the only options guru I know of that stresses synthetics.
> 
> Cutz, I believe that Charles Book is only available on his website or through second hand dealers such as eBay and Amazon.




Yes, very challenging!  I think I remember WayneL saying he was fortunate enough to have met up with Charles Cottle quite early in his options education.

While understanding synthetics, greeks, etc doesn't guarantee profits, it does help in understanding where the risks are lurking and to help identify trading opportunities.

Cutz, I have never seen Cottle's books available here in Aus...


----------



## mazzatelli1000

sails said:


> Yes, very challenging!  I think I remember WayneL saying he was fortunate enough to have met up with Charles Cottle quite early in his options education.
> 
> While understanding synthetics, greeks, etc doesn't guarantee profits, it does help in understanding where the risks are lurking and to help identify trading opportunities.
> 
> Cutz, I have never seen Cottle's books available here in Aus...





Sails, Im not sure if your aware, but you can post on Charles forum and he usually answers whether guest or member, as long as the question is not too simple!!

I remember the first time reading it, especially about the butterflies and the embedded butterflies - confused the stuffing out of me


----------



## cutz

> Cutz, I believe that Charles Book is only available on his website or through second hand dealers such as eBay and Amazon.




Thanks mazzatelli1000,

I shouda made the purchase when the aussie$ was nearly on par.

I’ve got some stuff coming from moneybags which will keep my seized up brain ticking over for a little while.

Cutz.


----------



## Beenjammin

Id really appreciate it if someone can talk me out writing near OTM naked calls in Australia, using a conditional buy order on the underlying equity near the strike price to cover?

I know the warning is "unlimited risk" but how often do these shares gap up significantly  - ie <10 - 15%? Major gaps dont appear that likely, certainly I cant find any examples of extreme gaps of greater than 20% on optionable stocks (remember we're not talking small exploration or biotech startups that can explode up on a new discovery here - these are comparitively lower-beta, highly liquid stocks- CBA, NCM, RIO, AIO, BXB, HVN, FGL, TAH etc etc).....or am I just being blind?

What are the other dangers?

C'mon, scare the pants off me!


----------



## jackson8

Beenjammin said:


> Id really appreciate it if someone can talk me out writing near OTM naked calls in Australia, using a conditional buy order on the underlying equity near the strike price to cover?
> 
> I know the warning is "unlimited risk" but how often do these shares gap up significantly  - ie <10 - 15%? Major gaps dont appear that likely, certainly I cant find any examples of extreme gaps of greater than 20% on optionable stocks (remember we're not talking small exploration or biotech startups that can explode up on a new discovery here - these are comparitively lower-beta, highly liquid stocks- CBA, NCM, RIO, AIO, BXB, HVN, FGL, TAH etc etc).....or am I just being blind?
> 
> What are the other dangers?
> 
> C'mon, scare the pants off me!





in the event of a takeover your conditional order will not save your butt

under present market conditions who knows what could eventuate

have you thought of selling calls over an index


----------



## Beenjammin

Thanks Jack,

True on the takeover risk, good food for thought, Ill have to consider covering by buying a much higher OTM call just in case.....

Looked at writing indexes but the price seems fairly low compared to some of the equities based calls, however I suppose the tradeoff is the gap risk is minimised (......or is it????). Im fairly ignorant on trading index options - any gotchas to look out for writing these? also,I know about the ASX traded options (XJO, XFJ etc) but dont know much about the SFE series - XDH9, XOH9, YDH9 etc. What are they based on? Is there a thread on this stuff I should read, keeping in mind I wanna write as opposed to buy? 
Thanks,
B.


----------



## jackson8

Beenjammin said:


> Thanks Jack,
> 
> True on the takeover risk, good food for thought, Ill have to consider covering by buying a much higher OTM call just in case.....
> 
> Looked at writing indexes but the price seems fairly low compared to some of the equities based calls, however I suppose the tradeoff is the gap risk is minimised (......or is it????). Im fairly ignorant on trading index options - any gotchas to look out for writing these? also,I know about the ASX traded options (XJO, XFJ etc) but dont know much about the SFE series - XDH9, XOH9, YDH9 etc. What are they based on? Is there a thread on this stuff I should read, keeping in mind I wanna write as opposed to buy?
> Thanks,
> B.




by purchasing a higher call will provide a certain amount of insurance by which a defined loss can be calculated and also it will reduce your margin requirements as they can be quite high with naked calls 

what strategy are you going to use to choose your strikes is it based on technical analysis or fundamentals

myself am only familiar with xjo index cant help you on the others

this is one of many links to more threads on options

https://www.aussiestockforums.com/forums/showthread.php?t=1366&page=13


----------



## Beenjammin

Thanks Jack,

Ill use TA - IMHO fundamentals tell you is if the stock is over or under valued compared to its book and forecasts (and we know how reliable those can be, so I'd use them for longer term investment decisions. TA can show if the stock is over or under sold based on price and volume (which reflects the attitude of the market) and can indicate the liklihood of it behaving in a certain manner in a given timeframe, so its better suited to dealing with options with a lifespan of a few months or weeks. 

Any reason you ask? I'm keen to hear different points of view....

Thanks for the link.

Cheers
B.


----------



## cutz

Beenjammin said:


> Id really appreciate it if someone can talk me out writing near OTM naked calls in Australia, using a conditional buy order on the underlying equity near the strike price to cover?
> 
> I know the warning is "unlimited risk" but how often do these shares gap up significantly  - ie <10 - 15%? Major gaps dont appear that likely, certainly I cant find any examples of extreme gaps of greater than 20% on optionable stocks (remember we're not talking small exploration or biotech startups that can explode up on a new discovery here - these are comparitively lower-beta, highly liquid stocks- CBA, NCM, RIO, AIO, BXB, HVN, FGL, TAH etc etc).....or am I just being blind?
> 
> What are the other dangers?
> 
> C'mon, scare the pants off me!




Hi 

A good example of a decent gap up on an optionable stock would be on MQG 19Sep08, I’m not sure how naked calls would have been handled in this situation, I personally had naked puts on so this gap up helped me out and taught me a valuable lesson.

Setting up a conditional order to buy the stock may not help you out as the stock may drop away below your strike prior expiry so you’ll end up holding a stock you may not have wanted to own.  Personally I prefer naked calls on the index, (these days i tend to stick with credit spreads) although at the moment I feel the upside risk could be tremendous.


----------



## cutz

Beenjammin said:


> but dont know much about the SFE series - XDH9, XOH9, YDH9 etc. What are they based on? Is there a thread on this stuff I should read, keeping in mind I wanna write as opposed to buy?
> Thanks,
> B.





Hi Again,

A list of SFE codes is available via the webiress  help menu/database codes, an example would be APH9 which is SPI/Mar09. I’m not sure about trading the SPI options, quotes never seem to appear on my platform so I tend to stick with XJO options. BTW SPI options have a point value of $25 as opposed to $10 on the XJO options also liquidity on SPI options seem non existent, XJO options are OK.


----------



## Beenjammin

cutz said:


> Hi
> 
> A good example of a decent gap up on an optionable stock would be on MQG 19Sep08, I’m not sure how naked calls would have been handled in this situation, I personally had naked puts on so this gap up helped me out and taught me a valuable lesson.
> 
> Setting up a conditional order to buy the stock may not help you out as the stock may drop away below your strike prior expiry so you’ll end up holding a stock you may not have wanted to own.  Personally I prefer naked calls on the index, (these days i tend to stick with credit spreads) although at the moment I feel the upside risk could be tremendous.




Thanks Cutz - $7 gap = 25% 18Sept 08 - yeah, that looks nasty allright.

This kind of strategy would obviously have to really minimise exposure to the more volatile stocks like MQG- its sounding like Id need many many millions in risk spread over dozens of equities for fairly low returns to avoid getting wiped out. 

With the calls - excuse the question, but can't you only ever write a naked put? How would you cover (unless you short the underlying equity at the time you write?)

What kind of time frames are you writing Puts over at the moment?


----------



## cutz

Hi Beenjammin,

Sorry i didn't totally understand your question on covering naked puts, naked puts are naked so there's no cover.


----------



## jackson8

Beenjammin said:


> Thanks Cutz - $7 gap = 25% 18Sept 08 - yeah, that looks nasty allright.
> 
> This kind of strategy would obviously have to really minimise exposure to the more volatile stocks like MQG- its sounding like Id need many many millions in risk spread over dozens of equities for fairly low returns to avoid getting wiped out.
> 
> With the calls - excuse the question, but can't you only ever write a naked put? How would you cover (unless you short the underlying equity at the time you write?)
> 
> What kind of time frames are you writing Puts over at the moment?





as a general rule writers will choose a shorter time frame  30-45 days  maybe even less depending on their outlook of the underlying hoping for smaller movements

buyers general opt for longer time frames to allow for larger movements


----------



## Beenjammin

cutz said:


> Hi Beenjammin,
> 
> Sorry i didn't totally understand your question on covering naked puts, naked puts are naked so there's no cover.




Sorry Cutz, I was asking is there a way to cover a sold put, I thought they were all naked by nature and am interested if there is actually a way to cover.


----------



## jackson8

Beenjammin said:


> Sorry Cutz, I was asking is there a way to cover a sold put, I thought they were all naked by nature and am interested if there is actually a way to cover.




if you short the stock the sold put would be covered but the risk is the same as having a covered write in that covered write bought stock could go to $0

covered put the short stock could rise dramatically 

same risk reward payoff between the two 

depends on your veiw of the market which one you wish to use

thats where other stragetys come into play to limit the risk re: spreads

higher the reward = higher the risk

there is no quick fix to make huge returns.......


----------



## sails

Beenjammin said:


> Sorry Cutz, I was asking is there a way to cover a sold put, I thought they were all naked by nature and am interested if there is actually a way to cover.




Short options can also be covered with long options.  If you have a short put, you can buy a long put further OTM, creating a credit spread.  It reduces your returns, but acts as a safety net by putting a ceiling on potential losses should the market fall heavily during the life of your short put.  Calendar spreads are also useful, but not generally advisable if there is a risk of IV levels falling.



jackson8 said:


> as a general rule writers will choose a shorter time frame  30-45 days  maybe even less depending on their outlook of the underlying hoping for smaller movements
> 
> buyers general opt for longer time frames to allow for larger movements




IHMO, not necessarily so.  It really is a balancing act between IV and gamma which helps to determine the positioning of both shorts and longs.


----------



## Grinder

continuing on from sails post... & if your shorts are far enough OTM, the negative gamma & vega from long dated ops can end up being a better trade off even with the minimal theta.


----------



## cutz

Beenjammin said:


> With the calls - excuse the question, but can't you only ever write a naked put? How would you cover (unless you short the underlying equity at the time you write?)




G’Day,

I think I’ve got what you’re on about; I guess you’re suggesting covering a short put with a short underlying so you end up with a synthetic short call, you’ve got downside protection but massive upside risk.

Personally I prefer to protect short puts just as Sails suggested, setting up a credit spread when the conditions are right.

Check out this thread, https://www.aussiestockforums.com/forums/showthread.php?t=1366 ,its got some excellent contributions from WayneL , Sails and a few others who have good insight in the options biz.


----------



## jackson8

its been a bit quite on the option threads of late so thought i may try to get a few fingers to keyboard by asking the question

 ........what is your favorite option strategy or to put it another way which strategy has produced the most success for you of late ?

.........this is probably aimed at the option newbies such as myself so i will answer my own question first

i have been selling otm puts on a few of the lower price stocks   lgl....osh....sto  

my time frame is monthly but if the Sp makes a big move in a short time frame  eg 7days and if it shows a 50% return i will buy them back and then look at something else which i think is approaching the bottom of a trading channel , otherwise just hold them till expiry.

have sold a few which are a few months out but find it frustrating with such long time frames 

i have not been assigned yet as i tend to sell way otm puts although that could change this month as have sold some atm puts on one of the above

occasionally i have sold a few credit spreads but find that the extra i have paid for insurance could have been better kept in the bank 

any feedback would be appreciated as this forum is basically my only contact with others who share my interest in the markets

Gary


----------



## cutz

Hi Gary,

In a nutshell I mainly put on XJO credit spreads/iron condors, no more than 4 to 6 weeks out, sometimes trading in and out of the short positions. I’ve had a crack at the US market with SPY options but ironically I’m finding the ultra high liquidity/fast movements and 100 lot contracts hard to get used to, also being up late is a bit of a drag.

My other scheme is writing calls against my long term stock holdings doing whatever it takes to keep assignment at bay.


----------



## jackson8

cutz said:


> Hi Gary,
> 
> In a nutshell I mainly put on XJO credit spreads/iron condors, no more than 4 to 6 weeks out, sometimes trading in and out of the short positions. I’ve had a crack at the US market with SPY options but ironically I’m finding the ultra high liquidity/fast movements and 100 lot contracts hard to get used to, also being up late is a bit of a drag.
> 
> My other scheme is writing calls against my long term stock holdings doing whatever it takes to keep assignment at bay.




hi cutz 
thanks for the reply
i have had bit of a play around with xjo as well with limited success , i find that when looking at more than a month out the otm strikes dont seem to carry a lot of premium plus the mms only seem to quote two or three strikes out 

 i also like the fact that with the stock ops that if the trade does go against me i can take delivery in the case of a put and then sell calls over or if a sold call strike is threatened i can buy the stock to cover it 

am in process of learning how to defend positions which may be threatened before i  get too involved with index ops
as i think that in the long term index options may be the way to go.

although  a day like today with a 100 point rise may have put the wind up  me .  i gather thats where knowing the stragetys to defend the position come into play

gary


----------



## mazzatelli1000

Wow, ASF has had some cool discussions --- I like the clash of the titans on the SPI trading thread.

BTW haven't seen any WayneL activity ..... sleeping in his coffin?? :batman:
Im not up to speed on this forum!!



jackson8 said:


> my time frame is monthly but if the Sp makes a big move in a short time frame eg 7days and if it shows a 50% return i will buy them back and then look at something else which i think is approaching the bottom of a trading channel , otherwise just hold them till expiry.




I like your approach, with regards to profit taking 

RE: holding til expiration
Try this - ask yourself "Would I sell this put/call/spread at today's prices?"
If the answer is no, maybe it is time to close out and look to short something else for beefier premium
Not to mention evil negative gamma overpowering theta during the run up to expiration

If I remember right, you're with Commsec and the commissions hurt
I hope that doesn't deter you from closing out positions and taking profits/minimizing losses

Because to date I haven't heard/seen traders going out of business due to commissions....

Also, from past experience I have had short options come back from the dead on expiration day --- should have closed out the spread/short option ---not happy Jan



jackson8 said:


> occasionally i have sold a few credit spreads but find that the extra i have paid for insurance could have been better kept in the bank




Personally I like to sleep at night, Ill take the insurance
IMO Like any other business, there can be unforseen circumstances that occur despite all the precautions you take

Why not put on a larger size of credit spreads?

Is it because you are worried about the short strike getting ITM & being assigned?
I ask because when I was newish (not implying you don't know anything) I used to do the calcs
E.g. CBA = $30, 10 contracts would mean 10,000 shares - so total to cover is $300,000  ---- F**K ME!!! 

That shouldn't be a worry, if you understand about early exercise and adjusting 



jackson8 said:


> have sold a few which are a few months out but find it frustrating with such long time frames




May I ask the reasoning behind selling further out?
Is it just to obtain more premium?

There was a thread started by WayneL about how he would analyse an index write. 
Would look at historically how much the underlying moved for a particluar period of time e.g. X% in Y number of days and then select strikes according


----------



## mazzatelli1000

jackson8 said:


> i also like the fact that with the stock ops that if the trade does go against me i can take delivery in the case of a put and then sell calls over or if a sold call strike is threatened i can buy the stock to cover it




In the case of the short put - what if the stock continues to drop after you have been assigned???


----------



## mazzatelli1000

cutz said:


> Hi Gary,
> 
> In a nutshell I mainly put on XJO credit spreads/iron condors, no more than 4 to 6 weeks out, sometimes trading in and out of the short positions. I’ve had a crack at the US market with SPY options but ironically I’m finding the ultra high liquidity/fast movements and 100 lot contracts hard to get used to, also being up late is a bit of a drag.




I recommend having some red bull and vodka to keep up with it all


----------



## Grinder

nice discussion starter

_Breads & Cereals:_ Traditional style IC on the XJO, approx 2-4mths out legging in via credit spreads, closing out before gamma takes effect. Never holding anywhere near expiry

_Veggies & Fruit_ (The occational bias): As above but with ratioed wings either bullish/bearish skewed to one side, might even morph into a DD or calander if feeling overly healthy 

_Meat & Milk_ (Running scared): heavier wings on IC, pre-dominantly put side or an ATM put/call as a catastrophe stopper  

_Fats & sweets_ (Feely naughty): Load up on WTFOTM puts (lottery tics)


----------



## cutz

cutz said:


> Hi Gary,
> 
> In a nutshell I mainly put on XJO credit spreads/iron condors, no more than 4 to 6 weeks out, sometimes trading in and out of the short positions. I’ve had a crack at the US market with SPY options but ironically I’m finding the ultra high liquidity/fast movements and 100 lot contracts hard to get used to, also being up late is a bit of a drag.
> 
> My other scheme is writing calls against my long term stock holdings doing whatever it takes to keep assignment at bay.




Forgot to mention, I removed some profits off the table with CSL stock last year so since then I’ve been writing naked puts on that underlying when the timing/stock price is appropriate. I’m also comfortable with ANZ bank naked puts ATM. I tend to use simple TA to determine my strikes i.e.(MACD/support&resistance) along with simple probability calculations.


----------



## mazzatelli1000

nice discussion starter


Grinder said:


> _Breads & Cereals:_ Traditional style IC on the XJO, approx 2-4mths out legging in via credit spreads, closing out before gamma takes effect. Never holding anywhere near expiry




Agree
Like to diversify delta - and have bearish, bullish and sideways stuff on
Especially since late last year, the sideways stuff was difficult to manage

Sometimes have put on 1-2 week straddles on stocks that frequently exhibit fat tails, but IV has been too high for the liking of late.



Grinder said:


> _Veggies & Fruit_ (The occational bias): As above but with ratioed wings either bullish/bearish skewed to one side, might even morph into a DD or calander if feeling overly healthy




ooooo....
risk taker --- "big swingin dick"

Will add skip-strike flies to this - sometimes initiated as a skip strike fly or adjusted into this position



Grinder said:


> _Meat & Milk_ (Running scared): heavier wings on IC, pre-dominantly put side or an ATM put/call as a catastrophe stopper




Slingshots!!
Batman Spreads!!

I might regard this as bread and cereal in way, as tend to add extra long strikes in for added insurance

Will depend on technical and statistical analysis

BTW I thought Dairy products were a separate food group



Grinder said:


> _Fats & sweets_ (Feely naughty): Load up on WTFOTM puts (lottery tics)




Prefer cheap straddles or left over long hedges from wingspreads or Diagonals after components to take money off the table


----------



## mazzatelli1000

cutz said:


> Forgot to mention, I removed some profits off the table with CSL stock last year so since then I’ve been writing naked puts on that underlying when the timing/stock price is appropriate. I’m also comfortable with ANZ bank naked puts ATM. I tend to use simple TA to determine my strikes i.e.(MACD/support&resistance) along with simple probability calculations.




Question/Clarification

What does previous profits have to do with writing naked puts now?

Back for my cousins wedding so gonna raise hell on option threads for the weekend


----------



## cutz

mazzatelli1000 said:


> Question/Clarification
> 
> What does previous profits have to do with writing naked puts now?
> 
> Back for my cousins wedding so gonna raise hell on option threads for the weekend




Hi Mazza,

Last year I needed to get my level of gearing down to sleeping level, CSL at the time looked like it was topping out at around the $40 level, so I sold a portion of my holding freeing up cash, as I was selling calls against CSL , cashing in and selling puts and calls seemed the obvious choice. 

I pretty much still wanted to stay fully married to the stock whilst freeing up cash, 30/32 seems to be a reasonable strike for puts obviously higher for calls.


----------



## jackson8

mazzatelli1000 said:


> I like your approach, with regards to profit taking
> 
> RE: holding til expiration
> Try this - ask yourself "Would I sell this put/call/spread at today's prices?"
> If the answer is no, maybe it is time to close out and look to short something else for beefier premium
> 
> '''''''looking back over  my trades have closed out 90% before exp . then sit back and wait for another opportunity elsewhere'''''''''''''
> 
> If I remember right, you're with Commsec and the commissions hurt
> I hope that doesn't deter you from closing out positions and taking profits/minimizing losses
> 
> ''''''''''''commissions are high especially when i am only dealing in 2-3 contracts at a time'''''''''''
> 
> 
> Personally I like to sleep at night, Ill take the insurance
> IMO Like any other business, there can be unforeseen circumstances that occur despite all the precautions you take
> 
> ''''''' better to be safe than sorry i suppose''''''''''''
> 
> Why not put on a larger size of credit spreads?
> 
> Is it because you are worried about the short strike getting ITM & being assigned?
> I ask because when I was newish (not implying you don't know anything) I used to do the calcs
> E.g. CBA = $30, 10 contracts would mean 10,000 shares - so total to cover is $300,000  ---- F**K ME!!!
> 
> That shouldn't be a worry, if you understand about early exercise and adjusting
> 
> '''''''''''ahha the adjusting.......thats what i am trying to learn about now have been waiting on some of Wayne's posts but they have not been forthcoming'''''''''''''
> 
> May I ask the reasoning behind selling further out?
> Is it just to obtain more premium?
> 
> '''''''''''thats right but i have now changed my plan of attack and only sell month out or less''''''''''''
> 
> There was a thread started by WayneL about how he would analyze an index write.
> 
> ''''''''''again have been studying index writes and occasionally dip my toes in ''''''''''
> 
> 
> it is good to hear back from you all on this thread ,  have only been trading options for a few months now, basically self taught which i believe is the best way to go and i try to read up as much as i can.
> 
> regards Gary


----------



## Grinder

mazzatelli1000 said:


> Agree
> Like to diversify delta - and have bearish, bullish and sideways stuff on
> Especially since late last year, the sideways stuff was difficult to manage




tell me about it!



mazzatelli1000 said:


> Sometimes have put on 1-2 week straddles on stocks that frequently exhibit fat tails, but IV has been too high for the liking of late




much better now for that play.



mazzatelli1000 said:


> ooooo....
> risk taker --- "big swingin dick"
> 
> Will add skip-strike flies to this - sometimes initiated as a skip strike fly or adjusted into this position




haven't liked the DD of late, the ratio puts served me well to reduce risk instead. 



mazzatelli1000 said:


> Slingshots!!
> Batman Spreads!!




Finding the slingys alittle costly, tried setting one up as  a reverse sling to the downside but the numbers did'nt add up.



mazzatelli1000 said:


> I might regard this as bread and cereal in way, as tend to add extra long strikes in for added insurance




Yep, it's been a B&B over last the few months



mazzatelli1000 said:


> Will depend on technical and statistical analysis
> 
> BTW I thought Dairy products were a separate food group




yeah, but their positioning is the same.



mazzatelli1000 said:


> Prefer cheap straddles or left over long hedges from wingspreads or Diagonals after components to take money off the table




Like your thinking.


----------



## Grinder

Jackson,

Self taught also, the adjustment stuff will come over time the more you play around with modeling tools, excell, payoffs.. whatever you use. The more you play with different scenarios the better you'll get at managing the adjustments.


----------



## mazzatelli1000

cutz said:


> Hi Mazza,
> 
> Last year I needed to get my level of gearing down to sleeping level, CSL at the time looked like it was topping out at around the $40 level, so I sold a portion of my holding freeing up cash, as I was selling calls against CSL , cashing in and selling puts and calls seemed the obvious choice.
> 
> I pretty much still wanted to stay fully married to the stock whilst freeing up cash, 30/32 seems to be a reasonable strike for puts obviously higher for calls.




Good work!!!
I was just going to point out that past profits shouldn't allow you to get reckless with current trades
But you have your stuff in control

Looking good!!


----------



## sails

mazzatelli1000 said:


> Wow, ASF has had some cool discussions --- I like the clash of the titans on the SPI trading thread.
> 
> BTW haven't seen any WayneL activity ..... sleeping in his coffin?? :batman:
> Im not up to speed on this forum!!...




Good to see you back, Mazza!  Are you back from o/seas yet?
EDIT: just saw your earlier post that you're back for a wedding ...

Yes, Wayne seems to have disappeared again.  Think I remember reading a post about him moving - could explain the current silence.  Hopefully he will be back...


----------



## mazzatelli1000

jackson8 said:


> ''''''' better to be safe than sorry i suppose''''''''''''



I guess you won't be scared sh!tless, until the black swan hits you
I've seen plenty of new option traders cop the hit on naked puts (after learning about it from wealth gurus)
It is not a pretty sight

And they all quoted that buying insurance costs too much
Trader's choice



jackson8 said:


> '''''''''''ahha the adjusting.......thats what i am trying to learn about now have been waiting on some of Wayne's posts but they have not been forthcoming'''''''''''''




I think Wayne and Magaret have posted plenty on this!!!
If i recall Wayne detailed transforming the naked option to a ratio spread as one of the possible adjustments

Like Grinder says, there is no specific magic bullet adjustment
The adjustment is so that the new position matches your outlook 

There are some spruikers who advocate rolling away the strikes as the magic defense 

Sometimes adjustments aren't favourable due to the pricing in the market --- e.g. Grinders experience with the reverse slingshot

Maybe throw up a scenario real time and I am sure there will be suggestions


----------



## mazzatelli1000

sails said:


> Good to see you back, Mazza!  Are you back from o/seas yet?
> EDIT: just saw your earlier post that you're back for a wedding ...
> 
> Yes, Wayne seems to have disappeared again.  Think I remember reading a post about him moving - could explain the current silence.  Hopefully he will be back...




Thanks M

Truth is I missed you guys too much 
hehe


----------



## cutz

jackson8 said:


> mazzatelli1000 said:
> 
> 
> 
> '''''''''''ahha the adjusting.......thats what i am trying to learn about now have been waiting on some of Wayne's posts but they have not been forthcoming'''''''''''''
> regards Gary
> 
> 
> 
> 
> 
> Hi Gary,
> 
> Have a play with Hoadleys, and have a look how position delta and payoff changes as you buy/sell units in the underlying, may be a bit of an eye opener.
> 
> Edit>> Sorry Mazza, i meant to quote Gary.
Click to expand...


----------



## cutz

Hi guys I’ve been following this conversation but I need help with the lingo,




mazzatelli1000 said:


> risk taker --- "big swingin dick"
> 
> Will add skip-strike flies to this - sometimes initiated as a skip strike fly or adjusted into this position






mazzatelli1000 said:


> Slingshots!!
> Batman Spreads!!





Skip flies, batman spread, slingshots. Sounds interesting but what type of spreads are we talking about here, i couldn't find them in my Bible of Option Strategies. .


----------



## sails

cutz said:


> Hi guys I’ve been following this conversation but I need help with the lingo,
> 
> Skip flies, batman spread, slingshots. Sounds interesting but what type of spreads are we talking about here, i couldn't find them in my Bible of Option Strategies. .




Cutz, have you read Cottles book yet?  I don't think it is beginners or bedtime reading, but you would probably find it very helpful at this stage and give better understanding to the strategies you mention.  Here is a link to his site: http://www.riskdoctor.com/books.htm.  I believe it can only be ordered from his site and a downloadable PDF is available making it quicker and cheaper with the AUDUSD so low at present.  He makes chapter one available free if you scroll down to the bottom of the page so check it out to see if you think it is for you. 

Have put my understanding of these strategies quickly below:

Skipflies:  I'm guessing this is aka BWBs (broken wing butterflies).  If so, it is a normal butterfly, but with one of the wings moved further OTM.
eg call bwb
+1 @ $11
-2 @ $9
+1 @ $8

Batman spread: Combination of a Call BWB and Put BWB giving a wider profitable area similar to a condor.

Slingshot:  butterfly with extra wings.  eg 
+2 @ $10 strike  
-2 @ $9
+1 @ $8

Biggest downside is fees with so many contracts to one position!

Hope this helps!


----------



## jackson8

mazzatelli1000 said:


> Why not put on a larger size of credit spreads?
> 
> Is it because you are worried about the short strike getting ITM & being assigned?
> I ask because when I was newish (not implying you don't know anything) I used to do the calcs
> E.g. CBA = $30, 10 contracts would mean 10,000 shares - so total to cover is $300,000  ---- F**K ME!!!
> 
> That shouldn't be a worry, if you understand about early exercise and adjusting





hi mazzatelli
yes that is a concern with a higher no. of contracts

lets just say i take out a call credit spread  sell otm buy fotm even no. on a stock such as bhp . its trading at $30 say 10 contracts , my total risk between $1 strikes is $1000 less premium received put  me at defined loss of around $7000 overall. so i can accept that

but if am excercised i will be up for $310000 + purchase now thats going to cost me another $1000 in fees and if i need to excercise my bought calls there is another $1000 based on comsec .35 % excercise fee  (rough calculations here just for example purposes only)

would this be correct ? as i have been lucky enough not to have been assigned nor excercised on any of my past positions i have yet to experience this fate.

i realise that if i am still in the game in another 6 months these questions will appear quite stupid as i look back on my early posts when i first started out i think well what a dumb a.....s i was back then.

gary


----------



## mazzatelli1000

sails said:


> Skipflies:  I'm guessing this is aka BWBs (broken wing butterflies).  If so, it is a normal butterfly, but with one of the wings moved further OTM.
> eg call bwb
> +1 @ $11
> -2 @ $9
> +1 @ $8



Just a point of clarification
Yeah these Americans keep interchanging these terms - getting people confused
The BWB is aka Ratioed verticals and Unbalanced Butterflies

The skip strike fly is different in that the amount of risk is the same on both sides despite one side being wider than the other
More like this:
+1 @ $11
-3 @ $9
+2 @ $8


----------



## mazzatelli1000

jackson8 said:


> hi mazzatelli
> yes that is a concern with a higher no. of contracts
> 
> lets just say i take out a call credit spread  sell otm buy fotm even no. on a stock such as bhp . its trading at $30 say 10 contracts , my total risk between $1 strikes is $1000 less premium received put  me at defined loss of around $7000 overall. so i can accept that
> 
> but if am excercised i will be up for $310000 + purchase now thats going to cost me another $1000 in fees and if i need to excercise my bought calls there is another $1000 based on comsec .35 % excercise fee  (rough calculations here just for example purposes only)
> 
> would this be correct ? as i have been lucky enough not to have been assigned nor excercised on any of my past positions i have yet to experience this fate.
> 
> i realise that if i am still in the game in another 6 months these questions will appear quite stupid as i look back on my early posts when i first started out i think well what a dumb a.....s i was back then.
> 
> gary




Hey Gary, you're not dumb at all!!!
LOL - but if you insist 

I raised that question coz when I was fairly new I used to think that too.
These days I sometimes put on plays on GOOG - which is a $300 + stock. But if you understand early exercise and time value nuances you wont get assigned. 

sails has gone through dealing with spreads on expiration in this thread so have a read:
https://www.aussiestockforums.com/forums/showthread.php?t=11825&highlight=assignment

I recommend you understand about why early exercise would happen and read up on that- to avoid those situations - its in the above link.

I know with IB the exercise fees are nil so there are options to box off ITM spreads etc - but I dunno how well that would work with Oz options


----------



## cutz

sails said:


> Cutz, have you read Cottles book yet?
> 
> Have put my understanding of these strategies quickly below:
> 
> Skipflies:  I'm guessing this is aka BWBs (broken wing butterflies).  If so, it is a normal butterfly, but with one of the wings moved further OTM.
> eg call bwb
> +1 @ $11
> -2 @ $9
> +1 @ $8
> 
> Batman spread: Combination of a Call BWB and Put BWB giving a wider profitable area similar to a condor.
> 
> Slingshot:  butterfly with extra wings.  eg
> +2 @ $10 strike
> -2 @ $9
> +1 @ $8
> 
> Biggest downside is fees with so many contracts to one position!
> 
> Hope this helps!




Thanks for the info Sails,

Yep I did download and read the condensed sampler some time ago, (pretty heavy going even in its reduced form) and although i may never put on many of the strategies described I may have to bite the bullet and get hold of the hardcopy.


----------



## Grinder

Yep. the fees are'nt great, especially when your making adjustments for a few cons here & there, but you can make it work. If your putting on say 20cons or more per leg & your using a flat fee per leg you can redue the commish a fair bit (all depends on your broker)

Jackson, 

You might like the XJO (Euro style-cash settled) & ACH 39c pc... makes a difference.


----------



## sails

cutz said:


> Thanks for the info Sails,
> 
> Yep I did download and read the condensed sampler some time ago, (pretty heavy going even in its reduced form) and although i may never put on many of the strategies described I may have to bite the bullet and get hold of the hardcopy.




I found Cottle's work helpful in grasping the principles of synthetics.  IMO, it's helpful to understand why a covered call has similar dollar risks to naked puts (using same strikes, month, etc).  It somehow puts the strategies into better perspective.  

During the very steep learning stages, I would deliberately convert strategies and adjustments into as many synthetic alternatives as I could find to help understand better where risks were lurking and to increase general fluency and thought processes in options.

Also, note that Mazza has corrected my skip fly interpretation which I have requoted below:



mazzatelli1000 said:


> ...
> +1 @ $11
> -3 @ $9
> +2 @ $8




The BWB example I gave is also a strategy in it's own right and usually best applied when IV is high (Probably depends on positioning though).  There not only many strategies, but plenty of variations of them as well!


----------



## jackson8

hi all

eight years ago i bought about $3000 worth otm  calls on nab expiring within 20 days . my first options trade .......i had no idea what i was doing and also back then it was all done over the phone so did not have the efficiency of on line trading..nab dropped and i ended losing the lot......a good learning experience even though a costly one

i continuously see the hype "90% of options expire worthless " a good plug to become a seller rather than a buyer

the point i am getting to is .....who is making the money ?lets leave the mms out of the equation and center wholly on retail traders.

 is it  the person who once a month places a trade and then looks in his account at the end of the month to see whether he has won or lost  or people like yourselves who have the time and inclination to put more effort and time into there trades?

are any of you in a position to actually make a full time living solely from option trading or have access at work to follow their trades at the same time.

the reason i ask is recently i have had to relinquish  my normal type of work as a trades person due to injury. wanting to at least make a bit of extra cash on the side to keep the wolf from the door i have been doing the usual sale of credit spreads and naked puts , but only in small quantities and so far have successfully pocketed a bit of extra $.

i have always had an interest in the stock market since i received my amp shares from the demu...and i veiw it as a hobby (especially when i want to justify  my losses)

 but my impression is that my minor success is only due to my diligent watching over my positions as i am home all day and have the available time to do so.

but i feel sometimes that eventually the odds are still against me as lets face it a huge majority lose money both in shares and op trades. even these high profile paid trading firms have had their rouge traders who i sure were good at what they did but eventually the market ended up being their enemy.

any thoughts?
Gary


----------



## sails

Hi Gary - have put my thoughts below, but I think trading is a very individual thing.  Hopefully others will respond as well to give you different insights.



jackson8 said:


> hi all
> 
> eight years ago i bought about $3000 worth otm  calls on nab expiring within 20 days . my first options trade .......i had no idea what i was doing and also back then it was all done over the phone so did not have the efficiency of on line trading..nab dropped and i ended losing the lot......a good learning experience even though a costly one




I sometimes buy OTM front month options *occasionally IF* I think there is a good possibility of a strong, fast move.  Long gamma works wonders in these conditions. Positioning of the strikes is important - they need to be cheap and as close as possible.  I prefer call spreads for the upside and straight long puts for the downside.  However, my rule of thumb on these occasional trades is to risk no more than about *.*5% of capital as these are high risk with little time.  But when they work, they work very well with large reward.  One can afford to lose a few of these trades and still come out in front.  But then sometimes things that work for one may not work so well for another - so, if interested, please test it thoroughly for yourself first.

If wrong on straight long calls, I have sometimes sold the offending call twice and then bought another in the next month provided it can be done for a small credit or a small outlay.  This creates a short term OTM calendar which gives more time for the market to bounce back a bit.  But again, the debit on the initial purchase of calls must be small because there is a risk of losing the lot.  Anyway, just some ideas...



> i continuously see the hype "90% of options expire worthless " a good plug to become a seller rather than a buyer
> 
> the point i am getting to is .....who is making the money ?lets leave the mms out of the equation and center wholly on retail traders.
> 
> is it  the person who once a month places a trade and then looks in his account at the end of the month to see whether he has won or lost  or people like yourselves who have the time and inclination to put more effort and time into there trades?




Yeah, this is often debated.  Have read some thoughts from a retired US MM.  His views are that it makes no difference whether you are long or short if you just plan to set and forget.  However, good management is what makes the difference.

Generally, the OTM writer will gain for several months but then lose the lot (and sometimes more) in a bad month. Not saying OTM writing is wrong, but I believe it does need good management because the gamma that is so good for the buyer is so destructive for the writer.



> are any of you in a position to actually make a full time living solely from option trading or have access at work to follow their trades at the same time.
> 
> the reason i ask is recently i have had to relinquish  my normal type of work as a trades person due to injury. wanting to at least make a bit of extra cash on the side to keep the wolf from the door i have been doing the usual sale of credit spreads and naked puts , but only in small quantities and so far have successfully pocketed a bit of extra $.
> 
> i have always had an interest in the stock market since i received my amp shares from the demu...and i veiw it as a hobby (especially when i want to justify  my losses)
> 
> but my impression is that my minor success is only due to my diligent watching over my positions as i am home all day and have the available time to do so..
> 
> 
> but i feel sometimes that eventually the odds are still against me as lets face it a huge majority lose money both in shares and op trades. even these high profile paid trading firms have had their rouge traders who i sure were good at what they did but eventually the market ended up being their enemy.
> 
> any thoughts?
> Gary




Really sorry to hear about your injury and wish you a speedy recovery.  It sounds like you are doing OK to pocket a bit from your trading.  My own experience shows that trading is better when I can monitor closely.  Probably not everyone's, but it's what works more often than not for me.

At this stage, I don't have to provide bread and butter.  And I have had huge interruptions in my trading for the last 18 months (have mentioned this in other threads), so my option trading has been limited for a while now.  It's one of the reasons I have re-opened the IB account to keep my hand in with small quantities and keep the risk low in case I can't monitor it properly.  

If I had to do options trading for bread and butter, I would only consider it with US options.  I am not comfortable doing decent size here in this very small, often illiquid Oz options market.  In the US, it's easier to get lost in the crowd, and so much easier to get fills on spreads.  Data is usually free (not like out here where you get slugged ASX fees for every data feed as well as the $1.12 per contract fees on top of brokerage).  The US is a much bigger pond - still has sharks but there are lot more fish of all sizes so you don't feel like you are the sitting duck!

Not long ago I had a small spread on an Aussie stock.  I ticked the price to below the mid price (I was buying).  No-one was interested.  It got to the stage where it was insane to go any lower.  It was an entry order so I canceled it.  You wouldn't want to rely on that sort of execution if trading for a living.  Again - just my 

However, the time will come when I will need to provide the bread and butter.  As I don't like the night shift, I am currently looking at scalping a bit on the SPI again.  If that works out OK, I would rather do that through the day for and then do occasional option trades as opportunities arise IF I can get fair prices. 

Not sure this is much help - but perhaps some food for thought


----------



## Grinder

jackson8 said:


> hi all
> 
> are any of you in a position to actually make a full time living solely from option trading or have access at work to follow their trades at the same time.




Many have posed simmilar type questions before and I'm sure your've heard many varied answers. I've also wrestled with a simmilar quandary in the past but have come to the conclusion that I don't care anymore with what others may or may not be making. I trade becuase I love it, also enjoy my day job so I would'nt wish to give it up just yet. That being said, do have thoughts on going F/T trading, but fortunately have one of those jobs with alot of spare time on my hands so have the luxury of being able to spend the majority of my day trading. If your asking 'do you make enough to live off soley?', my reply would be what is deemed enough for one person might not be enough for another to live off. For myself, enough is when I can comfortably replace my income with my trading without a doubt in my mind. I'm close to it but not there yet. At the moment it's a nice supplement, but that's all it is. I don't have the pressure of having to produce a certain amount each month. I think if I did, it may effect my trading and more importantly my life. It's not about the money for me, it's a lifestyle choice. 




jackson8 said:


> but my impression is that my minor success is only due to my diligent watching over my positions as i am home all day and have the available time to do so




I find the opposite, if I'm watching too much I end up adjusting needlessly. The way I trade doe'snt warrant constant watching, instead just knowing the weak spots in my positions is usually enough. 



jackson8 said:


> but i feel sometimes that eventually the odds are still against me as lets face it a huge majority lose money both in shares and op trades. even these high profile paid trading firms have had their rouge traders who i sure were good at what they did but eventually the market ended up being their enemy.
> 
> any thoughts?
> Gary




You'll hear all kinds of statistics (horror stories) that willl tell you it doe'snt make sense to trade. It's up to you to make that decision, don't let someone else do it for you. Some advice would be to take it slowly, don't force it. You will know if it feels right to you or if it's a chore. See it as a fascinating ongoing journey of learning.

Hope this helps Jackson


----------



## jackson8

thanks guys for all your input

i ask some of these questions as i am thinking of maybe upping the anti as they say 

taking a few more positions after this months expiry or adding extra contracts into the trade

thereby taking on extra risk as well , so i need to make sure i understand the risks and how to lesson them as well as defend positions 

like i have previously stated I'm not trying to make a quick buck as i think that trend of thinking can incite one to take on too much risk . just would like to make consistent trades that prove a positive outcome.

risk and money management are hopefully a key to further success

Gary


----------



## mazzatelli1000

jackson8 said:


> i continuously see the hype "90% of options expire worthless " a good plug to become a seller rather than a buyer



Common plug with wealth spruikers. 

Short credit spreads, ideally both short and longs expire worthless. Long hedges often expire worthless, but overall position is profitable.

Certain stock price distributions wouldn't warrant shorting the options as pricing wouldn't adequately compensate one for the risk. Would stand a better chance buying options alone or in combination.

Better to think in terms of Greeks. Positive Theta positions.



jackson8 said:


> the point i am getting to is .....who is making the money ?lets leave the mms out of the equation and center wholly on retail traders.
> 
> is it  the person who once a month places a trade and then looks in his account at the end of the month to see whether he has won or lost  or people like yourselves who have the time and inclination to put more effort and time into there trades?
> 
> but my impression is that my minor success is only due to my diligent watching over my positions as i am home all day and have the available time to do so.




No matter how much potential a business has, poor management will still spoil the party. Common approach:

1) Identify risks and rank in priority.
2) Determine plans/actions to control/minimize significant risks. Not all risks can be addressed or worth the time - cost vs. benefit analysis
3) Perform post review of plans/actions taken and assess effectiveness and improvements.

Personally cannot watch all the time as I find myself reacting to intraday setups instead of focusing on the bigger picture.

Rest of time is spent forward testing current positions (real and simulated), seeking new opportunities and backtesting via replay software. 



jackson8 said:


> but i feel sometimes that eventually the odds are still against me as lets face it a huge majority lose money both in shares and op trades. even these high profile paid trading firms have had their rouge traders who i sure were good at what they did but eventually the market ended up being their enemy.
> 
> are any of you in a position to actually make a full time living solely from option trading or have access at work to follow their trades at the same time.




The doubt about whether money can be made.

Personal experience - fortunate that friend trades options for living (ex prop and MM firm in US).
Was able to see returns possible with own eyes and was MUCH better than being a thai kicker in a big company. So never had doubts about money potential, doubts lay in whether I had the talent to replicate those results.

Thing that will hold you back from F/T trading, is requiring a decent capital base to trade comfortably - minimum $150k - $200k+, ideally more.
I can live of my trading if lost my job, but it remains a supplement for now as I would like to build the warchest without spending the profits. 

Rogue Traders are called that for a reason - they don't follow trading plans and take on risks too big either for greed or out of pride/ego. 

You mentioned your thinking about upping the anti. From my own experience -having a capital allocation model e.g. only risk % of liquid net worth and % per trade keeps me in check from playing with too much fire.

I wish you the best of luck
Au Revior for a while 
:luigi:


----------



## jackson8

am interested in anyones thoughts on this play

OZL..
the general view is that if takeover goes thru then sp up to 82 if fails down to 0 no inbetweens

selling further month ( may,june ) out 80c puts and purchasing enough of a  lower level to cover losses if sp does drop to zero.

from rough calculations 50% of premiums recieved to buy lower protection to zero

drawbacks that i can see are risk of early excercise (having to outlay cash up front) and that finalisation of takeover would have to be confirmed before expiration of bought puts


any thoughts appreciated
gary


----------



## cutz

jackson8 said:


> i continuously see the hype "90% of options expire worthless " a good plug to become a seller rather than a buyer




Initially when I first started trading options I too thought this and I found myself telling the line to the few people I talk options with, I still cringe when I think back and in reality only a very few of my many trades have expired worthless, and of those most of those have been hedges, a few folk have pointed that out already.



jackson8 said:


> the point i am getting to is .....who is making the money ?lets leave the mms out of the equation and center wholly on retail traders.




I’ve often pondered that myself, I can only assume you have strategists who take the time to manage positions, then you have the market makers in between who are fully hedged taking a smidge from each trade, then on the other end there must be traders that put on the trades mainly on the long only side, riding the waves till expiry often losing, who knows.  I would be interested to know what the stats are. 




jackson8 said:


> but i feel sometimes that eventually the odds are still against me as lets face it a huge majority lose money both in shares and op trades. even these high profile paid trading firms have had their rouge traders who i sure were good at what they did but eventually the market ended up being their enemy.




I don't think the odds are stacked up against you, you seem to be putting in a lot of effort and as the old clique goes what you put in is what you get out. Having adequate margin also helps.
Bit like yourself when I first started option trading I had a bit of success I also made some mistakes with unwanted assignments, I got in the groove but for the first year I was a little paranoid thinking I was having a run of beginners luck and that one day I’m going to get creamed!!!,but I finally got over it. I’m nowhere near the level of technical ability that some of the option traders have around here but I’m learning a bit every day. I take enough from the market to satisfy my requirements tending not to go for the directional king hits but the steady neutral plays.

Hope i haven't bored you too much.

Catch you later.


----------



## cutz

jackson8 said:


> am interested in anyones thoughts on this play
> 
> OZL..
> the general view is that if takeover goes thru then sp up to 82 if fails down to 0 no inbetweens
> 
> selling further month ( may,june ) out 80c puts and purchasing enough of a  lower level to cover losses if sp does drop to zero.
> 
> from rough calculations 50% of premiums recieved to buy lower protection to zero
> 
> drawbacks that i can see are risk of early excercise (having to outlay cash up front) and that finalisation of takeover would have to be confirmed before expiration of bought puts
> 
> 
> any thoughts appreciated
> gary





Hi Gary, 

I don't know much about oz minerals but IMO a put credit spread in front of a big announcement sounds like a pretty risky strategy, especially for the return you may be getting (if you like maybe throw up prices on spreads and # of contracts). Generally long calls or even a long straddle is a safer play, at least if you get it wrong you will come out of it relatively unscathed.

Volatility on this one is running pretty high so I guess the market is expecting something.

As I said I don’t know anything about this stock, just commenting on the options play.


----------



## Grinder

Hey Jackson,

Would tread lightly on this one, it's a pretty crazy stock. Had some awhile back when it was Oxiana, a mates dad woked for em, so ofcourse he was salivating at the mouth as to how great they were... now look at em.

Anyways, back to the point of it. Anything can happen, so you have to be comfotable with the max loss on the credit spread. If your not, think about  what Cutz mentioned or if your keen on the put spread you could always consider a backspread for a credit to hedge alittle. If your bullish you'll keep your credit & if your bearish your in the money.


----------



## jackson8

Grinder said:


> Hey Jackson,
> 
> Would tread lightly on this one, it's a pretty crazy stock. Had some awhile back when it was Oxiana, a mates dad woked for em, so ofcourse he was salivating at the mouth as to how great they were... now look at em.
> 
> Anyways, back to the point of it. Anything can happen, so you have to be comfotable with the max loss on the credit spread. If your not, think about  what Cutz mentioned or if your keen on the put spread you could always consider a backspread for a credit to hedge alittle. If your bullish you'll keep your credit & if your bearish your in the money.




have taken all comments onboard and think i will watch from the sidelines and see what happens

interesting day today as the fed. ann. should be out today unless extended


----------



## sails

Hi Gary,

You seem to have put a fair bit of thought into it and appear to have weighed up the risks.

One of my concerns with OZL is what would happen if it went into a prolonged trading halt again, especially with sold puts.  I usually take note of option exercises each morning and noticed that there were almost daily put exercises in OZL during the time they were in suspension.  And as you state, if assigned you would need to pay for the stock.  There would then be no way of selling the stock until the halt was lifted or you exercised your long put (which would then lock in the max loss).

If you are planning to buy lower protection to zero, have you thought about doing this with a call spread instead of puts?  End result would be the same, but would eliminate exercise risks with ITM short puts if OZL went to zero.

Just some food for thought...


----------



## cutz

G'Day Again,

I notice you guys have suggested backspreads and call horizontal spreads (debit I assume) as opposed to a long call/straddle as a pre announcement play, are they preferred alternatives when volatility is running high due to the fact that the options are overpriced ATM ?


----------



## Grinder

cutz said:


> G'Day Again,
> 
> I notice you guys have suggested backspreads and call horizontal spreads (debit I assume) as opposed to a long call/straddle as a pre announcement play, are they preferred alternatives when volatility is running high due to the fact that the options are overpriced ATM ?





Not at all.. Just added an alternative to Jacksons orginal credit spread suggestion, as a way of hedging some delta. If you could get the backspread at a credit (difficlut to do) whether it be call or put it would allow you to play the direction whilst maintaing a small credit, or even a debit for a minimal max loss. I like to stay as neutral as possible so have no opinion on this play as a directional bet.


----------



## cutz

Gotcha Grinder,

Makes perfect sense, setting up put and call backspeads for even money as opposed to a long straddle where you risk losing it all if the stock doesn't explode.


----------



## jackson8

Grinder said:


> Not at all.. Just added an alternative to Jacksons orginal credit spread suggestion, as a way of hedging some delta. If you could get the backspread at a credit (difficlut to do) whether it be call or put it would allow you to play the direction whilst maintaing a small credit, or even a debit for a minimal max loss. I like to stay as neutral as possible so have no opinion on this play as a directional bet.




as yet i must admit i have not traded any debit spreads

i think there is a physiological barrier to overcome when looking at a debit as opposed to seeing $ going into the account with the credit spread.
also when playing with only 1-3 contracts at a time there needs to be quite a large move to make it worth the effort especially with the passage of time taking its toll on the premiums.

i notice that there is very little trading on the ozl put options so obviously people who know much more than myself are aware of the traps that i may not have envisaged.


----------



## sails

cutz said:


> G'Day Again,
> 
> I notice you guys have suggested backspreads and call horizontal spreads (debit I assume) as opposed to a long call/straddle as a pre announcement play, are they preferred alternatives when volatility is running high due to the fact that the options are overpriced ATM ?





I thought Gary was planning a credit ITM put vertical and so I suggested putting it on with calls as opposed to puts for assignment reasons.  IV can deflate pretty fast once the announcement is made, so being long vega tends to have the odds against it under those circumstances.  And yet being short can be disastrous if the move is much bigger than anticipated.

Although it would be a debit spread as opposed to a credit, it wouldn't make any difference with IV.  The margin of a credit spread = cost in a debit spread - so there's usually no difference in profitability due to put/call parity. (NB upcoming dividends, etc does affect put/call parity and needs to be understood to prevent unpleasant surprises.)

Suggest using Hoadley to compare the two to visually see how close they are provided the strikes/months used are identical and the only difference is puts or calls.  By selecting "vega" on the greeks button, it also clearly shows where the spread becomes either positive or negative vega.  Repeat with theta, etc.

EDIT - just seen the other posts - it took me quite a long time playing around with the Hoadley software, comparing, etc to get my head around the synthetics of interchanging puts with call spreads.  At least it's a start to understanding synthetics...  And it is mainly useful to avoid assignment issues with ITM strategies by converting to the opposite OTM.


----------



## cutz

Hello again Sails,

Sorry I did mean verticals.


It’s quite a balancing act, but I see you’re point regarding collapsing volatility, looking at straddles from this point of view certainly doesn’t look attractive, especially with such high volatility and illiquid markets. Closing out MQG calls today was a pain (high IV, low liquidity).

I’ll have a play hoadleys later on but I was just wondering if the you’re having trouble with the Option Trade 6 line (in hoadleys),I was playing around with spreads yesterday but I couldn’t get the last line to work properly.


----------



## jackson8

hi all
a question concerning commsec and margin,
when receiving margin requirement statement for close of Friday , would the amount required be payable on Saturday or next business day being the Monday
would rather hold the cash in CIA over the weekend for the interest gained

a note to cutz
have posted on "what to do on option expiry date " thread which may be of interest concerning xjo expiry day opening price.


----------



## sails

cutz said:


> ...I’ll have a play hoadleys later on but I was just wondering if the you’re having trouble with the Option Trade 6 line (in hoadleys),I was playing around with spreads yesterday but I couldn’t get the last line to work properly.




Do you have the paid version?  I believe only four lines work with the free one...


----------



## jackson8

have recently been following twitter site of a us. trader named mark wolfinger 

link below
http://search.twitter.com/search?max_id=1364823918&page=1&q=+markwolfinger


seems he only trades russell 2000 index and uses iron condor strategy's

comments on last trade as below
RUT: Covered Jun 420/430C spread and sold twice as many Jun 490/500C spreads. Then sold Jun 320/300P spreads to complete IC. Credit $0.90 

rut was trading aprox 415-420 , that would place his june sold call of 490 aprox 15-20% above trading price also same with puts of 320

comparison on xjo would be a selling a june call of same % otm at 4000-4200 aprox.

would you even get quotes on spreads that far out of the money? i dont recall ever seeing so, mainly quotes 3-4 strikes above and below actual current index price.
not much liquidity in far out months wotm

would this be why most of serious aussie op traders only trade us. market?

also have any of you read his book .....the rookies guide to options......by mark d wolfinger?

gary


----------



## Grinder

jackson8 said:


> comparison on xjo would be a selling a june call of same % otm at 4000-4200 aprox.
> 
> would you even get quotes on spreads that far out of the money? i dont recall ever seeing so, mainly quotes 3-4 strikes above and below actual current index price.
> not much liquidity in far out months wotm




You can get MM quotes via a request from your broker



jackson8 said:


> also have any of you read his book .....the rookies guide to options......by mark d wolfinger?




Have'nt read his book but know of him. He's takes on a fairly conservative approach to trading ICs. His blog has lots of helpful hints and I'm sure his rookies book would be equally as informative. Think you might be able to download an amended free version from his site.


----------



## sails

jackson8 said:


> have taken all comments onboard and think i will watch from the sidelines and see what happens
> 
> interesting day today as the fed. ann. should be out today unless extended




I guess you have already seen the news that OZL have gone into a trading halt.  Are you still on the sidelines, Gary?


----------



## cutz

Interesting to see a bunch of 40 point puts being exercised. I’m trying to get my head around why an OZL holder would want to exercise an OTM put, (last sale 55.5 points)


----------



## sails

cutz said:


> Interesting to see a bunch of 40 point puts being exercised. I’m trying to get my head around why an OZL holder would want to exercise an OTM put, (last sale 55.5 points)




Yeah, I saw that this morning -  80 exercised of 200 previously in open interest.  It is strange because the 50c and 60c puts have over 700 OI on each and yet they were not exercised.

Perhaps they needed the funds from the sale of their shares or just decided to get their shares out and move on.  Possibly someone who doesn't believe the share price will exceed 40c in the near future.  Not much fun for the short put holder...


----------



## jackson8

sails said:


> I guess you have already seen the news that OZL have gone into a trading halt.  Are you still on the sidelines, Gary?




yes decided to watch from sidelines on this one
and glad i did with the trading halt and who knows what could happen from here on

as you mentioned earlier sails an extended trading halt or  a suspension would have blown my strategy out of the water
thanks for your insightful thoughts
Gary


----------



## sails

jackson8 said:


> yes decided to watch from sidelines on this one
> and glad i did with the trading halt and who knows what could happen from here on
> 
> as you mentioned earlier sails an extended trading halt or  a suspension would have blown my strategy out of the water
> thanks for your insightful thoughts
> Gary




That's a relief, Gary   It will be interesting to watch and see how it all pans out...


----------



## snail05

Been watching the posts in ASF for sometime. This is my first post.

I've recently started writing options on XJO. As per the ASX site the trading hours for index options are from 6am to 5Pm and 5:30PM to 8PM, however on the Comsec website quotes only appear around 10:30am.

Is it possible to trade before 10:30am ? Also I don't see any activity after 4Pm. Is this a Comsec restriction ?


----------



## jackson8

snail05 said:


> Been watching the posts in ASF for sometime. This is my first post.
> 
> I've recently started writing options on XJO. As per the ASX site the trading hours for index options are from 6am to 5Pm and 5:30PM to 8PM, however on the Comsec website quotes only appear around 10:30am.
> 
> Is it possible to trade before 10:30am ? Also I don't see any activity after 4Pm. Is this a Comsec restriction ?




this link may answer some of your questions

http://www.asx.com.au/products/options/trading_information/trading_hours.htm

it contains the information below

Trading hours
The table below sets out the trading hours for equity options. All times are Sydney local times.

9am to 9.45am Report trade function available for overseas trade reporting 
10am to 4pm Normal trading 
4pm to 4.20pm Extended normal trading (without market maker obligations applying) 
4.20pm to 5pm Manual late trading (based on existing late trading procedures) 
5.01pm to 7am Overseas trading (based on existing late trading procedures) 





The table below sets out the trading hours for index options. All times are Sydney local times.

5.30am to 6.00am Pre Open (only cancel, amend and required trade report permitted) 
6.00am to 5.00pm Normal trading 
5.00pm to 5.30pm Pre Night-Trading (only cancel, amend and required trade report permitted) 
5.30pm to 8.00pm Night-trading (normal automated trading) 
8.00pm Close 

gary

i dont have information  to explain commsec site trading hours someone else may know. have only traded between 10-4 pm


----------



## cutz

snail05 said:


> Is it possible to trade before 10:30am ? Also I don't see any activity after 4Pm. Is this a Comsec restriction ?





G'Day,

Yeah, its possible to enter an XJO option order after 4, in fact today i put one in via commsec at 425pm, it got filled at 430pm.

Looking back at my order history i notice that the equity options get purged by the ASX at around 425pm and the XJO options get purged at around 5pm.

It's also possible to enter orders before 1030am but i prefer to wait until the spreads appear.


----------



## snail05

Thanks Gary & Cutz. I guess I'll stick to 1030-4.


----------



## rossw

snail05 said:


> Been watching the posts in ASF for sometime. This is my first post.
> 
> I've recently started writing options on XJO. As per the ASX site the trading hours for index options are from 6am to 5Pm and 5:30PM to 8PM, however on the Comsec website quotes only appear around 10:30am.
> 
> Is it possible to trade before 10:30am ? Also I don't see any activity after 4Pm. Is this a Comsec restriction ?




You can trade XJO options from 9:50, but it takes most market makers 20mins or so to get set and put their quotes in the market...
and they'll pull their quotes by 430 since the futures close then and there's nothing to hedge with


----------



## sails

rossw said:


> You can trade XJO options from 9:50, but it takes most market makers 20mins or so to get set and put their quotes in the market...
> and they'll pull their quotes by 430 since the futures close then and there's nothing to hedge with




Ross, I've often wondered why it takes Aus option market makers so long to get their quotes up on the board?  In the US, option quotes are available immediately as the market opens.

I have found it can take up to an hour even on something like BHP if there is a fair bit of volatility.  Wide spreads would be better than no spreads - can you explain at all what happens? 

Any insight would be much appreciated!


----------



## jackson8

sails said:


> I have found it can take up to an hour even on something like BHP if there is a fair bit of volatility.  Wide spreads would be better than no spreads - can you explain at all what happens?
> 
> Any insight would be much appreciated!




have noticed as well lack of quotes especially on days where there are large drops in overall  market or the particular Sp i am watching

maybe mms just waiting for the market to settle down during that first half to one hour, the quoting would be automatically programed so may have some inbuilt protection built in during the opening phases


----------



## sails

jackson8 said:


> have noticed as well lack of quotes especially on days where there are large drops in overall  market or the particular Sp i am watching
> 
> maybe mms just waiting for the market to settle down during that first half to one hour, the quoting would be automatically programed so may have some inbuilt protection built in during the opening phases




Yes, that's what I've been told, but wondering if Rossw can explain why the US market makers can start quoting so quickly even when it's volatile compared to our Aus MMs who have to wait so long.

It's one of a few reasons that so many Aus retail option traders refuse to trade the Aus option market.  There must be more to it because it doesn't make sense if they want customers.  As I said before, even wide spreads would be better than a blank screen.


----------



## jackson8

Hi all

On a couple of occasions have read mention of options and dividend payments?
Have not been able to find the threads where these were mentioned so will ask:

Are there any circumstances where the buyer or seller of a put or call option is liable for the payment of dividends

I can’t find information on this anywhere but I know I read recently on one of the threads where someone mentioned that they may be up for the dividend payment.

It has got me thinking and I just wish to clarify.

Thanks
Gary


----------



## sails

jackson8 said:


> Hi all
> 
> On a couple of occasions have read mention of options and dividend payments?
> Have not been able to find the threads where these were mentioned so will ask:
> 
> Are there any circumstances where the buyer or seller of a put or call option is liable for the payment of dividends
> 
> I can’t find information on this anywhere but I know I read recently on one of the threads where someone mentioned that they may be up for the dividend payment.
> 
> It has got me thinking and I just wish to clarify.
> 
> Thanks
> Gary




Gary, the biggest danger is being short calls (without owning the stock) the day before x-div day that are at risk of assignment.  If the short calls are assigned, you actually are liable to PAY the dividend.

If you own the underling stock, it will be called away which cancels out any dividend liability from short call assignment as the person exercising technically takes delivery of the stock and gets the dividend.

Call spreads are also a big danger for the simple reason that the long call doesn't carry the dividend - only the stock.  So, if you had a bull call spread that was ITM and the short call was assigned, you would still have to pay the dividend.  If this looks imminent, it pays to either close the position before xdiv day, or roll the short call up to get it out of harms way, or exercise the long call to ensure the dividend will be cancelled should the short stock be cancelled.

Hoadley has a useful "early exercise" tab on the Options Strategy Evaluation Tool.  If all the dividend information is input correctly, it will come up with the strikes that are in danger of assignment.

Box spreads (pre-div) can show an attractive prior to a dividend (there was a thread on this a few years back), but the biggest problem is if the short call gets assigned - the dividend payment would far exceed the little credit received.

Hope this makes sense - typed it fairly quickly!


----------



## sails

Gary, these links have a bit more information:

ASX - Early exercise of ASX options: http://www.asx.com.au/products/options/trading_information/early_exercise.htm

Investopedia - Dividends, Interest Rates and Their Effect on Stock Options:  http://www.investopedia.com/articles/optioninvestor/03/121003.asp


----------



## jackson8

sails said:


> Gary, the biggest danger is being short calls (without owning the stock) the day before x-div day that are at risk of assignment.  If the short calls are assigned, you actually are liable to PAY the dividend.
> 
> If you own the underling stock, it will be called away which cancels out any dividend liability from short call assignment as the person exercising technically takes delivery of the stock and gets the dividend.
> 
> Call spreads are also a big danger for the simple reason that the long call doesn't carry the dividend - only the stock.  So, if you had a bull call spread that was ITM and the short call was assigned, you would still have to pay the dividend.  If this looks imminent, it pays to either close the position before xdiv day, or roll the short call up to get it out of harms way, or exercise the long call to ensure the dividend will be cancelled should the short stock be cancelled.
> 
> Hoadley has a useful "early exercise" tab on the Options Strategy Evaluation Tool.  If all the dividend information is input correctly, it will come up with the strikes that are in danger of assignment.
> 
> Box spreads (pre-div) can show an attractive prior to a dividend (there was a thread on this a few years back), but the biggest problem is if the short call gets assigned - the dividend payment would far exceed the little credit received.
> 
> Hope this makes sense - typed it fairly quickly!




thanks sails

i just recently had some shares assigned early on a covered call i had sold and i could not reason why but then on checking i found that the next day was ex div so i presumed that they wanted to take delivery of the shares to receive the divvy so therefore i will not receive it.

i was thinking of rolling it   out as the call ended being quite deep in the money but i was waiting for a pull back in the sp as there wasnt much in it for going out longer

did not take the div. into account . on checking open interest next day i see all contracts had been closed out

gary


----------



## sails

jackson8 said:


> thanks sails
> 
> i just recently had some shares assigned early on a covered call i had sold and i could not reason why but then on checking i found that the next day was ex div so i presumed that they wanted to take delivery of the shares to receive the divvy so therefore i will not receive it.
> 
> i was thinking of rolling it   out as the call ended being quite deep in the money but i was waiting for a pull back in the sp as there wasnt much in it for going out longer
> 
> did not take the div. into account . on checking open interest next day i see all contracts had been closed out
> 
> gary




Just as well you had the shares otherwise the divvy would have come out of your account.   Calls are cheaper before x-div and puts are more expensive.  Could be the reason you thought there wasn't enough in it to roll the calls - but you would have kept the divvy which was the trade off for rolling.

Live trading really does bring options theory to life.  There is a lot to learn...


----------



## jackson8

hi all

am interested if anyone is familiar with louise bedfords book 

the secret of writing options

any reviews would be appreciated and if anyone has a copy they would like to sell

the bookshops where i live dont carry any trading books at all and i know i can purchase from here but would like a bit of feedback first if possible

with thanks 
gary


----------



## russtak

Hi Gary
I have read the book it but I think it is targeted at purely an introductory level. For example it describes the greeks in a few lines and volatility gets less than a page. I think 'Options as a strategic investment' would be a better buy. 
tks Russell


----------



## jackson8

russtak said:


> Hi Gary
> I have read the book it but I think it is targeted at purely an introductory level. For example it describes the greeks in a few lines and volatility gets less than a page. I think 'Options as a strategic investment' would be a better buy.
> tks Russell




yeah i happened to find a copy and have bit of a read , i agree very basic and not what i am really looking for.

something of an intemediate nature would be more helpfull, will see what i can find of the above that you have mentioned on the internet.

i have no access to what may be classified to a proper bookshop where i live 

will have another look at the forums book site and see what i can find 

 thanks


----------



## cutz

G’Day Gary,

I can vouch for the book that russtak mentioned, it’s pretty much covers basic concepts right up to advanced strategies. I got my copy from Borders (only because I had a 30% discount voucher) but www.moneybags.com.au stock it cheaper than the list price at borders.

I can also vouch for moneybags online bookshop, they have a pretty efficient service and their prices are competitive, I purchased 2 other McMillan books and Natenberg’s Option pricing and volatility (which is also a good read) from them.


----------



## jackson8

cutz said:


> G’Day Gary,
> 
> I can vouch for the book that russtak mentioned, it’s pretty much covers basic concepts right up to advanced strategies. I got my copy from Borders (only because I had a 30% discount voucher) but www.moneybags.com.au stock it cheaper than the list price at borders.
> 
> I can also vouch for moneybags online bookshop, they have a pretty efficient service and their prices are competitive, I purchased 2 other McMillan books and Natenberg’s Option pricing and volatility (which is also a good read) from them.




hi cutz
thanks for that 

do you have both books : Options as a Strategic Investment and Options as a Strategic Investment, 4th edition: Study Guide

just wondering whether the first is more theory based while the study guide is more of practical application

not really up for purchasing both , not sure which one would be more applicable for a newbie

but i take it the study guide goes hand in hand with the other
thanks
gary


----------



## cutz

jackson8 said:


> hi cutz
> thanks for that
> 
> do you have both books : Options as a Strategic Investment and Options as a Strategic Investment, 4th edition: Study Guide
> 
> just wondering whether the first is more theory based while the study guide is more of practical application
> 
> not really up for purchasing both , not sure which one would be more applicable for a newbie
> 
> thanks
> gary




Hi Gary,

I haven't got the study guide, just Options as a Strategic Investment itself.

The other 2 I have are Profit with options and McMillan on options.

I reckon you go for the first book as it's lays down some solid grounding, I’m not sure what the study guide consists of, I probably wouldn’t bother with it unless someone suggests otherwise.


----------



## Grinder

You can find alot of good free stuff on the net as you know. Have attached one below as a starter.

View attachment Lawrence G. McMillan - Profit with Options (Essential Methods for Investing Success).pdf


like the texts Cutz mentioned, anything by McMillian or Natenberg would be my picks. Also attached 
	

		
			
		

		
	

View attachment cws.pdf

	

		
			
		

		
	
 it's an intro to Cottle, can do you head in a bit though.


----------



## jackson8

Grinder said:


> You can find alot of good free stuff on the net as you know. Have attached one below as a starter.
> 
> View attachment 29484
> 
> 
> like the texts Cutz mentioned, anything by McMillian or Natenberg would be my picks. Also attached
> 
> 
> 
> 
> 
> 
> 
> 
> 
> View attachment 29485
> 
> 
> 
> 
> 
> 
> 
> 
> 
> it's an intro to Cottle, can do you head in a bit though.




thanks cutz and grinder

you have probably saved me few hundred dollars with your help
more than a lifetimes read i think 
much appreciated
gary


----------



## cutz

G'Day fellow option traders,

How far into the session can i close out a just ITM call to avoid assignment,
i'm holding out till closer to 4 as it looks like the stock in question is fading.

Any thoughts?


----------



## sails

cutz said:


> G'Day fellow option traders,
> 
> How far into the session can i close out a just ITM call to avoid assignment,
> i'm holding out till closer to 4 as it looks like the stock in question is fading.
> 
> Any thoughts?




Hi Cutz, I believe you have until the options market closes - but not sure if it's broker specific.  Maybe someone else can confirm...


----------



## cutz

Thanks Sails,

Funny it looks like i've jinxed myself, there was a reversal on WBC as i was posting my question.


----------



## sails

I'm sure you would be aware that the closing auction can gap - especially on expiry close, so watch that gamma!   Also, if WBC closes within a cent or two of your strike, it usually pays to close it out rather than risk assignment.  It's not as likely, but has been known to happen.  You should have 10 minutes after the closing auction, but can be difficult to get a decent price the closer it goes to 4:20.

If it's going to gap - hopefully it will gap down 

EDIT:  I should have qualified the statement about it closing within a cent or two of your strike - I meant if it closes a few cents OTM.  Obviously if it's even slightly ITM, the risk of assignment becomes pretty high!


----------



## cutz

Thanks Sails,

Yep you were 100% correct, i actually closed out at 415pm 8cents above intrinsic. I received a bit of a fright as I thought I wasn’t going to get filled.

Handy lesson for next time.


EDIT>>BTW it was actually the 20 strike, it was just ITM this morning but gamma got me in the end.


----------



## sails

cutz said:


> Thanks Sails,
> 
> Yep you were 100% correct, i actually closed out at 415pm 8cents above intrinsic. I received a bit of a fright as I thought I wasn’t going to get filled.
> 
> Handy lesson for next time.
> 
> 
> EDIT>>BTW it was actually the 20 strike, it was just ITM this morning but gamma got me in the end.




Oh OK - I thought it might have been the 20.5 -hence the comments about expiring close to the strike.

Yes, it is scary closing out so late on exp. day.  The MMs know you gotta deal - they know you don't want to be assigned. Personally, I don't like being short going into expiry unless they are well out of reach.  In fact, I have sometimes bought cheap longs or debit verticals in the last few days before expiry if there looks to be potential of a decent move into expiry.  If you lose, it's a very small loss, but if you win, it can be a bit of cream on the cake!


----------



## cutz

Hello again,

I thought I’d mention why I was holding a position with such high gamma risk so close to expiry(an example of what not to do). Two days ago I intended to close out my WBC calls for a tidy profit, unfortunately I was rushing as I normally do, and I accidentally entered my order on the pad as a sell to open instead of a buy to close. 

Chart action on WBC looked like a reversal was taking place so I thought I'll let it ride, who would have thought especially after a bad night on the US Westpac would have turned back up.

Funny thing today I made the same error in reverse, opened some positions into May, (diagonal roll) buying to open instead of sell to open which I then quickly reversed. I think the vibe has taken a three day holiday.

There you go folks, another example on why short positions should not be held to expiry, especially when there’re trading ATM or close to the money.


----------



## sails

Cutz, sounds like it was an expensive mistake this time.  Don't worry, I have had my share of ordering mistakes especially while learning.  I think I have mentioned before how I painstakingly put on a double butterfly (6 legs to the trade) one leg at a time, working the prices to get the best fill etc only to find I had done it on BHP instead of NCP.  Although NCP had much higher IV, so I ended up paying more for the entire position in BHP than originally estimated.  At the time both were ironically trading at exactly the same prices and were tracing out similar intraday patterns. That led to a checklist taped to my monitor to help prevent future mistakes of that nature. 

Anyway, below is a snapshot taken of WBC option exercises this morning.  There were quite a number of puts and calls exercised at the 20.50 strike which is exactly where WBC closed yesterday.  A place where some might think they were safe from assignment.


----------



## cutz

Yep, it was pretty costly.

I should stick warning sign on the wall, i've done that same mistake about 4 times now, you think i would have learnt by now.

Interesting with all the $20.50 assignments, highlights the issue with pin risk as it could go either way.


----------



## cutz

BTW Sails,

How did the NCP butterfly go in the end, hopefully not a loss like my mistake.


----------



## sails

cutz said:


> BTW Sails,
> 
> How did the NCP butterfly go in the end, hopefully not a loss like my mistake.




It ended up being a BHP double fly (eg call fly above and put fly below).  I got freaked out because I had a lot more invested than originally estimated due to BHP's IV being a lot less than NCP's.  I didn't pick it up as I was entering one leg at a time.  (One of the reasons I now prefer to enter these complex positions as an entire spread order with a limit price.)

Yes, I did lose money from it - I reckon it was a case of fear clouding the judgment plus a lot of inexperience in option trading.  BHP went screaming up to the top of my highest long calls (I was scared of losing the entire debit if it kept going up), so I closed out at a loss and thankful (at the time) to have preserved some of the initial debit.  Then BHP turned around and went rapidly all the way back down to the lowest long puts. 

So, with the privilege of hindsight, if I had closed out the winning parts (eg the put credit and call debit) on those highs instead of closing the lot and leaving the bearish ones in there, it actually would have done very well.  I was just scared I was throwing good money after bad at the time!


----------



## Grinder

sails said:


> I didn't pick it up as I was entering one leg at a time.  (One of the reasons I now prefer to enter these complex positions as an entire spread order with a limit price.)




hear ya there.. very difficult to leg in, too much left to chance. Much prefer to spread it as a whole, minimizing the chance of mess ups.


----------



## sails

Grinder said:


> hear ya there.. very difficult to leg in, too much left to chance. Much prefer to spread it as a whole, minimizing the chance of mess ups.




Yeah, this was quite a few years ago (before NCP became NWS) and I was trading with AOT.  All the trading had to be done online using Iress - so I had no choice but to leg in.  Certainly had some scary moments trading this way! 

And yet, at the time, any sort of online option trading was a huge improvement to having to phone every order through.


----------



## long88

Hi all (sails and cutz)

just wondering how you all go on this volatile market.

gaining ahead ? making some nice $$$ ?

cheers


----------



## cutz

long88 said:


> Hi all (sails and cutz)
> 
> just wondering how you all go on this volatile market.
> 
> gaining ahead ? making some nice $$$ ?
> 
> cheers




G'Day 

Yeah the options biz has being going well apart for a few fat finger errors, i reckon being on L Plates during the market turmoil has really kicked the learning curve along, although I’m not sure how I’ll handle things when volatility drops off next year (or the year after) as I mainly put on short premium positions.

How are you  going Long88, are you in the game or are you waiting for things to settle down?


----------



## long88

Hi cutz,

i am still on the game, shifting away from aussie to us now, i dont hold any more aussie.

Trying to stay on the market, and catch the big wave that could happen (either up or down), i am long premium but got hurt a bit by vix coming down, and have been putting on call spread since then. 

I am learning as well, but have grasp the subject a lot more better now.



cutz said:


> G'Day
> 
> Yeah the options biz has being going well apart for a few fat finger errors, i reckon being on L Plates during the market turmoil has really kicked the learning curve along, although I’m not sure how I’ll handle things when volatility drops off next year (or the year after) as I mainly put on short premium positions.
> 
> How are you  going Long88, are you in the game or are you waiting for things to settle down?


----------



## cutz

Hi Long88,

How are you handling the nightshift, I’ve had a crack on the US and my method was initially as mazza suggested to get up early and catch the last couple of hours but since daylight saving ended I’ve stayed up to catch the open. Anyhow my US positions are tiny (so are the profits) as I don’t like the idea of being short unattended and there seems to be big moves between the open and close so I think I’ll stick to the aussie market when the May calls expire.


----------



## sails

long88 said:


> ...i am still on the game, shifting away from aussie to us now, i dont hold any more aussie..




I'm not trading much at all in options at the moment.  My preferred delta neutral strategies are simply way too expensive as Oz fees eat heavily into profits - and then there can be pretty big slippage - as Cutz experienced on Thursday. Also, sending emails to TD for spread orders is cumbersome.  I could use IB, but I'm not comfortable with their stringent assignment policy.  IB also only have one level of market depth for options (or at least the last time I checked) so it means still having Iress running to get decent market depth information.

I would trade US options, however the night shift is no good for me at this point in time.  So, my alternatives are limited for daytime trading in Oz.  One is to hone up on directional skills so that I can trade directionally with options rather than the Oz fee and slippage heavy, multi level strategies that I otherwise prefer.  The other alternative  is to do some day trading on the SPI.  Then if I get interruptions (happens regularly), I can close the trade and not be concerned about leaving open positions unattended.

At this point in time, I have no option positions.  Spending time brushing up on directional skills and some work on the SPI.  Maybe one day the Oz market will become more options friendly, but until then, I need to work with different strategies.


----------



## long88

Hi sail,

I reckon the aussie market bid-ask spread is still not good enough, and always got killed on entering and exiting (buy too expensive, sell too cheap), at the end of the day, it dont think it is worth it (unless there is really big move happening on BHP,RIO,Big 4 banks)

I am with IB, and i never look at the market depth (you can always check Open interest position ?) but the advice is never follow the crowd, they always got slaugtered. 

what happen with cutz ?



sails said:


> I'm not trading much at all in options at the moment.  My preferred delta neutral strategies are simply way too expensive as Oz fees eat heavily into profits - and then there can be pretty big slippage - as Cutz experienced on Thursday. Also, sending emails to TD for spread orders is cumbersome.  I could use IB, but I'm not comfortable with their stringent assignment policy.  IB also only have one level of market depth for options (or at least the last time I checked) so it means still having Iress running to get decent market depth information.
> 
> I would trade US options, however the night shift is no good for me at this point in time.  So, my alternatives are limited for daytime trading in Oz.  One is to hone up on directional skills so that I can trade directionally with options rather than the Oz fee and slippage heavy, multi level strategies that I otherwise prefer.  The other alternative  is to do some day trading on the SPI.  Then if I get interruptions (happens regularly), I can close the trade and not be concerned about leaving open positions unattended.
> 
> At this point in time, I have no option positions.  Spending time brushing up on directional skills and some work on the SPI.  Maybe one day the Oz market will become more options friendly, but until then, I need to work with different strategies.


----------



## cutz

long88 said:


> what happen with cutz ?




Hi Long88,

Refer to above post #175, orderpad fat finger incident.


----------



## emilov

Hey Guys,

Just wanted to add myself to this thread . I trade exclusively (stock) options on the ASX. Have been doing this for over a year now.

Last year after having had a phenomenal success (made 50k in 1.5 months) I lost it all 1 month later (cocky beginner).

I've been trading paper since September (started a blog) last year and live for 2 months now. I am profitable on a small scale (700$ last month, 800$ this month). Sure, I can do better on a 7k trading bank but then I'd be risking a lot. And we all know what that can lead to. I like consistent profits much better now and I had to learn that the hard way.

My main strategies for this market are not selling naked options (too risky) but *selling credit spreads* (bear call spread and bull put spread) and letting these expire worthless. This is more costly than naked options to be sure. But there is that extra protection from the bought leg in case the trade goes against you. It's been working well for me so far. I'm waiting for the market to start trending (breakout of 3800) to consider more aggressive strategies such as synthetics. That is when the bigger bucks will come.

Still, my last trade is on STO and I bought a straight in the money call. That should experience less time decay and give me good result as Santos rises (oil).

What I like about options is their flexibility (different strategies for different market conditions). What I don't like is that they are expensive to trade (brokerage). Time decay can be great if you sell or horrible if you buy, you just need to know how to utilize it.

Cheers, Emil


----------



## sails

long88 said:


> ...I am with IB, and i never look at the market depth (you can always check Open interest position ?) but the advice is never follow the crowd, they always got slaugtered...




Long88, not sure what you mean by never looking at market depth?  That would might work OK in the US as there is so much liquidity, but in Oz you have to try and get the mid point of MM prices and then give a bit (aka slippage) as it is most likely the MM who will take the other side of your order anyway.  No point in taking the straight mid price in case there is a retail order in between the MMs bid/asks which could put you at a disadvantage when pricing your order. 

Also, what do you mean about not following the crowd?  How can you tell what the crowd is doing due to synthetics?  IOW we don't know what stock positions are being taken concurrently with the option orders which can completely reverse the perceived direction of the option trade.


----------



## jackson8

hi all
thought i would pop this one

having sold a few naked puts it has occurred to me that instead of closing the position when they come into profit  and then looking for another position to open

what if i went long the same strike put therefore locking in profit but also that a downward retracement could bring a profit into the long position 

as long as my veiw on the longer term sp to stay above the sold strike holds true there may be a bit of extra profit from the long put on short term reversal . 

if long position closed at a profit then back to naked again

make sense ?
gary


----------



## sails

jackson8 said:


> hi all
> thought i would pop this one
> 
> having sold a few naked puts it has occurred to me that instead of closing the position when they come into profit  and then looking for another position to open
> 
> what if i went long the same strike put therefore locking in profit but also that a downward retracement could bring a profit into the long position
> 
> as long as my veiw on the longer term sp to stay above the sold strike holds true there may be a bit of extra profit from the long put on short term reversal .
> 
> if long position closed at a profit then back to naked again
> 
> make sense ?
> gary




Nothing wrong with using options to swing trade, IMO!  Puts often get cheaper, not only due to the market rising, but also with falling IV.  So it can be a good time for long puts anyway if you expect a fall.   As I suggested in another post today, if it is almost as cheap to purchase a closer OTM strike that has a higher probability of making some money, you could buy that one instead and leave the short alone.

The other advantage of your suggestion if trading smaller quantities is that it may not actually cost any more in brokerage to buy the double quantity (half to close and half to open the new long position).

However, if it is very close to expiry, you want to make sure the long put has some probability of being reached with little time left.


----------



## long88

any of you guys want to share what indicator are you guys using ? 

i am with using %r, efficiency ratio and ADX, for the trend. and for identify sideways, i dont have a general rule for it, still defining it (any one want to share that with me ?)  

how about you people (sails, cutz, or even wayne if he is here ) ?

Emil : first credit spread that i put on BHP, i earn 3k, then later on i put on christmas three on bhp, and lost about 7k, that should have been a profitable trade if i stay with my plan, but i got scared and adjust the position (and got killed on those bid/ask, along with bhp price movement). now i trade small positions only on USD market, and testing my %R system, and i almost give up on taming BHP until recently that i understand the ADX system and about to test calendar spread on bhp.

emil: also with credit spread, i think it is very slow to realise the profit (depends on the position, but theta is seems to be very small all the time), and you have to hang on to it very long (35 days or more), better if you go where there is speed and momentum in market, and market can give you faster profit realization (like in the us).

I managed to catch BAC gap up wave (150% profit in 3 days), and got greedy and bought some more call after that (now i got killed, and give up those profits, not following my plan).

now i realise how important is the indicator (technical analysis), and will let it do the talking, instead of following the crowd.

cheers


----------



## cutz

Hi gary,

Personally i prefer to close out a short and re-enter the short position after a retracement has happened if it's worth it.
Normally i may do this with the short portion of a credit spread sometimes loading up with more wings, i guess it all depends on pricing on the day.

I've never felt comfortable with straight long positions as  directional plays.


----------



## cutz

Hi Long88,

The only indicators i use are MACD, 20/60 period EMA and support/resistance(not really an indicator).

Saying that i'm not really a directional trader, just use basic indicators as a guide for determining strikes. I am researching charting and trading as it's something i may want to do in the future (trade pure directional instruments), i do have a stubborn streak so i'm not sure how i'll go.


----------



## jackson8

cutz said:


> Hi gary,
> 
> Personally i prefer to close out a short and re-enter the short position after a retracement has happened if it's worth it.
> Normally i may do this with the short portion of a credit spread sometimes loading up with more wings, i guess it all depends on pricing on the day.
> 
> I've never felt comfortable with straight long positions as  directional plays.




thanks sails and cutz

i think that in the past when i have closed a position obviouslly my bias towards the sp has changed, i then want to enter another position straight away as i dont want to be out of the market .

i have only traded over 3 stocks osh, sto and lgl (current position) i choose these as they are fairly liquid and sp is in my risk range if i face assignment or excercise

instead of waiting for a retracement if i open a long against the original short i am still in the market, also as the profit is locked in and the short is covered i have confidence to open new position elsewhere if i see fit.

gary

note: i havent actually tried this yet but am thinking of using with my current position in lgl if the opportunity arises.

would be quite happy to have feedback on flaws of this strategy


----------



## cutz

Hi Gary,

I don't think there are flaws in your strategy, if you are fairly confident in picking short term trends it sound OK.

In my situation i mainly trade XJO options, i'm not confident in predicting direction so i now prefer to start off gamma/delta neutral (or close to it), how it ends that's anyones guess  but i do constantly adjust to play it safe.

So i have to say that it all depends on the style of the individual, what works for some may not work for others, trade the method that delivers higher success rates.


----------



## jackson8

cutz said:


> Hi Gary,
> 
> I don't think there are flaws in your strategy, if you are fairly confident in picking short term trends it sound OK.
> 
> In my situation i mainly trade XJO options, i'm not confident in predicting direction so i now prefer to start off gamma/delta neutral (or close to it), how it ends that's anyones guess  but i do constantly adjust to play it safe.
> 
> So i have to say that it all depends on the style of the individual, what works for some may not work for others, trade the method that delivers higher success rates.




hi cutz
would be interested in how you adjust these positions

are you talking rolling out or up , buying extra deltas or adjusting with stock

myself have only put on a bear call spread once on xjo started out as a naked call but then when the margin requirement came in i quickly hedged with further otm as insurance and also reduced margin. 

my direction skills are not that great so have stuck with the gold and oilers as i find them a bit easier to predict but am continually following the index as i wish to start trading it once i have a bit more cash in the kitty

gary


----------



## cutz

No hard and fast rules gary,

For XJO options I may roll up the short calls (also adding contracts ) and also load on more long contracts (wings) if the market is moving up, often you will find that even if the market has made a modest move over a few weeks the long contracts (hedges) have become a lot cheaper anyhow. I may also roll up short puts as well if the market has moved up but keep the wings in place and possibly buy longs into the next month. It all depends on market conditions, recently i've traded in and out of short puts due to the rally, i'm actually expecting a fizzle so i've got more protection on the downside ATM.

Hope it makes sense gary, i can't really pin adjustments down to a couple of rules, just whatever works on the day and ends up looking good on hoadleys, for me the only way its gonna look good is in the event of an extreme move either way the heavy wings will propel me out of danger, (i now prefer to have heavier protection with a minor reduction in income).


----------



## Grinder

Heya fellow options traders, seems theres been quite a bit of discussion goin on here in our little derivatives corner. Think I'll jump right in & talk adjustments.


cutz said:


> for me the only way its gonna look good is in the event of an extreme move either way the heavy wings will propel me out of danger, (i now prefer to have heavier protection with a minor reduction in income).




Hear ya on that one Cutz. You might like this one also, not as dynamic as the slingshot but embedded protection all the same at the expense of some premium. Put on your ICs like usual & around the same time put on a few front month debit spreads alittle closer to the money, your not sacrificing  much premium & can serve well when gamma starts to play up. 

Gary, theres all sorts of fun that can be had with a good ol pay off diagram & a basic excel speady. Model different strikes with varied sized cons to get an idea of the funnny pics you can make. Rolling up & out with some size as you go is a fav, as is adding on extra wings or picking up some calls/puts atm or near enough can do wonders for protection. You might even want to switch direction if your view of the current market has changed, like buying in your short & writing another on the other side of your long to create an opposing spread or going from a credit spread to a long condor buy adjusting a leg & opening another new spread. What I'm getting at is there is a copious amount of position adjusting that can be done, it all just pushing around delta to move your risk around.

_Hint:_ Look at where your being hurt & make the adjustment before the bleeding can't be stopped with a bandaid. Adjust in stages or take the whole thing off if need be. Adjusting is a personal thing, what I like you, you might not.


----------



## emilov

Hey long88 ,



long88 said:


> emil: also with credit spread, i think it is very slow to realise the profit (depends on the position, but theta is seems to be very small all the time), and you have to hang on to it very long (35 days or more), better if you go where there is speed and momentum in market, and market can give you faster profit realization (like in the us).




Not true. I have done multiple bear call / bull put spreads with only one week till expiry in the past. Check this WOW trade for example. All of these were constructed out of the money so sideways movement would have been ok too. Yes, you don't get the huge premiums there but if I can make 25-35% in a week, relatively safely, I'll take it.

Of course, a moving market will get you more profits (and losses). Our market in Australia is more sideways than trending, that is why I use the relatively conservative spreads. Once our market breaks out of 3800 on the upside and maybe start trending decently I'll apply synthetics to get much higher returns.


----------



## mazzatelli1000

Got fwd this blog by da boyz
Thought i'd pop in and throw this up
Since alot of the new questions in the options threads are usually about naked premium whether natural or synthetic

Blog

Full marks to this individual for baring all on the net - in no way am I bagging them
While this is nothing new or groundbreaking,I think the blog typifies the life of a short OTM curvature trader before he/she is destroyed by the market and can serve as a good real life case study to learn from

The main points:

1) Numerous reference to the Greeks but not actually trading them
Shorting IV based on feel. Shorting premium going into expiration week when negative gamma is running wild.

2) Playing for OTM curvature can be gratifying in the short term, but painful when the swan arrives.

a) Didn't close shorts early
b) Played for so little e.g. short a VIX strangle for $0.50. Also shorted CROX strangle which lost $25k - blowing up the account.
c) Scalped stocks for very little
d) In 08 the problems begin

3) Unrealistic expectations leading to issues with position size
He had a $25k account and expected to shoot for a $100k/yr salary
That is a 400% return, and only those really skilled and experienced would be considering that.
Plus the fact the individual was at a prop firm, trading with risk-based margin only gave them a chance to overleverage - deadly

4) Risk management
Believing that negative gamma scalps will save their ass. Truth is some moves are large and unexpected and it is difficult to dynamcially hedge (not withstanding the numerous adjustments to the Greeks to make the hedges more "accurate" e.g. incorporating jumps into BSM model)

5) TH on this forum suggests that one not only practise but review.
This individual blew 3 x $25k accounts and then proceeded to borrow $16k from a family member.

Refusal to accept mistakes - blaming it on stock quotes and data vendors
There was a slight review of methodology by switching to shorting ATM curvature, but I think position sizing was an issue.

Please add or discuss if you like.
Good trading
Later


----------



## long88

hi emil, i seems like your brokerage is a bit too high, which broker are you using ? 




emilov said:


> Hey long88 ,
> 
> 
> 
> Not true. I have done multiple bear call / bull put spreads with only one week till expiry in the past. Check this WOW trade for example. All of these were constructed out of the money so sideways movement would have been ok too. Yes, you don't get the huge premiums there but if I can make 25-35% in a week, relatively safely, I'll take it.
> 
> Of course, a moving market will get you more profits (and losses). Our market in Australia is more sideways than trending, that is why I use the relatively conservative spreads. Once our market breaks out of 3800 on the upside and maybe start trending decently I'll apply synthetics to get much higher returns.


----------



## emilov

Hi long88,
I'm using circle securities / trader's circle. They are a full service broker and they charge 75$ or .5% (which ever is bigger) per leg (plus gst) and the ASH charges 1.07$ or something per contract (plus gst). How much cheaper can I get it?


----------



## long88

emilov said:


> Hi long88,
> I'm using circle securities / trader's circle. They are a full service broker and they charge 75$ or .5% (which ever is bigger) per leg (plus gst) and the ASH charges 1.07$ or something per contract (plus gst). How much cheaper can I get it?




i am with spectrum live, and currently paying $25 or $30 per leg (not sure here, i forgot)

i know that i have to pay $15USD for US, and as long as i trade minimum 2/month. live data feed is free

aussie data feed is $35/month

there is also standard 1.xx for per contract from ACH(no one can get away from that).

and all of this is online, although there is number you can call and talk to, but they always want you place everything on the platform (if it is working).

This broker give me access to fx, cfd, futures, options all over the world. and what i need now is good thinking, working strategy, and money.

Cheers


----------



## emilov

Interesting, do these guys do ASX ETOs? How can they afford to be so cheap? Is it just a computer platform, yes? That is, you enter orders online, not with a live person?

Also, how about slippage? How good are your fills?


----------



## long88

yes, i trade asx through them as well.

yes computer platform. but they can place it for you their system down.

fills is as what market offers, not much difference with  etrade (i used to use them), if  i want to get executed straight away, i usually place it in the middle. unless i wait for price movement.



emilov said:


> Interesting, do these guys do ASX ETOs? How can they afford to be so cheap? Is it just a computer platform, yes? That is, you enter orders online, not with a live person?
> 
> Also, how about slippage? How good are your fills?


----------



## cutz

Hi Grinder,

Thanks for the tip, I may have a play with that idea next month.

Mazza, 

Interesting blog excerpt, I must admit I’m guilty of making some of those errors, i.e not closing out shorts attempting to squeeze every last bit out / putting on short gamma positions close to expiry, I can’t remember if it was yourself or grinder saying “would you put that position on at that price” (or something along those lines) when determining whether to pull profits off the table.

I’m still not sure what a “a short OTM curvature trader” is, I assume a OTM naked option seller?

Emilov, $75 a leg, I thought the big 4 were expensive


----------



## long88

etrade is already $45 and i am screaming at that already (for oz market).

i think emilov loves to talk to his broker ?



cutz said:


> Hi Grinder,
> 
> Thanks for the tip, I may have a play with that idea next month.
> 
> Mazza,
> 
> Interesting blog excerpt, I must admit I’m guilty of making some of those errors, i.e not closing out shorts attempting to squeeze every last bit out / putting on short gamma positions close to expiry, I can’t remember if it was yourself or grinder saying “would you put that position on at that price” (or something along those lines) when determining whether to pull profits off the table.
> 
> I’m still not sure what a “a short OTM curvature trader” is, I assume a OTM naked option seller?
> 
> Emilov, $75 a leg, I thought the big 4 were expensive


----------



## emilov

It surely is nice to be able to call any time and ask anything (like "XYZ dropped today, was there some news that caused it?"). Say guys, for options where there are no bid/ask spread quotes, what do you do?

Because I call my broker and they request these for me.


----------



## long88

emilov said:


> It surely is nice to be able to call any time and ask anything (like "XYZ dropped today, was there some news that caused it?"). Say guys, for options where there are no bid/ask spread quotes, what do you do?
> 
> Because I call my broker and they request these for me.





with no bid/ask quotes

i use hoadley tools, (make sure the interest rate are correct, and date of expiry, volatility), all of those data are available on your broker, and that will give you rough estimation on how much you should be paying for, no need those phone call.

and with aussie market, you will get more slippage on the bid/ask, as after you priced in the expected price, usually you will not be able to get execution, and have to wait for price movement for the market maker to be able to make profit out of position that you want to be in. (been there and done that). especially when market goes against you, and you want to get out quick, that is the worst thing, and always end up with big losses.



with news, i always threat it as catalyst, and dont follow news, you will get slaugtered, as usually news is already priced in the volatility. (GE put, a lot of people buying it on jan, feb) and turns out the other way around.


----------



## jackson8

hi all 
have a question concerning short butterflys

eg.   -1  +2  -1

have been mucking around with priceing on excel and such and have come to the conclusion that there is no premium in them what so ever,  i cannot see why they would be employed at all.

am i missing something as the risk/reward ratio seems to be horrific

would welcome any comments from experienced players.

gary


----------



## emilov

Hey Gary,
Hell yeah you can make money. Here is a quick example (prices simplified):
buy bhp 32 calls @ 180c
sell bhp 32.50 calls x2 @ 150c
buy bhp 33 calls @ 120c
0 $debit/credit (most times you'll end up with a small debit and there is margin involved but there are offsetting bought calls so not so much)

Perfect scenario, bhp expires at 32.50. In that case sold calls and the 33 bought one expire worthless. The 32 call is worth 50c. So you make the premium of the sold calls plus the 50c: 2x1.50$ + 50c = 3.50$ (minus wretched brokerage). I'd say that is a pretty handsome profit (given the fact that the maximum you can lose in any direction is the difference i.e. 50c). Of course in order to profit BHP does need to be very close to the price of the sold calls otherwise you end up in the losing zone pretty quickly.

Of course doing the above on BHP itself would not be the best idea as it tends to gap a lot and do whatever the hell it wants. But there are stocks that are more flat or have stable trends so a trend line would tell you where they are likely to finish. And funny things happen on expiry day  some stocks finish miraculously directly at some strike price, I wonder why that is ?

If there is a descent resistance you could do a ratio call spread instead (basically a butterfly without an upper bought call protection and hell of a lot more margin because of that).

The butterfly you'd do about 4-5 days prior to expiry so time decay would really hit the sold calls. Also you don't have to hold till expiry and get rid of the spread during the last day.

Cheers, Emil


----------



## cutz

jackson8 said:


> hi all
> have a question concerning short butterflys
> 
> eg.   -1  +2  -1
> 
> have been mucking around with priceing on excel and such and have come to the conclusion that there is no premium in them what so ever,  i cannot see why they would be employed at all.
> 
> am i missing something as the risk/reward ratio seems to be horrific
> 
> would welcome any comments from experienced players.
> 
> gary




Hi Gary,

My take on the short butterfly is that it seems to have a higher probability of success as the loss zone is narrower when the conditions are right, i.e. it seems to favor low IV situations, just my guess. I’ll also be interested to hear from experience.

BTW, have a play with XJO 3700/3800/3900 and you'll see what i mean, especially when IV is moved to the lower ranges.


----------



## jackson8

emilov said:


> Hey Gary,
> Hell yeah you can make money. Here is a quick example (prices simplified):
> buy bhp 32 calls @ 180c
> sell bhp 32.50 calls x2 @ 150c
> buy bhp 33 calls @ 120c
> 0 $debit/credit (most times you'll end up with a small debit and there is margin involved but there are offsetting bought calls so not so much)
> 
> Perfect scenario, bhp expires at 32.50. In that case sold calls and the 33 bought one expire worthless. The 32 call is worth 50c. So you make the premium of the sold calls plus the 50c: 2x1.50$ + 50c = 3.50$ (minus wretched brokerage). I'd say that is a pretty handsome profit (given the fact that the maximum you can lose in any direction is the difference i.e. 50c). Of course in order to profit BHP does need to be very close to the price of the sold calls otherwise you end up in the losing zone pretty quickly.
> 
> Of course doing the above on BHP itself would not be the best idea as it tends to gap a lot and do whatever the hell it wants. But there are stocks that are more flat or have stable trends so a trend line would tell you where they are likely to finish. And funny things happen on expiry day  some stocks finish miraculously directly at some strike price, I wonder why that is ?
> 
> If there is a descent resistance you could do a ratio call spread instead (basically a butterfly without an upper bought call protection and hell of a lot more margin because of that).
> 
> The butterfly you'd do about 4-5 days prior to expiry so time decay would really hit the sold calls. Also you don't have to hold till expiry and get rid of the spread during the last day.
> 
> Cheers, Emil




hi emilov

thanks for the reply

am actually talking about short butterflys


instead of your example of bhp which is long
buy bhp 32 calls @ 180c
sell bhp 32.50 calls x2 @ 150c
buy bhp 33 calls @ 120c


a short would consist of
sell bhp 32 call @ 180c
buy bhp 32.50 calls x2 @ 150c
sell bhp 33 call @ 120c

so would be relying on sp to finish either above the 33 short or below the 32 short 
but i am finding that premium received is very little to the risk taken on.

gary

ps.  also the price equations that you have posted dont quite work out . as i see it the maximum profit on your long position is 50c plus premium received.

you dont retain all of the premium on your shorts as you have had to purchase the longs.


----------



## cutz

cutz said:


> Hi Gary,
> 
> My take on the short butterfly is that it seems to have a higher probability of success as the loss zone is narrower when the conditions are right, i.e. it seems to favor low IV situations, just my guess. I’ll also be interested to hear from experience.
> 
> BTW, have a play with XJO 3700/3800/3900 and you'll see what i mean, especially when IV is moved to the lower ranges.




Hi Gary, i just want to add.

Another interesting observation about the short butterfly is that the risk  graph gets really attractive as time is removed, so with a pretend IV of 10%, 7 days out, XJO at 3800, on 10/20/10 contracts max risk is 4K, max profit is 6k, loss zone is about 40points either side of 3800.

The trade off is with such a low IV, getting out of the loss zone seems unlikely in 7 days, when you add time the risk/reward starts spreading out, i.e at 4 weeks it becomes ~2.5K max rofit/7.5K max loss, but of course there’s more time to get out of the loss zone (~3725-3875).

Interesting subject short flys Gary, I think you’re onto something.


----------



## jackson8

hi cutz 
this is my understanding of the two positions that i am talking about. taken from asx pdf.

LONG BUTTERFLY
Construction:
Buy 1 Call at A and Sell 2 Calls at B and Buy 1 Call at C.
Your Market Outlook: Neutral. The share price will expire around the
strike price B. This strategy is also used if your view is that volatility
will decrease, the bought options at A and C provide protection for
the strategy.
Profit: *The maximum profit will occur at the strike price B.*
Loss: The maximum loss for this trade is limited. The break-evens are
at A plus the cost of the spread and at C less the cost of the spread.
Volatility: The option value will decrease as volatility decreases which
is generally good for the strategy. Alternatively an increase in volatility
will be generally bad for the strategy.
Time Decay: As each day passes the value of the option erodes
(good). Most of the decay will occur in the final month before expiry.


SHORT BUTTERFLY
Construction:
Sell 1 Call at A and Buy 2 Calls at B and Sell 1 Call at C.
Your Market Outlook: Volatile/Event Driven. Volatility will increase. If it
does both bought options will increase in value. You are unsure of the
direction of the stock but you think it will make a large move.
Profit: The maximum profit for this trade is limited. The break-evens
are at B plus or minus the cost of the spread.
Loss: *The maximum loss will occur at the strike price B.*
Volatility: The option value will increase as volatility increases which is
generally good for the strategy. Alternatively a decrease in volatility will
be generally bad for the strategy.
Time Decay: As each day passes the value of the option erodes (bad).
Most of the decay will occur in the final month before expiry


when i price the short fly it seems a very small premium received for the large risk involved
maybe as you have stated and from the asx doc, it is more of a volatility play

gary


----------



## sails

Hi Gary,

If you take the concept of long flies which work best in a high IV environment, the opposite is a good rule of thumb with short flies.

Long flies are cheaper to buy when IV is high and improve with falling IV.  Therefore more premium can be taken in on short flies if IV is lower - as Cutz has pointed out and could explain why there isn't much premium at this stage as IVs are still too high for a worthwhile, short fly.  It also depends on where you position a fly - whether it is ATM or OTM - this is something worthwhile to play around with as it helps gain a greater understanding of how the greeks affect multi-legged positions placed at different strikes, widths, etc. 

It's not only IV that makes for a cheaper butterfly (or little premium for the short fly) - but also theta.  So the further out in time, the cheaper it is to buy flies and not worthwhile premium for short flies.  As expiry approaches, OTM flies lose their value quickly where ATM’s gain a little more quickly.  If there is a vertical IV skew as opposed to a more symmetrical smile (eg otm puts with higher IV than otm calls (NB: different strikes)), it may be more advantageous to place sold flies above the market.

So, if you are taking the opposite side of the long fly holder, you want the opposite conditions.  Obviously, it is ideal if the underlying has moved well away from the short fly as expiry approaches.  One possible place to consider a short fly as an initial strategy would be on potential high point in the underlying where IV has fallen significantly and a strong move is expected (but not sure which way).  A strong move would take the underlying well away from the centre of the strikes.  If that happens, it is likely possible to place another spread in the direction of the move.

EG XYZ -  market trading at $25.  Sell  24.50 / 25 / 25.5 fly for 10c.  Market drops to 24. If you think it's made a low point, one can then either add 24 / 24.5 put credit (or call debit (same strikes) if assignment is a concern of doing the same thing with puts).  You can even add another short fly if you think there may be more down do come and if there is enough premium in the short fly due to IV increase. 

You will see why I won't do these any more in the Oz market as they are too expensive in fees and slippage.  They're not a holy grail as there is a risk of the market not moving when you put the first one on and then the fly holders gets all the profits at your expense.

I think there are better ways to trade than short flies as a stand alone strategy - but they can be useful as a starting point and then followed up with adjustments.  Strategies like the condor are great if the market is range bound, but they are not easy to adjust if the market moves into the danger area.  The short flies are great if the market moves away from the ATM area (where the best premium is to be found for the short fly) and then one can follow up with adjustments as I have described above, thus adding more favourable positions as the market moves.  Of course, as mentioned above, the risk lies in the underlying not moving away from your short fly.

Well, I thought I could type up a quick answer – sorry for the long post.  Very difficult to condense this stuff!  And I am only passing on to the level of my own ability and understanding – there are others out there that are way ahead of me, so I am still learning too! I think it’s all about trying some of these techniques out (on paper!) in an effort to find your niche in options trading.  What works for one may not work for another.

Hopefully some food for thought - and hope it makes sense. Have had heaps of interruptions while typing it.

PS - Cutz, I see you have also posted on the effect of time while I was typing up this long speel!  Agree that short flies are an interesting subject!


----------



## cutz

Nice post sails, i was looking forward to your take.


----------



## cutz

jackson8 said:


> when i price the short fly it seems a very small premium received for the large risk involved




Totally agree, especially on BHP, suggest using XJO (as a study), its IV has fallen but still not to the levels that IMO would make a short fly viable.


----------



## sails

cutz said:


> Totally agree, especially on BHP, suggest using XJO (as a study), its IV has fallen but still not to the levels that IMO would make a short fly viable.




Also the 4 banks - even WOW often have lower IV than BHP.  But take care with short calls and dividends - also option pricing alters with divs coming up - NAB, ANZ, WBC are all coming up for divs soon.  Also ITM short puts are at higher than normal risk of exercise straight after x-div day.

Glad you found the post helpful, Cutz.  I don't consider myself an expert - just happy to share what I know (or think I know!). 

One other thing I could have added to that long post is if the market moves away, giving opportunities for adjustments.  If expiry is approaching, it often pays to close out any very cheap shorts that are not too far away.  I have watched as the market sometimes reverses before expiry and then makes a strong move in the opposite direction into expiry.  If the shorts are closed out in addition to the other adjustments discussed in my last post, it can leave a few lotto tickets waiting further OTM...


----------



## jackson8

thanks for all that info sails

when putting different strategys through my excel sheet short flys seem a bit too much of a risk for an amatuer like myself

will continue looking at long flys on xjo or credit spreads with the option of turning into flys if need be

i want to try to get away from stock and concentrate on index if possible 

like the idea of cash settlement and no headaches with assignment, exercise and dividends which like you say all needs to be taken into account.

gary


----------



## sails

Gary, I think it's important to find your own niche/s in options trading and definitely agree to stay within your comfort level.  Options are so flexible and there are  other ways to achieve bi-directional trading, if that is what is wanted. 

Iron butterflies were one of the first strategies I really mastered in options trading and because of their narrow profit zone, it was necessary to understand how to make adjustments, etc.


----------



## long88

If you guys noticed, Flies have more smoother line, than calendar and condor.

but brokerage is a killer, and a lot more slippage when enter and exit

is this the same observation here ?



sails said:


> Hi Gary,
> 
> If you take the concept of long flies which work best in a high IV environment, the opposite is a good rule of thumb with short flies.
> 
> Long flies are cheaper to buy when IV is high and improve with falling IV.  Therefore more premium can be taken in on short flies if IV is lower - as Cutz has pointed out and could explain why there isn't much premium at this stage as IVs are still too high for a worthwhile, short fly.  It also depends on where you position a fly - whether it is ATM or OTM - this is something worthwhile to play around with as it helps gain a greater understanding of how the greeks affect multi-legged positions placed at different strikes, widths, etc.
> 
> It's not only IV that makes for a cheaper butterfly (or little premium for the short fly) - but also theta.  So the further out in time, the cheaper it is to buy flies and not worthwhile premium for short flies.  As expiry approaches, OTM flies lose their value quickly where ATM’s gain a little more quickly.  If there is a vertical IV skew as opposed to a more symmetrical smile (eg otm puts with higher IV than otm calls (NB: different strikes)), it may be more advantageous to place sold flies above the market.
> 
> So, if you are taking the opposite side of the long fly holder, you want the opposite conditions.  Obviously, it is ideal if the underlying has moved well away from the short fly as expiry approaches.  One possible place to consider a short fly as an initial strategy would be on potential high point in the underlying where IV has fallen significantly and a strong move is expected (but not sure which way).  A strong move would take the underlying well away from the centre of the strikes.  If that happens, it is likely possible to place another spread in the direction of the move.
> 
> EG XYZ -  market trading at $25.  Sell  24.50 / 25 / 25.5 fly for 10c.  Market drops to 24. If you think it's made a low point, one can then either add 24 / 24.5 put credit (or call debit (same strikes) if assignment is a concern of doing the same thing with puts).  You can even add another short fly if you think there may be more down do come and if there is enough premium in the short fly due to IV increase.
> 
> You will see why I won't do these any more in the Oz market as they are too expensive in fees and slippage.  They're not a holy grail as there is a risk of the market not moving when you put the first one on and then the fly holders gets all the profits at your expense.
> 
> I think there are better ways to trade than short flies as a stand alone strategy - but they can be useful as a starting point and then followed up with adjustments.  Strategies like the condor are great if the market is range bound, but they are not easy to adjust if the market moves into the danger area.  The short flies are great if the market moves away from the ATM area (where the best premium is to be found for the short fly) and then one can follow up with adjustments as I have described above, thus adding more favourable positions as the market moves.  Of course, as mentioned above, the risk lies in the underlying not moving away from your short fly.
> 
> Well, I thought I could type up a quick answer – sorry for the long post.  Very difficult to condense this stuff!  And I am only passing on to the level of my own ability and understanding – there are others out there that are way ahead of me, so I am still learning too! I think it’s all about trying some of these techniques out (on paper!) in an effort to find your niche in options trading.  What works for one may not work for another.
> 
> Hopefully some food for thought - and hope it makes sense. Have had heaps of interruptions while typing it.
> 
> PS - Cutz, I see you have also posted on the effect of time while I was typing up this long speel!  Agree that short flies are an interesting subject!


----------



## cutz

emilov said:


> It surely is nice to be able to call any time and ask anything (like "XYZ dropped today, was there some news that caused it?")




The only broker i trust is the online platform type . Seriously though, Iress is a good source of company specific breaking news, and the ASF sidebar is a good source of general news.


----------



## mazzatelli1000

jackson8 said:


> thanks for all that info sails
> 
> when putting different strategys through my excel sheet short flys seem a bit too much of a risk for an amatuer like myself
> 
> will continue looking at long flys on xjo or credit spreads with the option of turning into flys if need be
> 
> i want to try to get away from stock and concentrate on index if possible
> 
> like the idea of cash settlement and no headaches with assignment, exercise and dividends which like you say all needs to be taken into account.
> 
> gary




Best to consider risk:reward and its effect on your LONG TERM expectancy etc.

I think on this thread or another someone mentioned selling bull/bear spreads with one week to go and theta would kick in. The risk taken is huge in proportion to the reward

Gratifying for a while until -/+2 sigma move

And if the premium collected was OTM......


----------



## mazzatelli1000

It is of personal opinion that playing for condor and credit spread risk:reward is not very attractive and usually by the time defensive action is taken, it is too late. Black swans are unpredictable.

Risking 2 to make 1, very rarely - probably better with binary bets and hedge with spot (am still inexperienced in this area despite guidance)
Anything greater than this ratio for vanillas makes me squirm

The only time I saw any good conditions for IC's and credit spreads was after the crash last year.
Vols were abnormally high, market was spooked and overpriced.
Was rewarded for selling the distribution

Think I posted somewhere last year on one of WayneL threads an IC on OIH with some ridiculous range of 30 -110 with spot ~ 70

Discuss


----------



## IseMalakas

Yes I mainly sell options, Covered Calls, Naked Calls & Puts (far out of the money). I mainly trade in the US using optionsXpress, & I think they're by far the best I've used, and I've been thru a few here in Oz. People shy away from US but the fact is there is over 1500 liquid optionable stocks there, so you can always find good trade setups, not just limited to our paltry dozed here! The only difference is different website! and a form every month to pull profits out!


----------



## jackson8

hi all 
would like to open up a bit of discussion on one of my trades
21/05/09 sold 4 naked $2.83 puts with aug exp @ .145 for total of aprox $575 after fees on lgl

with sp dropping to around $2.85 over last few days have thought about the prospects of it dropping lower or possibly sitting in the price range for a while

to lesson the overall risk of aprox 12k in the event of the worst have closed position for $100 loss not that i expect the worst and i realise ex is some way off but just not comfortable having 12k on the line, sold strike  being threatened and all

next step have sold 1 contract itm put further out in time to recoup the cost of closing position again aprox $593 so now only have 3.5k on line... note. i am still bullish on gold

my reasoning being that have lessoned the overall risk in the event of the worst happening from 12k down to 3.5k.........still have a position in the market and have recouped close to original premium from original sale of 4 x 2.83 strikes. giving myself extra time for my still bullish outlook

but i think overall  my main objective was to lessen my commitment to a 12k purchase

very interested to hear feed back and am more than happy to be critiqued


gary


----------



## cutz

Hi Gary,

Personally i don't like being short naked puts even with stocks that i may want to own when i initially set up the position because when strikes are threatened a change of mind happens.

Using your example and considering IV has dropped right off on this one I’d be inclined to purchase some cheap OTM puts so you end up with a position that is more long.

I also note that you’re also bullish on gold but the position now doesn’t seem to have any upside potential, it’s also something you may need to consider.


----------



## jackson8

cutz said:


> Hi Gary,
> 
> Personally i don't like being short naked puts even with stocks that i may want to own when i initially set up the position because when strikes are threatened a change of mind happens.
> 
> Using your example and considering IV has dropped right off on this one I’d be inclined to purchase some cheap OTM puts so you end up with a position that is more long.
> 
> I also note that you’re also bullish on gold but the position now doesn’t seem to have any upside potential, it’s also something you may need to consider.




thanks cutz

when i placed the initial trade i stretched my account a bit far as i already had other positions on

so main objective was to retain the premium yet reduce my overall risk

upside would only be if sp closes above strike on ex or there is a healthy rise in sp price in which case would close out position for any percentage profit

worst is that have to take delivery , but at least an amount which is within my budget


----------



## cutz

Hi Gary,

I see your point but rolling out and into the money may not  be an ideal situation, with relatively low IV and assuming delta is running close to point 8, time decay on your position may not be that generous,  you also have the added worry of assignment, I copped that early this year on WBC puts.

Anyway additional long OTM wings are helpful, buy them cheap, you can even offload some if the underlying makes strong moves but you feel that a reversal is imminent, taking profits but still keeping protection on.

I know you’re playing within limits on this, just tossing up ideas.


----------



## Grinder

Hey Gary,

Have'nt had the chance to look into lgl but just from a quick strategy perspective I'd be inclined to think along the same lines as Cutz & look to give yourself some upside while staying fairly protected. Being short vega with low IV levels could be damaging, rolling would'nt ease much of the pain.


----------

