# Options trading in OZ - 'Reopening' discussions



## Gunnerguy (26 April 2021)

Hi all,
I spent some time on ASF a few years ago, left for a while, but am back now.
I am intending to move into options trading.

I have traded shares/stocks for over 30 years but now want to move in to options as I now have a lot more time on my hands.
I have a grown a large portfolio of Oz Shares/ETF's over the years successfully but want to look at generating some income from the holdings I already have (if possible) and develop some holdings specifically tuned to options trading.

I have spent the last couple of weeks re-reading and re-learning about options and initially want to start slowly and conservatively.

1. I am looking at selling (writing) covered calls on currently held shares that have Capital gains already to start with. My MTR is now at a (very)/insignificant) rate so I am happy to 'risk' the option being executed/closed out. If they don't get executed I'm happy with some form of income.

Once I am comfortable with the above I then may move on to ...

2. Cash covered puts.

I am still (swing) trading shares/ETF's basically on a quarterly basis, and will continue to.

I see that the options boards are rather quiet and not many recent posts, however I hope that *with opening this new thread* there are some out there who have an interest in options (again) and/or trading them, and are willing to have some discussions, ideas exchanges, around Options.

Gunnerguy.


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## Sharkman (26 April 2021)

occasionally people post stuff about options in the thread for the underlying itself eg. BHP, CBA (well i do anyway) but in general at the moment the options market itself feels rather quiet, especially compared to this time last year. vols appear to be only slightly above the long term averages, skews don't look outlandish, nothing much is moving.

compared to the "excitement" of last year with the violent price movements and skews going haywire making for an environment that encouraged trying options strategies out of the ordinary. during the depths of the crisis i found i could buy 2-3 month 20-25 delta calls in many of the majors at about 40 vol, but there was so much panic floating around that people were willing to pay over 100 vol for the ATM weeklies. so i experimented with some diagonals like that which could be done at basically zero cost, found that it worked pretty well, and kept doing it for a few months. but those days are gone now, options market started calming down around sept from memory and those insane vols disappeared quite quickly.

curious as to why you want to hold off on short puts until you've done covered calls for a while. it's synthetically the same thing. are you waiting to build up the cash to collateralise the short puts first?


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## Gunnerguy (30 April 2021)

Dear All,

With my renewed interest in Options, and an attempt to see if Options can be used against my current share holdings to generate more gains/income, I have started to do some analysis. This is the first of such analysis. With the current climate of ‘the market is over stretched’, ‘PE’s are overextended’, ‘a crash is coming’, and ‘cheap money will keep the market grinding higher’, I thought my first analysis would be a simple one and look at the Options available on an Index and see how they compare to an Index ETF.

This Analysis was conducted in April 29th. 2021, using current Index market data and Options pricing at the close of the market.

*Objective : *Assess if it is better to invest in the AXJO ETF or an Option with the current possible volatility in the market. How does buying/taking an Index Option call or put compare to simply investing in the Index ETF over various future Index values (rising market and falling market).

*Method : *Compare the gains of the AXJO Index/EFT with the purchase of a September Call/Put Option. Calculate the payoff profiles of the options to determine the percentage gain/loss of the AX200 is needed to make the AXJO ETF more attractie than the Options.

*Results : *To those with experience in options this is probably a rather simplistic analysis, however as a ‘student’ of options myself I thought I would do the analysis and share it with others and see if it is correct, and/or of any value to others. I find the results interesting, but not surprising.

Based on current AXJO price and September (5 months ahead) call/put options close to current Index values, it suggests:

1. If the ASX200 rises above 7,325 (+3.0%) by 16/9, it is best to purchase a September Call Option.

2. If the ASX200 falls below 6,800 (-4.0%) by 16/9, it is best to purchase a September Put Option.

3. If the AXJO is between 6,800 and 7,083 on 16/9 it is best to keep your money in your pocket.

4. If the AXJO is between 7,083 and 7,300 on 16th. September it is best to invest in the AXJO ETF.


*AXJO*​*Current Vale 7,083* ​ *September 16th. 2021*​ ​Below 6,800AXJO has fallen more than -4%​Buy the September 7,100 Put6,800 – 7,083AXJO loss between -4% and 0%​Keep money in your pocket7,083 – 7,300AXJO gain between 0% and 3%​Buy the ETF todayAbove 7,300AXJO has gone up more than +3%​Buy the September7,100 Call Option























Would be interested in anyone’s comments.

Gunnerguy


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## Gunnerguy (9 May 2021)

Dear All,

Having re read my financial modelling text book and watched several UTube videos on Options trading over the last couple of weeks I am now getting ready to get started with my first Options trade. I hope to place my first trade this week.

Starting simple I plan to place a covered call on a portion of the FMG shares that I hold. I thought I would post my planned trade here in order to see if anyone can see any glaring issues or have any advice on the trade.

*Background*.

I hold FMG shares purchased on 4th May at an average cost of $22.53. I hold more shares than the shares in the options contract I plan to trade.

*The Trade*.

Sell 10 contracts (1,000 shares) of a 17th June FMG call with XP of $24.76. The XP is 7.8% above current SP as on 7th May. 1,000 shares from my account will be ‘held’ as collateral for the trade. The premium is $0.470 ($470) per contract and the contract fee is $35. Total received premium will be $470 - $35 = $435.

*Possible outcomes.*

1. If FMG SP remains below $24.76 up to 17th June the Option will expire and my gain is $435.

2 If FMG SP rises above $24.76 the option will be executed by the purchaser. My shares held as collateral will be sold. At the XP of $24.76, there would be a gain of 9.9% above my original purchase (4th May) cost of the shares ( (24.76-22.53)/22.53 ), plus a share trading fee.

*Other thoughts.*

I want to hold FMG long term, however I also want to see if I can get some ‘income’ from holding them, in addition to the possible healthy dividend. If the SP rises to $24.76, I am happy to sell and get a gain of 9.9% over the 4 weeks.

I am cognisant that the results and dividend will be announced in Mid/End August so I want to complete the trade before then.

I believe, but not sure, that if the contract expires and is not executed, the premium received will be considered ordinary and assessable income for tax purposes. It is not considered a Capital Gain. If the contract is executed then the proceeds, and costs, and premium are all included in the Capital Gain calculation with no 12 month 50% discount.

Any advice or critical comments would be welcomed. Thanks.

Gunnerguy.


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## striek (9 May 2021)

If you are going to regularly sell options I would strongly consider swapping brokers because Australian brokers are very expensive. $35 a trade (CommSec?) Plus another $35 on assignment will kill your profit profile. I use Interactive Brokers. It's about $1 a trade on options and no assignment fee. They aren't chess sponsored and have other pros/cons though so do your research.

The obvious risk to selling long covered calls is upside risk. You take on all the downside risk but limit your profit potential on the upside. What is your expectations for the performance of the underlying, do you buy back in, what's your opportunity cost? 

I am personally long on FMG options and looking to acquire more.


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## Gunnerguy (9 May 2021)

striek said:


> If you are going to regularly sell options I would strongly consider swapping brokers because Australian brokers are very expensive. $35 a trade (CommSec?) Plus another $35 on assignment will kill your profit profile. I use Interactive Brokers. It's about $1 a trade on options and no assignment fee. They aren't chess sponsored and have other pros/cons though so do your research.
> 
> The obvious risk to selling long covered calls is upside risk. You take on all the downside risk but limit your profit potential on the upside. What is your expectations for the performance of the underlying, do you buy back in, what's your opportunity cost?
> 
> I am personally long on FMG options and looking to acquire more.



Striek
Thank you for you great comments.
Cost of trade is a bit high and will consider other brokers. At the same time this trade I propose is a ‘small’ one to start with.
I am also long FMG, but is executed out at a 10% gain in a month I would be happy with. These 10 contracts are only a portion of my total FMG holding. Plus there are several opportunities in the current market that I think are available.
Opportunity cost - cost of the trade I’d guess, other opportunities, yes always, but I am already not fully invested at the moment.
The purpose is to learn the process of covered calls and the bull spreads to start with to eventually get a yearly income of $100,000, from my currently held holdings on top of the capital growth and dividends.
Thanks for your comments.
Gunnerguy.


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## over9k (10 May 2021)

Are you determined to sell options gunner or is buying them on the table?


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## Gunnerguy (10 May 2021)

Over9k,
Thanks for your question.
The short answer is yes.
The long answer is .....
I am looking to increase my knowledge in options of all types in order to create more income/returns from my current holdings at a risk appropriate level.
I find full in depth detailed financial analysis of potential companies lengthy and time consuming and has risk. 
I have done charting also in the past with EW, H&S, defending wedges etc. and this  method also has its merits. On parts of my portfolio I do both of these.
I believe options can allow me to reduce downside risk but as others say may reduce my upside.
Protecting the gains I already have rather than selling out and taking my profits is also a target.
Staggering puts and calls in a fluctuating market I believe will also provide some risk appropriate gains and protection.
I need to reduce the cost of contracts to gain full value in options trading, however the size/number of contracts I hope to trade are such that the high cost is annoying but not totally debilitating.

Gunnerguy


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## cutz (10 May 2021)

Gunnerguy said:


> *The Trade*.
> 
> Sell 10 contracts (1,000 shares) of a 17th June FMG call with XP of $24.76. The XP is 7.8% above current SP as on 7th May. 1,000 shares from my account will be ‘held’ as collateral for the trade. The premium is $0.470 ($470) per contract and the contract fee is $35. Total received premium will be $470 - $35 = $435.



Hi,

Sounds like an ok strategy to begin with.

Not much to say about covered calls, you can roll down into a correction but risk getting assigned in the event of a snap back.

Biggest downside to the covered call strategy is missing out on upside, you seem well aware of that,  you're shorting less call options than total stock holding therefore you should be able to trade your way out of assignment in the event of a rally.

FMG stock appears to have good trading volume which should translate into less liquidity risk in the options which means getting filled around the midpoint, watch out for those series which have low volumes on the underlying, market markers will tend to pull you towards their side in order to get a fill.


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## striek (10 May 2021)

Has this mornings price action changed your mind at all? Its very likely if you had sold Friday you would be regretting it today (I would think) when the underlying has almost met your strike price (with a month to go). I regret not buying more call options last week!

I had sold covered calls on A2M... I knew in my head I should cut the stock weeks ago but went with my heart... the covered calls were a compromise to reduce the cost base. Now I have sold out at a loss and purhased puts, haha.


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## Gunnerguy (10 May 2021)

cutz said:


> Hi,
> 
> Sounds like an ok strategy to begin with.
> 
> ...



Cutz,
Thanks fir your comments. Yes I am keeping an eye on the open contracts and the volumes of each strike price and series.
A big move today fir FMG sort I’ll adjust my strategy price should I hit the button this week.
Thanks !
Gunnerguy


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## Gunnerguy (10 May 2021)

striek said:


> Has this mornings price action changed your mind at all? Its very likely if you had sold Friday you would be regretting it today (I would think) when the underlying has almost met your strike price (with a month to go). I regret not buying more call options last week!
> 
> I had sold covered calls on A2M... I knew in my head I should cut the stock weeks ago but went with my heart... the covered calls were a compromise to reduce the cost base. Now I have sold out at a loss and purhased puts, haha.



Striek
Huge move today. Haven’t seen such a large one day rise in FMG. With such a move today buying a put about a percentage below current price I don’t think would be too bad an idea.
My covered calls strike prices will have to move up.
Thanks for your comments.
Gunnerguy


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## Gunnerguy (12 May 2021)

All,
My journey in to trading options continues. Little steps.
I have now opened an account with IB and started funding the account.
Having done more reading and research, it seems, not surprising, that liquidity and volatility are important factors in choosing which options to trade. Looking at the ASX website on open interest and liquidity for the last 4 months I see that the following are the most liquid options: XJO, TLS, BHP, FMG, WBC, ANZ, NCM, ORG, RIO, NAB, WES, STO.
Obviously the last 4 months has been reporting season but (again probably obviously) these are generally the larger companies on the ASX.
On volatility, I am unable to find any historical 'implied' volatility for ASX shares anywhere. If anyone knows where I can get this I would appreciate it. I don't fancy the idea of downloading historical closing prices for these shares and using excel to calculate probabilities of dailyy/weekly/monthly volatility statistics, but might be fun for a nerd like me.
Anyway with the list of most liquid options, and the 'Commodity super cycle' apparantly, and the market moving to, possibly, 'value over growth', I think I might focus on the likes of BHP, RIO, WES, as I hold none of these directly  (apart from indirectly in ETF's) or possibly STO, FMG as I hold these.

Just an update on my journey .... for people to laugh at, or make critical comments.
But alos, sorry to bore the options trading experts that are here.

Hope you all having a good day.

Gunnerguy.


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## cutz (12 May 2021)

Gunnerguy said:


> On volatility, I am unable to find any historical 'implied' volatility for ASX shares anywhere. If anyone knows where I can get this I would appreciate it.



Hello.

IB TWS shows it in chart form, just check the option implied volatility box when opening up a stock chart.

 To see it in webiress/viewpoint launch a stock chart, append "IV" to the ticker code,  example BHPIV.ASX

Regards.


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## Gunnerguy (12 May 2021)

cutz said:


> Hello.
> 
> IB TWS shows it in chart form, just check the option implied volatility box when opening up a stock chart.
> 
> ...



Thanks Cutz,
I’ve got IB all set up and now have the IV.
Amazinging the technology available now compared to 20 years ago when I traded through Schwab, Fasttrade and ETrade via paper contracts.
The World has opened up for me.
I’m like a kid with a new toy !!

Gunnerguy


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## Gunnerguy (19 May 2021)

My IB account us now fully funded.

Just bought some CBA shares today. My first acquisition to my ‘Trading Options Portfolio’.
I plan to use these firstly to try to gain income by placing covered calls as my first strategy into a fully fledged multiple shares options portfolio.

I plan to add a couple more shares as since I am starting this journey I’m only planning on doing covered calls until I get use to the IB software and gain more knowledge on option trading.

There is heaps of info on trading on the web. The best I have found so far is OptionAlpha. A great website with over 100 hours of detailed option training/trading videos.

Interested in hearing any ideas/comment regarding creating strategies.

Gunnerguy


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## Sharkman (19 May 2021)

buying stock + selling calls is synthetically equivalent to selling puts. in fact when trading thru IB it's actually slightly cheaper to sell puts and have the stock put to you vs buying the stock outright, particularly for dollar expensive stocks like CBA. you only pay 27.5c a contract when assigned, you DON'T pay the 0.08% brokerage. to buy 1000 units outright at today's prices would cost about $77 brokerage, to get those same 1000 units put to you only costs $2.75 as an assignment fee. it's not much individually, but it adds up if you frequently utilise dividend stripping tactics.

CBA doesn't go ex-div until Aug. if the objective is to generate income from both premium + dividend, an alternative way to go about it would be to sell Jun puts. if those expire OTM, then sell Jul puts. if either of those are ITM, you can let them get assigned and take delivery prior to the dividend. if they both expire OTM, then buying outright might become a consideration at that point to ensure you have the stock before it goes ex-div.

if you're going to sell Aug covered calls, watch out for early exercise especially the day before ex-div day - the div can and will get called out from under you if it's ITM and the dividend is larger than the remaining extrinsic. one way to avoid that is to sell the *european* calls (in IB the european chains are denoted by CBA.E instead of CBA) which can't be exercised early, but the premium will of course reflect that. the downside is that you don't always get good fills on the europeans as they are way less liquid. the american options generally get better fills, but you have to pay close attention to the market the day before ex-div and be prepared to buy them back or roll up & out if it looks like it could get exercised early.


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## Gunnerguy (19 May 2021)

Sharkman said:


> buying stock + selling calls is synthetically equivalent to selling puts. in fact when trading thru IB it's actually slightly cheaper to sell puts and have the stock put to you vs buying the stock outright, particularly for dollar expensive stocks like CBA. you only pay 27.5c a contract when assigned, you DON'T pay the 0.08% brokerage. to buy 1000 units outright at today's prices would cost about $77 brokerage, to get those same 1000 units put to you only costs $2.75 as an assignment fee. it's not much individually, but it adds up if you frequently utilise dividend stripping tactics.
> 
> CBA doesn't go ex-div until Aug. if the objective is to generate income from both premium + dividend, an alternative way to go about it would be to sell Jun puts. if those expire OTM, then sell Jul puts. if either of those are ITM, you can let them get assigned and take delivery prior to the dividend. if they both expire OTM, then buying outright might become a consideration at that point to ensure you have the stock before it goes ex-div.
> 
> if you're going to sell Aug covered calls, watch out for early exercise especially the day before ex-div day - the div can and will get called out from under you if it's ITM and the dividend is larger than the remaining extrinsic. one way to avoid that is to sell the *european* calls (in IB the european chains are denoted by CBA.E instead of CBA) which can't be exercised early, but the premium will of course reflect that. the downside is that you don't always get good fills on the europeans as they are way less liquid. the american options generally get better fills, but you have to pay close attention to the market the day before ex-div and be prepared to buy them back or roll up & out if it looks like it could get exercised early.



@Sharkman 
Thanks for making the effort to let us know your ideas !!
As a novice in options this is great. I’m just a bit scared of selling puts without holding the underlying shares at the moment but my confidence will grow in time.
Very simplisticly, I hope to buy a share I believe will do do well in the future. Hold the share and sell calls for the premium. Maybe set the CD at say 10% above current SP. if I get assigned I get 10%, no complaints, if I don’t then I keep the premium.
I’ll study you suggestion.
Thanks again.
BTW, I’m hoping to do this with 3-4 companies, and roll them up.
Gunnerguy


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## cutz (19 May 2021)

Gunnerguy said:


> As a novice in options this is great. I’m just a bit scared of selling puts without holding the underlying shares at the moment but my confidence will grow in time.



Hello,

In simple terms a covered call carries exactly the same risk profile as a naked put.

Why are you more comfortable buying stock and shorting calls over just shorting puts ?


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## Gunnerguy (19 May 2021)

cutz said:


> Hello,
> 
> In simple terms a covered call carries exactly the same risk profile as a naked put.
> 
> Why are you more comfortable buying stock and shorting calls over just shorting puts ?





cutz said:


> Hello,
> 
> In simple terms a covered call carries exactly the same risk profile as a naked put.
> 
> Why are you more comfortable buying stock and shorting calls over just shorting puts ?



Because as an amateur I feel scared ‘selling’ something I don’t own, plus generally I am ‘long’ on CBA.

Maybe I’m missing something.

Gunnerguy.
(Trying and learning something new, slowly)


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## cutz (20 May 2021)

Gunnerguy said:


> Maybe I’m missing something.



That's cool, many complexities, it takes time to get it.

I think the bit you're missing is understanding equivalent positions, an option strategy modelling tool will help, sharkman raised a couple of valid points regarding your covered call position, legging into one introduces slippage / execution risk, a simple short put will set you up with the exact equivalent position in one trade.


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## Gunnerguy (20 May 2021)

cutz said:


> That's cool, many complexities, it takes time to get it.
> 
> I think the bit you're missing is understanding equivalent positions, an option strategy modelling tool will help, sharkman raised a couple of valid points regarding your covered call position, legging into one introduces slippage / execution risk, a simple short put will set you up with the exact equivalent position in one trade.


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## Sharkman (20 May 2021)

Gunnerguy said:


> I’m just a bit scared of selling puts without holding the underlying shares at the moment but my confidence will grow in time.




that's fair. i was a bit freaked out by the idea of "naked" positions vs "covered" positions when i was starting out too. but in this case you'd be selling cash covered puts, not naked puts, because if you've already bought the stock position outright, you would've had the cash to cover the assignment had you not bought the stock position ie. the puts would be fully collateralised, just like a covered call.

when selling puts, usually you DON'T want to be holding the underlying shares. short puts are delta positive, if you already have a stock position, you'd just end up making your position larger, so you wouldn't want to sell puts in addition to a long stock position (unless you intentionally want to take on more deltas in that stock). eg. if you have 1000 CBA and you sell 10 ATM puts, you will actually end up with ~1500 deltas in CBA, not 500.

naked calls however are a completely different story and i think it's completely legitimate to be scared of selling those. even after 13 odd years of options trading, i will still never sell naked calls, if i want to sell calls without owning the stock i will at least protect it by buying a higher strike call. unlike short puts, the potential losses are unlimited because a stock can theoretically go as high as it wants, whereas it can't go any lower than zero, so even if you sell puts that aren't fully collateralised, you know what your max loss is.


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## cutz (20 May 2021)

cutz said:


> Hello,
> 
> In simple terms a covered call carries exactly the same risk profile as a naked put.
> 
> Why are you more comfortable buying stock and shorting calls over just shorting puts ?



Hi @Gunnerguy

This all becomes second nature, I don't have much time to explain these days.

This guy does it well with graphics, I only watched it to 6mins. https://s3.amazonaws.com/Vimeo/CCC.m4v

Pertinent point at 4mins 30 secs.


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## Gunnerguy (30 May 2021)

OK , time to update.
Watched over 40 hours of options education from ‘Options Alpha’. A tremendous free website with a huge, huge, huge amount of education and information.
Getting close to the first trade.
Start simple, know your risk, profit profile and .... patience.
GG


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## Gunnerguy (9 June 2021)

I've been quiet for a few days. Continuing to learn through videos and reading.
The IB account is all set up and have been playing with setting up the dashboard and did some paper trading.
So at the moment I have bought 100 CBA (at 95.4), 500 ANZ (at 27.9), and 250 BHP (at 47.9) in my 'options trading account'. I am currently 'long' in all these 3 and hold more shares in my 'Long Term investing account'.
My 'Options Trading Account' is purely to learn to trade options, make some income from premiums, and not care about the overall market directions.

The first trade I am looking at is selling June or July OTM Puts but above my original 95.4 purchase price, and below current price.
Possible outcomes, 1) Premium will be recieved, if CBA rises the contract will expire worthless and I have gained the premium, curremtly $38. 2) CBA falls below strike, my shares are assigned, sold out, and based on my buy price I make about 3.9% on my original CBA shares after costs.

A simple first trade. If CBA rises, I gain the premium, if CBA falls I lock in profits. Yes if CBA falls below then bounces up I loos possibe upside, but I hold CBA elsewhere that will gain the upside.

Probably a very basic first trade for those reading, but I have to start somewhere. 

Any comments would be well recieved.

Regards
Gunnerguy


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## Sharkman (10 June 2021)

Gunnerguy said:


> The first trade I am looking at is selling June or July OTM Puts but above my original 95.4 purchase price, and below current price.
> Possible outcomes, 1) Premium will be recieved, if CBA rises the contract will expire worthless and I have gained the premium, curremtly $38. *2) CBA falls below strike, my shares are assigned, sold out, and based on my buy price I make about 3.9% on my original CBA shares after costs.*




the bolded part is incorrect for short puts. if it falls below the strike, you will be obliged to buy more CBA at the strike ie. the stock will be "put" to you. what you've described for 2) is bought puts.


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## Gunnerguy (10 June 2021)

Sharkman said:


> the bolded part is incorrect for short puts. if it falls below the strike, you will be obliged to buy more CBA at the strike ie. the stock will be "put" to you. what you've described for 2) is bought puts.



Sharkman,
Still learing and a bit confused.
If I sell the OTM put, the purchaser has the option but not obligation to sell CBA shares. If the price falls below the strike the owner/purchaser of my sold put option, would be able to sell shares. If I am holding shares surely my shares would be allocated to him, and he would sell them at that strike price and thus my shares would be 'sold' at the strike price.
What am I missing here ?
Thanks
Gunnerguy


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## Sharkman (10 June 2021)

the put buyer has the right but not the obligation to sell *their* shares to you. they're either buying protection for their own stock position, or they're punting that the stock price will fall. eg. if you sell the $100 puts and the stock price falls below that, they get to sell their units to you at $100. even if it falls to $90 or $80, you still have to buy the stock off the put buyer for $100 when they exercise it. that's why they're paying you the premium, to "insure" they get at least $100 for their stock.


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## Gunnerguy (10 June 2021)

Sharkman said:


> the put buyer has the right but not the obligation to sell *their* shares to you. they're either buying protection for their own stock position, or they're punting that the stock price will fall. eg. if you sell the $100 puts and the stock price falls below that, they get to sell their units to you at $100. even if it falls to $90 or $80, you still have to buy the stock off the put buyer for $100 when they exercise it. that's why they're paying you the premium, to "insure" they get at least $100 for their stock.



Sharkman,
Thanks for explaining. Its a lot clearer now.
Gunnerguy


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## Gunnerguy (21 June 2021)

So my Options journey has now officially commenced.
My first ever trade ......

10 June. Sold 1 contract. $106 CBA covered call, 15 July expiration. Delta = 0.194, Price = 0.6. SP was at $100.94.
17 June SP got up to $106.33 but was not assigned.
21 June (today) SP at $98.06, Option Price = 0.219.

I could BTC and gain $36 (a nice bottle of wine for 11 days ownership of the option) after costs or let it ride.

I am currenty looking at selling more covered calls in BHP, ANZ, and maybe FMG tomorrow morning.
Happy so far and excited.
Slowly slowly ....

Gunnerguy.
(Wanting to suppliment my Dividend and Capital Gain Incomes with some Options trading Income).


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## cutz (21 June 2021)

Gunnerguy said:


> So my Options journey has now officially commenced.
> My first ever trade ......
> 
> 10 June. Sold 1 contract. $106 CBA covered call, 15 July expiration. Delta = 0.194, Price = 0.6. SP was at $100.94.
> ...



Congrats mate !

Early assignment highly unlikely when the underlying hit 106.33 on the july 106 calls, ex div is august I presume ?

How much are you paying on brokerage ?


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## Gunnerguy (21 June 2021)

cutz said:


> Congrats mate !
> 
> Early assignment highly unlikely when the underlying hit 106.33 on the july 106 calls, ex div is august I presume ?
> 
> How much are you paying on brokerage ?



$1.17 per contract using IB as recommended by someone here on ASF, sorry can’t remember who, but will check
Gunnerguy


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## Gunnerguy (21 June 2021)

cutz said:


> Congrats mate !
> 
> Early assignment highly unlikely when the underlying hit 106.33 on the july 106 calls, ex div is august I presume ?
> 
> How much are you paying on brokerage ?



Dividend declared in August


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## wayneL (22 June 2021)

Just a point on that sort of strategy, and more a point about management and assignment risk... 

Maybe you don't need me to tell you this, but on a long term portfolio, beware of capital gains tax events.

ie learn the circumstances of when you risk being assigned, and when you don't.

FWIW


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## Gunnerguy (22 June 2021)

Thanks @wayneL for letting me know. Always happy to take advice and comments on my strategy/journey whether I know it or not. If I don't know I learn , if I do then it just reminds me of the fact which is good.

I am keeping a close eye on the potential to be assigned and the CGT consequences, especially now at EOFY. I have an 'invesment portfolio' separate from this 'Options portfolio'. I have a detailed spreadsheet showing my full tax status based on my dividends (& franking) and CGT events when I buy/sell my shares/ETF's through the year to ensure I 'churn' at a profit, and enough to live on, whilst also keep tax to a minimum. Assets are managed between my portfolio and Ms.Gunnerguy's portfolio.

I have already basically completed our tax assessments for this year,  but looking at a little bit of 'bed and breakfasting' over the next 8 days.

Thanks for your comment @wayneL 

Gunnerguy.
(The options learner)


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## Gunnerguy (25 June 2021)

Hi all,

With the impending, hopefully, good quarterly results in July for FMG, I am considering placing a Bull Put Credit Spread for FMG. The price has risen nicely in the last couple of days.

The details are.

15 July, 22.5/22.0 Bull Put, 10 contracts. Credit of $68. Max possible loss of -$432, if FMG price goes below $22.0 before 15 July.

I believe it’s unlikely FMG will go below $22.0 before 15 July. If it does I will buy FMG Long.

Not looking for Financial Advice (as no one can provide it here) but would appreciate any comments, suggestions.

Regards

Gunnerguy.

(Amateur options trading learner).


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## cutz (25 June 2021)

Gunnerguy said:


> 15 July, 22.5/22.0 Bull Put, 10 contracts. Credit of $68. Max possible loss of -$432, if FMG price goes below $22.0 before 15 July.



Hi , I'm getting a a $165 credit at the midpoint ! Max loss should equate to $335 plus commish, plus a little slippage.


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## Gunnerguy (25 June 2021)

Cutz,
Yep $170 now.

Gunnerguy


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## Gunnerguy (25 June 2021)

The spread across FMG prices currently.


Sell PutBuy PutHighLowPMLossDelta$22.50$22.00$168.00-$332.000.297$22.00$21.50$108.00-$392.000.084$21.50$21.00$125.00-$432.000.057$21.00$20.50$43.00-$457.000.044$20.50$20.00$33.00-$467.000.033

Interesting that as the premium goes up the highest losses goes down. Unusual isn't this ?
Deltas are also interesting.

Gunnerguy
(Amateur options trader)


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## cutz (25 June 2021)

Gunnerguy said:


> The spread across FMG prices currently.
> 
> 
> Sell PutBuy PutHighLowPMLossDelta$22.50$22.00$168.00-$332.000.297$22.00$21.50$108.00-$392.000.084$21.50$21.00$125.00-$432.000.057$21.00$20.50$43.00-$457.000.044$20.50$20.00$33.00-$467.000.033
> ...



Hi, The delta on the 22.5/22.0 bull put is closer to 0.107.


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## wayneL (25 June 2021)

Gunnerguy said:


> The spread across FMG prices currently.
> 
> 
> Sell PutBuy PutHighLowPMLossDelta$22.50$22.00$168.00-$332.000.297$22.00$21.50$108.00-$392.000.084$21.50$21.00$125.00-$432.000.057$21.00$20.50$43.00-$457.000.044$20.50$20.00$33.00-$467.000.033
> ...



That is totally within expectations. All of your option Greeks are tied to the probabilities of the trade and are priced (if priced correctly with the benefit of foresight) for a break even outcome less contest risk, ie a negative sum proposition over the long-term.

Therefor every option trade that you undertake either has a directional prediction or volatility prediction.

if you are good at one or the other, or preferably both, you will win at options.

If not, your account will die a death of a thousand cuts, so long as you don't expose your carotid artery, in which case you will bleed out all at once one day.

Risk vs reward, but contrary to ordinary stock trading these things are nonlinear.

FWIW

<ETA> autocorrect has obviously been designed to either make us look stupid or expose those of us who don't proofread properly


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## Gunnerguy (1 July 2021)

..... I am no longer an Options Trading Virgin !! Whoohoo
I finally did it. After weeks of reading, learning I finally dipped my toes in the crystal/murky waters of the 'Options Trading Pool'.

Trade 1. 10th June.
STO 1 contract CBA Jul15 $106 Call. PM +$0.6, Delta 0.219. PM Recieved +$58.90. Share price was at $101.15 at the time of STO.

Trade 2. 29th June. Closed the contract.
BTC 1 contract CBA Jul15 $106 Call. PM -$0.1. PM Paid -$11.10. Share price was at $99.15 at the time of BTC.
I could have let it run longer but I wanted to close the loop and take my first profit in this learning process.

Yes, I know, its only a net gain of $47.80, but its my first & second trades. It was nice to see the option price change over the period and CBA even touched $106 and was not assigned.

Gunnerguy.
(Amateur, learning options trader).


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## Sharkman (1 July 2021)

looks good to me. closing out short options for less than 20% of the premium collected makes a lot of sense, the tricky part is maintaining one's discipline and making sure that you do it when you get the chance, otherwise this can happen


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## Gunnerguy (2 July 2021)

Closed out my second trade yesterday.

Trade 3. 21st. June.
STO 2 contracts CBA Jul15 $102 Call. PM +$0.58, Delta 0.232. PM Recieved +$114.90. Share price was at $98.44 (-3.62% below call price) at the time of STO.

Trade 4. 1st. July. Closed the contract.
BTC 2 contract CBA Jul15 $102 Call. PM -$0.31. PM Paid -$63.10. Share price was at $98.81 at the time of BTC.

Again, I could have let it run longer but I wanted to close the loop and take my profit.

Net gain was $51.80.

Gunnerguy.


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## Gunnerguy (2 July 2021)

I currently have 4 new open option contracts between CBA, FMG, and BHP, split between July and August. All are STO recieving premium.
Lets see how the next few days/weeks go.
Patience, and not being greedy.

Gunnerguy.


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## Gunnerguy (4 July 2021)

Hi All,

My journey in to generating an income from Option Trading continues.
I would welcome any comments or critics on a trade I am considering next week.
Either Trade A or B on ANZ for September expiration. ANZ current price = $28.32.
ANZ Full Year results on 28th October. CBA results in August, if they are good they could bump ANZ up.

*Trade A.*
1 Bull Put 29/29.5 Credit Spread contract.
Buy 29 Put. PM = -1.52, delta = -0.607. Sell 29.5 Put. PM = +1.87, delta = -0.694.
Net Credit = $32.80 (after commission), Delta = 0.087.
Risk is -$17.20, Max gain is $32.80, Breakeven is $29.17, +3% on current price.

*Trade B.*
1 Bull Put 30.5/31 Credit Spread contract.
Buy 30.5 Put. PM = -2.67, delta = -0.833. Sell 31 Put. PM = +3.11, delta = -0.888.
Net Credit = $41.8 (after commission), Delta = 0.055.
Risk is -$8.20, Max gain is $41.80, Breakeven is $30.58.17, +8% on current price.

Trade B has a better Risk/Reward, however BE is 8% about current price.
I am, however, leaning towards doing 2 or 3 contracts of Trade A.

Any comments, ideas or critic would be greatfully received.

Gunnerguy.
(Learning, slowly, to generate income from Options Trading)


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## Sharkman (9 July 2021)

TBH i don't really see the point of turning it into a vertical spread when the strikes are that far OTM (yes the puts are technically ITM but typically this sort of thing would be done on the reverse side of the box spread ie. a 29-29.50 call debit spread - it's the same risk reward but probably gets better fills).

at the 29 level it's almost a hail mary type play already (at the 30.50 level it probably IS a hail mary, that's about a 10 delta) so i wouldn't want to cap my upside gains in that situation, that's like swinging for a six but the rules got changed such that the most you can score off one ball is two (i was going to say swinging for a home run as people often use baseball analogies when talking about option plays but this is an Aussie forum so...). Ie. it's already a statistically unlikely event, so on the off chance that you hit, you want it to pay off BIG. so capping upside gains at the outset just doesn't make sense to me.

an alternate strategy (the one i tend to lean towards) is to buy OTM calls straight up, and if i get a strong rally with some time to go until expiry, then see if i can spread it off to get my premium back. Eg. if you want to play for a huge rally, could buy the sep 30 calls straight up for around 0.16. if you get a rally to say 29 in a month or so, you can see whether the market will let you sell say the 31 calls for around the same 0.16. that's sometimes referred to colloquially as having a position "on the house", because now you have a 30-31 bull call spread at effectively zero, giving you a free roll of the dice where you can make up to $1 if it rallies to 31 or higher, and if it ends up below 30 at expiry, it didn't cost you anything.

then again i would say i've only had "mixed" success at long gamma plays, so maybe i'm the one who's been doing it wrong for all these years.


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## Gunnerguy (9 July 2021)

Sharkman said:


> TBH i don't really see the point of turning it into a vertical spread when the strikes are that far OTM (yes the puts are technically ITM but typically this sort of thing would be done on the reverse side of the box spread ie. a 29-29.50 call debit spread - it's the same risk reward but probably gets better fills).
> 
> at the 29 level it's almost a hail mary type play already (at the 30.50 level it probably IS a hail mary, that's about a 10 delta) so i wouldn't want to cap my upside gains in that situation, that's like swinging for a six but the rules got changed such that the most you can score off one ball is two (i was going to say swinging for a home run as people often use baseball analogies when talking about option plays but this is an Aussie forum so...). Ie. it's already a statistically unlikely event, so on the off chance that you hit, you want it to pay off BIG. so capping upside gains at the outset just doesn't make sense to me.
> 
> ...



I played the 29.5/29 spread. SP gone down and haven’t been assigned ... yet.
A bad trade for me. Still learning.
Gunnerguy


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## wayneL (9 July 2021)

Gunnerguy said:


> I played the 29.5/29 spread. SP gone down and haven’t been assigned ... yet.
> A bad trade for me. Still learning.
> Gunnerguy



A bad trade is not one which loses money, a bad trade is one which will lose you more money over the longer term than which make you money, *in aggregate*, over the longer term.

With vertical spreads this is 8asuper important concept to grasp.

FWIW


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## Sharkman (9 July 2021)

you are unlikely (i won't say never as stranger things have happened, i remember once getting assigned on some RIO options that were slightly *out* of the money) to get assigned early. they still have extrinsic left and with risk free rates the way they are these days, the cost of carry probably won't ever exceed the remaining extrinsic by a meaningful margin, so there is very little to be gained by whoever bought your puts if they early exercise.


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## Gunnerguy (13 July 2021)

I continue to grow my experience in Options. I've bee busy over the past couple of weeks.
Currently have 9 open trades. All are premium credit trades. Covered calls on FMG, CBA and BHP, credit spreads on FMG, BHP, and ANZ.

Latest trade was a cheaky 48/46 Bull Put Credit Spread on BHP for August. Break even is 47.7. A reasonable premium with a Delta of 10%. With reporting next month I should be safe at 48.

I have also risked a 47/44 Bull Put credit spread on BHP also getting a premium. BE is 48.3.
Reporting/results in August so I am exposed but should be OK.

I have a 106 CBA covered call open still also. The covers were purchased at 95 so if assigned I still get something.

Also a STO 89 CBA Put and a STO 90 CBA Put for August for premiums.

My STO 29.5/29 Bull Credit Spread in ANZ August, remains ITM but as yet not assigned and I am exposed but hopefully August will provide some nice Bank results.

Gunnerguy.


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## Gunnerguy (20 July 2021)

Latest couple of trades.

Trade 13. 16th July.
- STO October 108 CBA Covered Call(s). Delta = 0.096. PM = +0.36.
Thoughts
- Pretty far out but really don't think CBA will get up to 108 even if August results are good, but also movement on XD day.
- Covered, so already holding, bought at $95, so if I get assigned I'll be happy, but have to manage my CGT for FY.

Then a little bit of a silly trade ......

Trade 14. 19th july.
- STO December ASX200 Bear Call Spread 8200/8500. Delta = 0.111. PM = +9. 
Thoughts
- I would be surprised if ASX goes up a further 12% by year end (famous last words).
- If it does then my 'Long' Investement portfolio will do very well, a lot more than the possble losses of this trade.
- If we have a 'market adjustment' sometime in Aug/Sept/Oct, I may be able to BTC with some profit, but I think unlikely as it will be too far away from December.
- If we have a Santa rally I may get a bit scared, but as I said, my 'Long' Investment portfolio would do well.

This is obviously not financial advice, DYOR.

Happy to get any comments or critic's from the pros.

Gunnerguy.
(Wondering if my ASX December trade was a good idea)


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## wayneL (20 July 2021)

Gunnerguy said:


> Latest couple of trades.
> 
> Trade 13. 16th July.
> - STO October 108 CBA Covered Call(s). Delta = 0.096. PM = +0.36.
> ...



It's kind of a hedge fundy approach, which I personally am not averse to if there is normal price discovery... Not so sure there is normal price Discovery at the moment but anyway...

Nothing wrong with having a view and trading to that, if you get your risk versus reward/expectancy ratio right, you will come out in the long run.

My only b¹tch about otm vertical spreads is that they are difficult to adjust or defend elegantly (well, I find it difficult anyway), so I don't use them much.

Additionally because I've the higher probability the trade it can make one complacent about the actual risk... This (along with inappropriate position sizing) has been the undoing of so many.

Again I note your education and assume you have these risks well in hand, but just for the benefit of other readers.

FWIW


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## Sharkman (20 July 2021)

Gunnerguy said:


> Latest couple of trades.
> 
> Trade 13. 16th July.
> - STO October 108 CBA Covered Call(s). Delta = 0.096. PM = +0.36.
> ...




no offence intended - as i pretty much did the exact same thing for the first few trades i did - but the phrase "picking pennies in front of a steamroller" springs to mind.

there's no question that these are highly unlikely to be assigned. but whether you are being paid adequate compensation for the small risk that it happens is another matter. because it's so far OTM, that one occasion where there is a blowup could wipe out the profits from 10 or more similar trades that did end up expiring worthless. it's like consistently betting on 1.10 favourites in sports matches (which IMHO is a bad idea, as i don't think 1.10 favourites win 91% of the time) - all it takes is one upset to undo 10 winning bets.

one thing to be aware of (that i didn't learn until a year or two after i started trading) is delta skew - the difference in implied vol when comparing options over the same underlying and expiry at different strikes. in equities it is almost always a vol "smirk" where puts favour calls, ie. as you go further OTM on the put side, implied vols get higher and higher, and as you go further OTM on the call side, implied vols get lower and lower. for some other types of assets (i think FX is one) it is typically more of a vol "smile" where the further OTM you go (in either direction) the higher the implied vols get.

the slope of the skew can vary as market conditions change, but it is almost always there. as such, i often feel i don't get properly compensated relative to the risk i'm taking on if i sell < 25 delta calls, except for those rare occasions where the delta skew flattens out.

i'd rather wait until it gets close to what i think is a resistance level, then sell front month near ATM calls at a strike slightly above that level. obviously it has a much higher chance of getting assigned, but in my view the compensation in terms of both premium and implied vol received justify the risk. YMMV.


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## Gunnerguy (20 July 2021)

wayneL said:


> It's kind of a hedge fundy approach, which I personally am not averse to if there is normal price discovery... Not so sure there is normal price Discovery at the moment but anyway...
> 
> Nothing wrong with having a view and trading to that, if you get your risk versus reward/expectancy ratio right, you will come out in the long run.
> 
> ...



Thanks WayneL,
To me, as a beginner, it seems a lot easier and more comfortable having the shares already and sell covered calls. Yes there was a comment earlier that selling naked calls with cash in the bank is the same really. Baby steps for me to get comfortable.
I really appreciate your comments. Thanks.
Gunnerguy.


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## Gunnerguy (21 July 2021)

@wayneL and  @Sharkman

Thanks for all your comments and taking the time to give me your thoughts and pass on your experience. Yes, I think I’ve set up my trades as a bit of a ‘Long-Short’ type of fund. I own the shares, as mentioned, to keep me comfortable in selling calls, to start with on my early journey. I hope to, over time, not need to actually have shares to cover my trades. I have cash in the account as collateral also to support my future trading positions.

Your comments on risk/reward are very well taken. I saw the comment ‘picking pennies in front of a steamroller’ a few weeks and it scared the pants off me. I understood it, but now *even more *following a closer look at my current ‘in play trades’. After your post I spent 3-4 hours taking another thorough closer look to see where I stand. Also spent some ‘nice’ time looking at IB’s risk navigator on my positions wrt ASX200 Beta.

Before I place a trade I use excel to display/understand the full calculations and payoff diagram. I have 4-5 default tabs in excel with Bear/Bull Credit/Debit vertical spreads set up and just put in the strike prices, current SP, and premiums to show the payoff diagram, probabilities, and risk-reward.

The risk rewards I have on my current ‘in play’ trades are …..

Four (4) sold Covered Calls (forced to sell at strike price): If any get assigned I get between 9.3% to 13.7% gains on the original underlying’s after costs. They were all purchased in May/June.

Two (2) Sold puts (forced to buy): Both set way low out of the money (-9%), and in underlying’s that I already have in my ‘Investment portfolio’ and would be happy to be ‘forced’ to buy more of at 9% below current price, and be a long term hold.

This then leaves me 4 current trades …… (G to L)

2.10 to 1, Delta = 10.2% when sold (Aug). Possible gain is more than loss, with a good delta for me.
1.85 to 1, Delta = 9.7% when sold (Aug). Again gain & delta are good.
1 to 5.5, Delta = 10.5% when sold (Aug). BHP to remain > $48 by 19 August, results on 17th August).
1 to 3.2, Delta = 15.2% when sold (Sept). BHP to remain > $47 by 16 Sept, results on 17th August

The last 2 trades (BHP) I am a little uncomfortable with, but do we see a -9.6% drop in BHP by September ?

My last trade is a Dec ASX200 trade which is a bit of fun & a long way away. We'll look at my gains in December when it expires .

As you have seen from my posts I am taking the ‘beginner’ route with low deltas, 10%, 15%, 20%, but as we know low deltas give low premiums, depending how far out you sell/buy the contract.

@Sharkman , as you say if you don’t be careful one trade can blow up all the gains you have made from previous trades and ‘adequate compensation for the risk’. Great thought provoking comments. One I'm now working one, and absolutely no offence taken by your comments ! I am not concerned in any way whether I get good or bad (polite) comments to any of my posts. It is just a pleasure to see people taking the time to read, and then actually make the effort to spend a few minutes writing their ideas/critics.

In closing, this red wine fueled long post ...... Put volatility increases more as you go further OTM, compared to Call volatilty, this would suggest that at some point they are ‘over priced’ which is of benefit to a Put seller, no ?

I know it is difficult to bring all this wonderful information down to a single  ‘sound bite’, and I know it is dangerous to, but …..

1. Closer ATM =  higher premium = lower probability of success, and lower risk-reward.
2. Further OTM = lower premium = higher probability of success but larger risk-reward.

Thanks again to your comments.

Gunnerguy.
(Note to self: Next job - Read and understand ‘Option skew’. Take a look at Qantas staying below ATM or $5 for an Options trade.)


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## Sharkman (22 July 2021)

Gunnerguy said:


> The last 2 trades (BHP) I am a little uncomfortable with, but do we see a -9.6% drop in BHP by September ?




the market is pricing such an outcome to be more likely than you probably think it is.

the sept contracts were trading at an ATM vol of about 30 when i checked today, ie. it's implying that the annualised 1 SD variance is +/- 30%. to convert that to the implied variance over the 2 months to sept you interpolate in the vol squared t space: 30 * sqrt(2/12) = 12.2%, ie. assuming the potential outcomes follow a log-normal distribution curve, it implies a ~16% probability that it will drop *12.2%* or more by sept expiry!

if there are any quants around here they would probably shudder at such a crude back of the envelope calc, but for retail trading purposes i've never felt the need to delve into hideously complex equations with integrals, logs and what-not for this type of thing. 4 unit maths was a quarter of a century ago for me, absolutely no desire to go back to that stuff ever again.

i don't think such a scenario is all that far fetched TBH. it's unlikely sure, but it's not unheard of - a quick look at the recent price history shows BHP fell ~12% in the space of about 3 weeks back in march, about ~10% in 2 weeks back in may, and about ~15% between aug-oct last year. profit reporting would also be coming up before sept expiry i think, and an earnings surprise could see some big moves though it could go either way. plus it's going to go ex a pretty hefty div in sept as well. could be somewhere around $1.50 which would cause a ~3% drop on its own.


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## Gunnerguy (22 July 2021)

@Sharkman 
Thank for your commets and maths.
Maybe buying some $49 or $50 September calls would reduce my risk.
With results and XD soon, I agree there could be some serious movements.
Gunnerguy.


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## Gunnerguy (22 July 2021)

Is it time to sell some heavily OTM calls on QAN ?
Gunnerguy.


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## Sharkman (22 July 2021)

Gunnerguy said:


> Is it time to sell some heavily OTM calls on QAN ?
> Gunnerguy.




i took a quick look at QAN earlier today when the market was open and found that the sept ATMs were trading at around 32 IV. that's fairly high compared to most of the majors, but for an airline stock and given what's going on in the world right now, it kinda feels a bit too low to me. i don't follow QAN too closely, but had i found IVs in the 50s i wouldn't have batted an eyelid.


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## Gunnerguy (22 July 2021)

@Sharkman 
Thanks for your comment.
I’m just looking around for opportunities to extend my trading.
As you say the IV is still not attractive.
With my IV scanner I still come up with Z1P with a high IV, however seemingly Z1P could go +/- 30% within 2/3/4 weeks. I don’t want to be and the wrong side of that 😁


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## Sharkman (25 July 2021)

Gunnerguy said:


> With my IV scanner I still come up with Z1P with a high IV, however seemingly Z1P could go +/- 30% within 2/3/4 weeks. I don’t want to be and the wrong side of that 😁




i'm not familiar with Z1P options, i don't think they'd have sufficient liquidity for my liking, but i might check them out on monday anyway and see what's going on.

this sounds like you're still treating options like they were stocks and focusing on the delta. there's nothing wrong with that if you are aware other risks besides delta do exist, but you don't have to have massive delta exposure if you don't want it. there are strategies that will allow you to square up or hedge off some your delta risk so a blowup in the stock price doesn't also blow up your account.

you could try having a look at the IVs at different strikes/deltas and also the IVs 2 or 3 months out vs front month IV (ie. tenor skew) or even the weeklies (not in Z1P's case as they are too small to have weekly chains, but the majors will) and see if you think there are good opportunities to sell contracts at a high IV and hedge off some of your delta/gamma risk by buying different contracts at a low IV.

there was an opening for this sort of thing in a few of the majors during the early panic stages of the pandemic using strategies like diagonal spreads (i wrote a bit about it in some posts above) but the skews are no longer like that anymore. there might well still be some good chances to do this, but they don't seem as readily apparent these days (at least to me). so it's back to the old covered calls and cash covered puts for now.


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## Gunnerguy (26 July 2021)

Thanks for your comments @Sharkman.
I'll take a look at the changing IV's over contracts.

Monday mornign here and considering .....

..... a Short 5/10 Strangle on Z1P for September.
Selling a Put at $5 strike , and Selling a Call at $10 strike.
Not a great premium, however breakevens are $4.8 (-30%) and $10.2 (+46%).
Background - if I get assigned the Put I am happy to take the Z1P shares at $5.

Comments, critics greatfully recieved.

Gunnerguy.
(Just trying to use the IV of Z1P)


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## Gunnerguy (26 July 2021)

A bit of a frustrating day with respect to ASX options today.

Last week I only made 1 trade on Monday (ASX200, December 8200/8500 Bear Call Spread) and was hoping to get 2-3 in this week to keep the momentum going.

I looked at several trades today ….

August or September Bear Call spreads on Z1P, QAN, CPU
August or September Short Straddle on Z1P
August or September $5 Put on Z1P.
August or September $104 Covered Call on CBA,

……. but I just couldn’t pull the trigger on any of them ……

I did place trades on Z1P September Bear Call spread but the price from the MM’s just kept moving away from me (lower and lower premium through the day) so I eventually didn't get sucked in. Premiums are not that high, and even potential losses are not that high but I believe they would all be good positions based on where I ‘believe’ the prices in these shares is going over the next 4-6 weeks.

…… Can you believe it …… I own a large swath of CBA shares (bought between $85 and $90) but find it hard to sell a single contract of $104 September covered calls. If CBA goes up to $104 my other shares gain significantly, but I would loose a much smaller amount on the covered call, but still couldn't pull the trigger.

FYI I was looking at Z1P and CPU due to their current high IV, QAN, because I believe they are ‘dead’ for a few weeks, and CBA ……. Because I’m (well) covered.

…… my August STO 89 & 90 CBA Puts are doing well, as are my STO 106 CBA calls. My BHP 52 and FMG 25.5 Calls are currently being threatened, but my August STO 48/44 BHP is also doing well.

Gunnerguy.

(Patience, don’t fight the market, remember the tortoise beat the Hare. If it was easy every one would do it. Rome wasn’t built in a Day. We don’t do it because it is easy, we do it because it is hard …….)


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## Gunnerguy (28 July 2021)

As a community of traders/investors it is nice to see the sharing of information and ideas, and also seeing people successful in their strategies and trades. I believe I is also good to see where others have made mistakes so that those that follow them do not make the same ones.

For those who have been following my posts on my learning and experiences in options trading this is such a post that shows an error.

This morning I was setting up for a Short Strangle on Z1P. Share price was $6.61 at the time of the trade. I was planning to Sell a Put at $5.25 (which if assigned would ‘force’ me to but Z1P at $5.25 which I wouldn’t mind too much), and Sell a Call at $8.00 (if assigned would allow the buyer to buy Z1P from me at $8.0). The strike date is for August expiration. I didn't believe the share price would move as much as to go outside these values before August expiration. I thought I might pick up a small premium.

I use excel to calculate and display the payout chart on the option strategy based on the premiums. My excel showed me that the net premium was only about $5 with a Delta of 0.10. Not worth it at all. When I put the trade in to IB it was suggesting a net premium of $286. My eyes lit up thinking my excel is incorrect. I checked the strategy name in IB, and it was ‘Short Strangle’, which it is, so I presumed it was correct. I checked my numbers in excel again and the net premium was still only about $4. I thought my excel was wrong.

A nice premium of $286 for an option expiring in August. That’s a nice little gain I thought. Distracted I hit the sell button ……….

The trade went through. I was credited the premium immediately. Then I started to think about it. The premium was TO GOOD TO BE TRUE. Further analysis then showed me that I had the options the WRONG WAY ROUND !!!!

What I had in fact done was Sold an $8 Put (buyer can sell his Z1P shares to me at $8 now) and Sold a $5.25 Call (buyer can buy Z1P from me now at $5.25). The current price of Z1P was $6.61. So I had sold two opposing options that were both ITM !!! What a stupid mistake !

I tried to go back in to the market and buy the contract back but was unable to as my offer price was not accepted. Looking at the time/prices it looked as if I could have bought the position back for about $295 (leaving me a net loss of $9 to learn from my stupidity). But was unable to buy the position back.

If Z1P remains between $5.25 and $8.00 by expiration in August both options will be assigned. I will have commission on buying shares and selling shares, probably 4 lots of commissions. I have potential UNLIMITED losses if Z1P falls dramatically below $5.25, or rises dramatically above $8.00.

I will keep a daily close look at the Z1P share price over the next 4 weeks, and if the price gets close to the $5.25 or the $8.00 I will take a single position to reduce any potential losses above/below my strike prices depending on which option is threatened.

Lesson Learned …….. Look at IB’s profit/loss graph, and then your own. If they don’t match then something is wrong. Check, recheck, and double check. Don’t get distracted.

Hopefully not a too expensive error …… maybe up to $50, which is not a lot, however I am trading small values till I get confident, and then go in for the $500 to $1,000 option trades.

Gunnerguy.

(feeling annoyed with oneself ....... )


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## Sharkman (28 July 2021)

you may have already realised by now, but *the payoff is the same regardless of whether you sell 5.25 puts/8.00 calls or sell 5.25 calls/8.00 puts!* that's probably why you didn't notice anything was awry on IB's payoff graph... because nothing was awry.

disregarding brokerage + spreads and assuming zero cost of carry (which it may as well be considering what the risk free rate is these days) to simplify things for illustrative purposes, if you took in 2.86 premium for the strangle that you did, that leaves 0.11 extrinsic. so at fair value you should have received 0.11 premium for selling 5.25 puts/8.00 calls with put-call parity (for retail trading purposes it's fairly safe to assume it always holds, as any meaningful divergence will be arbitraged out of existence by MM bots in milliseconds).

say the stock is 5.00 at expiry so the puts get assigned. if you sold the 5.25 puts, you take a 0.25 cap loss, plus the 0.11 premium taken in, for a 0.14 net loss. if you sold the 8.00 puts, you take a 3.00 cap loss, but you took in 2.86 premium, so it's the same 0.14 net loss.

if the stock is 14.50 at expiry so the calls get assigned, if you sold the 8.00 calls you take a 6.50 cap loss, plus the 0.11 premium for a 6.39 net loss. if you sold the 5.25 calls you take a 9.25 cap loss but you received 2.86 up front so again the net loss is the same 6.39.

if the stock is 6.00 at expiry, both the 5.25 put and 8.00 call expire worthless leaving you with the 0.11 premium collected. if the strangle is done the other way around and they both get assigned, you are put the stock at 8.00, get it called away at 5.25 for a 2.75 cap loss, plus the 2.86 premium received for the same 0.11 net gain.

the fact that both legs would be assigned instead of expiring worthless is no big deal - with IB you DON'T pay the normal stock brokerage rates when options are assigned, you only pay the option exercise/assignment fee of 27.5 cents per contract. so ignoring other considerations (spreads, tax treatment etc.) which might not be significant in any case, it'll only cost you an extra 55 cents compared to getting the legs the right way around.

as you've probably guessed, i didn't pick the 14.50 at random. that's the price Z1P reached from levels similar to where they are now in the space of a few weeks earlier in the year. which relates to the last point i wanted to bring up - do you hold enough units of the underlying to cover a potential call assignment? it wasn't immediately apparent to me from your post.

if you do, it's all good, you essentially ended up with the risk profile that you originally wanted anyway.

if you don't, then you really do have unlimited topside risk, as you basically have a naked call with a small bit of extra cushioning from the put premium, and being short the 8.00 call instead of the 5.25 call won't change that. in which case i'd consider going and buying 100 units of stock when the market opens tomorrow. or buying like a 9.00 call to cap your topside risk. i realise you're deliberately keeping the positions small whilst getting the hang of it, so even if it does rally to 14.50, that's not a huge loss in $ terms. but leaving short calls uncovered is not a good habit to get into my view. if you do it with larger and larger positions, one day you may wind up on the wrong side of a takeover offer / FDA approval / company winning a massive surprise new contract etc. and that could blow you out of the water in one fell swoop.


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## Gunnerguy (28 July 2021)

Your an absolute Star @Sharkman  !!!!

I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.
My STO call is at 5.25, and my STO put is at 8.00. I do not hold any underlying.

If I understand you correctly, and I have redone my excel math (with no commission for assignment, apart from the 27.5c) if the SP remains between 5.25 and 8.0 I actually make a smidgen of money $8, but most importantly I did not totally screw up as I though I had.
I am most concerned about the upside risk, and yes I know straight away about $14.50 when you mentioned it.
I can buy a 7.75 Call for 0.1 at the moment which would protect me if the price shoots up. I will hold the option and assign it if/when the SP goes over my 8.00 Put. This, I believe, will create an 'underlying' when/if I need it.
I could also put in a conditional trade to buy 100 of the underlying at 7.99 say when the SP goes over 7.50. I would then hold the underlying in defence of the SP going over 8.00.

Buying the 7.75 call has upfront/immediate costs, and protection, but a 7.99 conditional buy order still protects me at no 'current' cost.
Yes we are talking about small peanuts now, thankfully. The easy one is just to buy the 7.75 call and forget about it, move on to other trades, and my Z1P Strangle will sort itself out in time with minimal loss, but as I like 'strategies' and seeking 'angles', the conditional order would be the most cost effective, except if Z1P get an takeover offer at say $15 my conditional trade would just be ignored and I would be left standing holding the bag.

But ......... I'm gonna buy a 7.75 Call tomorrow to cover my erroneous Strangle. Learn from my mistake. As we say in golf 'take your medicine'.

Great stuff @Sharkman . Your an absolute saviour with your explanation. I live to trade another day.

My next job now is how to 'manage' my CBA, FMG, and BHP trades over the next 3-4 weeks with FY results, XD's, and no doubt volatile share prices.

Gunnerguy.
(I'm gonna sleep better tonight and dream about keeping my concentration)


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## peter2 (29 July 2021)

@Sharkman I'm pleased that someone replied. I knew that something could be done to minimise the open risk. Option traders are as flexible as seals. 

Please to see that @Gunnerguy has decided to "fix" his error immediately. If it doesn't cost a little then the lesson may not be learned as easily. Whenever I make a mistake I cop the double brokerage plus the spread asap.


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## Sharkman (29 July 2021)

no problem, i learned most of what i know in options from reading some great material over the years that people put in the effort to create and provided for free, it's only right that i try to do the same where i can.



Gunnerguy said:


> I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
> I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.




it's your portfolio, so you are of course free to do what you think is best. however i would suggest sticking to just covered calls and cash covered puts for a short while. IIRC those are all i did for my first 3-4 months of options trading. it might seem repetitive, but going thru the thought process of "if the underlying does this, then my risk is that, if the market moves like this, then i'll respond by doing that" etc. on the basic strategies helps build up the "muscle memory" that will make it easier for things like strangles to click more intuitively down the track.



Gunnerguy said:


> I can buy a 7.75 Call for 0.1 at the moment which would protect me if the price shoots up. I will hold the option and assign it if/when the SP goes over my 8.00 Put. This, I believe, will create an 'underlying' when/if I need it.




you could, but that will leave a window between 7.75 and 8.00 where they will both be ITM, leaving you with a stock position that you may not want. again, probably no big deal because it's a small position, but it helps build the "muscle memory" for later when position sizes get larger.

the simplest way to "unwind" the position is probably just buying 8.00 calls. a bought call + a sold put at the same strike and expiry = a synthetic long stock position, which will cover your short 5.25 call obligations, regardless of whether it expires above or below 8.00. that simplifies the position to just 2 possible outcomes: stock is above 5.25 and gets assigned, you take delivery at 8.00 to cover the assignment and your profit is 0.11 (2.86 premium - 2.75 cap loss) minus the cost of the 8.00 calls; stock is below 5.25 and your short calls expire worthless, you take on a stock position at an effective cost base of 5.14 (8.00 - 2.86) plus the cost of the 8.00 calls.



Gunnerguy said:


> I could also put in a conditional trade to buy 100 of the underlying at 7.99 say when the SP goes over 7.50. I would then hold the underlying in defence of the SP going over 8.00.




in my opinion a non-guaranteed conditional is not an effective way to protect this sort of position because what if it gaps on the open from 7.40 to 8.50 then rallies to 10 and beyond during the session - you will not get filled. and gapping is often the result of some surprise upside event, the very same things that can blow up trading accounts holding uncovered short calls!

if the broker offers guaranteed conditionals, those would guard against gapping, but behind the scenes the broker will be buying an option (and charging you for it) anyway, so you may as well just buy the option yourself.



peter2 said:


> Please to see that @Gunnerguy has decided to "fix" his error immediately. If it doesn't cost a little then the lesson may not be learned as easily. Whenever I make a mistake I cop the double brokerage plus the spread asap.




that's very true. if someone picks up a bit of premium by taking on a risky uncovered position and "gets away with it" by avoiding the assignment, there is the danger of potentially mistaking a good outcome for a good strategy, keep doing it, and eventually get wiped out when the aforementioned takeover offer / massive earnings surprise etc. comes along.


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## wayneL (29 July 2021)

Gunnerguy said:


> Your an absolute Star @Sharkman  !!!!
> 
> I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
> I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.
> ...



Don't beat yourself up, man.

Options are non linear and that nonlinearness(sic) is complicated.

We've all been through the brain fade of figuring this crap out... And still do. It is these lessons which make you better, keep it up man you're going well.


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## Gunnerguy (29 July 2021)

@Sharkman 

Thanks for your further ideas.

I fully comply with your comments about helping others. I completed my Masters in Financial Planning a couple of years ago but have been unable to get a job in the industry due to the RC and my age, probably. I am however helping some friends, for free, with their tax, capital gains and superannuation ideas at the moment. I was hoping to change careers with my qualification however instead I am ‘between’ jobs and don’t want to admit being retired.

My daily routine, after doing the kids school run, is logging in to IB and looking at strategies for making income through options, above my gains in my ‘investment portfolio’. Unfortunately I am the kind of guy who can only play golf twice a week and always wanting to learn new things, especially relating to investing, finance, super etc. A couple of hour on IB then that’s it. And then in the evening another couple of hours reviewing, planning for tomorrow, and writing replies on ASF.

So today to get out of my precarious position with Z1P, I went for the middle ground and BTO Aug 7.25 Call. Z1P did have a bump today. Yep Great comment about gaping up and a conditional offer being bypassed. This has happened a few times over the years in my long positions and missed out. We’ll see how things go. Yes also to being naked in anyway. I was looking at SYD only 3 weeks ago. Can’t remember what trade I was looking at but then ….. Bang a take over bid and the share price ‘rockets’. One could have been caught holding some option strategy if not covered.

Yes I agree with your ideas of starting with covered calls. Done this for >2 months also with some naked (cash covered puts). I have posted most of my trades so far in this thread. Most of these have been in CBA. These have done very well, some STO positions are well OTM and in profit, considering closing (BTC) but I think most should expire worthless so I get the full PM.

@wayneL  thank you also for your comments and encouragement.

As the wind blows heavily outside my window this evening (in Perth), my golf is cancelled tomorrow so I guess I will have to log on to IB and see if I can make some money. 

Gunnerguy.
(There IS gold in them hills, I just need the right tools to extract it.)


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## Gunnerguy (29 July 2021)

It's like buses, none for ages then they all come at once.
Where there’s one there’s two, I’ll watch the Olympics later this evening.

Well Ms. Gunnerguy is doing the dinner for the young Quokkas so I had some more time this evening to see if I can do more damage to my ‘Options Portfolio’.

Here’s a thought …….

So by the end of September, and Options contract expiration date of 21st. Sept, several large dividend payers such as FMG, CBA, RIO, BHP, and CSL will all be XD. What are the thoughts of the ASX200 ending September lower than the values we currently have. Is it worth creating an options strategy on the ASX200 Index in anticipation for a lower ASX200 by the end of September ?

Looking at a Bear Put Debit Spread on ASX (tired at the moment of STO and being exposed to unlimited possible losses). Lets say a 7,500/7,600 Put spread for September. All the majors will have done their XD’s, and possibly the market comes off the boil for a while/opportunity. Debit PM = -670, with a BE at $7,540. ASX currently at $7,414.

Probably a rise over the next 2,3,4 weeks with all the frenzy of dividends, but then the drop post XD.

Is this stupid or something that may work.

Gunnerguy.
(Time to watch the Olympics)


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## Sharkman (30 July 2021)

the (projected) dividends are already factored into option prices, that includes index options. the MMs will have projected the divs for the constituents of the index, calculated how many points those divs are worth, and factored that into the spreads they show the market. the actual divs may vary from the projections of course, so if you think they have mispriced the projections you could take a punt on that basis, but i'm not willing to bet that i can project the divs better than the MMs can.

eg. looking at the XJO sep 16 contracts, with the index at 7410, the 7400 calls are showing 97/108, the 7400 puts are showing 180/193, so the MMs are estimating that the stocks going ex-div before sep 16 (which would include some big ones like CBA, BHP, RIO) will shave off a cumulative 94 points, give or take, from the index due to the effect of the div.

this applies to both index and stock options, for eg. the CBA sep monthlies you can see that with the stock at 99.50 the 99 calls (which would normally be ITM) are showing 2.115/2.48 and the 99 puts (which would normally be OTM) are showing a much higher 3.22/3.67, due to the big fat dividend that's expected prior to sep expiry, so the 99 calls are effectively OTM and the 99 puts are effectively ITM in this situation.

i'm only an occasional trader of index options though, i'm sure there are others on here who'd have more insights on those than i do.


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## Gunnerguy (12 August 2021)

Dear All,

Its been awhile since I posted in ASF on my ‘Options Trading’ learning experiences, so a little bit of an update is well due as August expiration approaches us next week. I’m sure this will create some entertainment to those of you whom are experienced Options traders.

Remember I only started really educating myself in Options in May, and opened my first position in June.

Well so far …..

9 positions opened and closed, all were credit trades, July/August/September expirations with one losing trade (very low $ value), thus 8 from 9 so far. Phew ….. Trades were mainly in covered calls/puts and vertical spreads on CBA, FMG and BHP, with deltas of 80-90. Yes I know low risk but with potential high losses is assigned.

I currently have 15 open trades, 11 STO and 4 BTO. They cover CBA, BHP, FMG, ANZ, Z1P, and ASX200 Index. I won’t bore you with the details of all the trades, however when I look at them there are some very very interesting trades still in play at the moment ….

1. Opened 2/7 STO BHP 52 Aug Call. I sold this Call when BHP was at 48.55 knowing that their results were on their way. This is going to go down to the wire I think. I hope for a few down days on the ASX so I can BTC or let it expire.

2. Opened 5/7 STO ANZ 29.5/29.0 Aug Bull Put Credit Spread. I bought when ANZ was at 28.09. ANZ’s price has stayed low for so long. I was hoping that with CBA’s result coming they would be good and pull the ANZ stock price up in to my win zone. This is finally happening. The trade is currently ‘ITM’. How lucky do I feel ? Not sure but think I will stay in the trade and let it expire.

3. Opened 8/7 STO CBA 106 Aug Call. See the price movement over the past 1-2 days !! A drop of 2.5% today. CBA closed at 105.67 today. Still a lot of extrinsic value left and I am still underwater on this one. Gong down to the wire this one also !!

4. Opened 19/7 STO ASX200 8200/8500 December Bear Call Credit Spread. Bought on 19th July when AXJO was 7291 and based on the idea …. AXJO will not rise a further 12.45% by December. If it does then my ‘investment portfolio’ will do extremely well and the loss in this option contract will be insignificant. I still hold that AXJO will not reach 8200 by December. I may actually buy more of this one.

And one last one …….

5. Opened 30/7 BTO FMG 25.5 Sept Put. Amazing luck with this one. The idea was that in Sept, after FMG go XD, the price would drop. I could then ‘sell’ at 25.5 when FMG would, hopefully, be lower. I’m well in to the money on this one at the moment, however yet to see FMG’s results.

Happy so far with a 8/9 win rate, which is important, however the $ values is also important (I know in other posts I said this was not true however with options I feel it is). Only one small $ loss and the other 8 trades all provided $ profits. If I were to use the subjective phase ‘great’ profits, some would think $100K is great, and some would think $10,000 is great. So objectively, I have made profits and a good successful trade ratio.

Comments, critics, and general abuse on my strategy/results will all be well received.

Gunnerguy.
(The big trades are coming, as I learn. Objective is to cover inflation, then my booze costs, then the kids schooling by end 2021).

...... Ms. Gunnerguy had her Pfizer today ..... still alive and kicking .....


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## wayneL (12 August 2021)

Gunnerguy said:


> . Objective is to cover inflation, then my booze costs, then the kids schooling



Dammit man! You have those priorities all mucked up... FFS cover booze first 

Okay seriously now.... These trades go well in a sideways or creeping bull market.

In what might possibly be a crack up bull (or even just plain old irrational exuberance), you forfeit gain possibly that gain could be the true inflation rate.

If we get a proper swoon, you get taken the the woodshed.

Cover thy @ass in this market.... IMO


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## Gunnerguy (12 August 2021)

@wayneL thank you for expressing your concerns. I truely appreciate it.

As I said, my @ss is covered by a large (subjectively some would say huge) ‘investment portfolio’ if the market has a large ‘crack up bull’. 
I don’t really want my ‘options portfolio’ to hedge my ‘ investment portfolio’ as I am trying to seperate these 2 strategies.
I am trying to make extra income from the fluctuations in the market.
My ‘investment portfolio’ will be cashed in in 10 years or so.
Thanks for your comments @wayneL 

Gunnerguy


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## Gunnerguy (20 August 2021)

For those interested / reading .........

Well what a week its been. IO prices, POO, FMG, BHP. Share and commodity prices have been wild …. Now tell me about the fluctuations in the options prices ……

Last week I closed out 7 option trades, this week I closed out 8 traders (and opened 4). I wasn’t planning to close/open so many trades during a week however with the significant (good) movements in the market (and profits made) I decided to close some good ones (BITH), ) Bird in the Hand), all due to the significant movements in the prices. ‘Hey Gunnerguy, remember options are leveraged’, hell yes. I’m glad I am managing my risk and trading both sides of the tracks.

At this stage, 3 months in to my education in options trading, I have opened 28 positions and closed 18. With the 18 closed trades I am now 13 from 18, 72% success rate. I have kept my risk levels pretty similar across the trades. My average Delta is +/-0.8 depending on STO/BTO.

I have 10 open positions in the market at the moment.

I have also opened some vertical spreads on AP (ASX200) for September, October, and December, rather than my usual BHP, CBA, ANZ, BHP, A1P, FMG. Premiums seem a lot nicer (multiple of 10 on larger prices) compared to individual shares (multiples of 100 on small values). Not sure if this is a good thing or not, however I think that market risk/volatility is lower that individual share risk/volatility. Look at BHP this week !!!! and FMG !!!!

I feel pretty lucky, and happy, as I am getting there slowly. This week was the largest net realised weekly profit so far on my 13 week journey.

To those reading this, and with years of options trading experience, I know this is small fry, however I am trying to learn the basics, with good, secure risk management, and plan in the future instead of trading 1/2/3 contracts per trade, to building this experience to 10/20/30 contracts per trade …….. per week.

As an aside, I have been looking closely at Newcrest (and Gold). I missed the boat over the last couple of days, however I am thinking about some positions in NCM, with respect my personal feelings that as a result of the market/inflation/gold prices, doing some NCM options strategies might be worthwhile. I welcome others thoughts on this.

As always comments, critics are very welcome.

Gunnerguy.

(Learning new things. 3 months of Options trading so far have covered the costs of 20 slabs of beer, except that I drink wine 😊 ).


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## Gunnerguy (17 September 2021)

Dear ASFers,

Well its been an interesting month with regards Options trading. My learning experience is starting to give highs and lows (emotionally). The BHP and FMG volatility and yesterdays expirations produced some interesting results.

This month only 4 trades were ‘closed’, and 4 were opened. I currently have 10 trades in play in FMG, Z1P, CBA, and AXJO.

The Good

With BHP falling (LSE announcement & XD date coming) my July Bear Call Spreads gave me some nice profits when they expired yesterday. My AXJO 7800 Call also gave me some nice profits as did my CBA short strangle. Three for three so far.

The Ugly ….

I was assigned my BHP $47 Puts yesterday, ouch … but got some recompense on my $44 puts. I now own some very expensive BHP shares but at least I can use them for selling covered calls until, one day, BHP, gets over $47 again. This may take a few months ….. or till next years results. I’ll just continually sell $47 puts through the year and take premiums every month. Either several monthly STO puts, or less longer dated puts.

The journey so far since I started in May …..

22 trades closed so far with a success rate of 15/22, 68%.

My profits since starting this journey in May is approximately …….. 30 Slabs of Beer.

Gunnerguy.
(Learning, but patiently increasing my trade sizes. Building confidence)


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## Gunnerguy (20 October 2021)

An update on my move to the ‘Dark Side’ (trading Australian options).

The journey continues. Its interesting, enjoyable, and challenging. For those who haven’t followed my occasional posts my background is ……

Invested in shares for over 30 years. Large Investment portfolio in International and Australian shares/ETF’s and investment property income. Geology educated and career, and recent Master in Financial Planning graduate. Always found options confusing but decided to educate myself in order to potentially gain additional income from the Long positions I already own. Started my journey in June this year. Unemployed, between jobs, semi retired, or under employed depending on how many beers I have had.

I continue to grind out income from selling covered calls, vertical spreads, strangles, and straddles, on FMG, CBA, Z1P, BHP, and AXJO. I find company options don’t give me that much in premiums and have started to heavily trade in AXJO Index options.

Started in June. 47 Trades so far. 32 closed. 15 currently open. Of the 32 closed, 23 were ‘good’ trades, expired or closed at a profit. 9 were ‘bad’ trades’, of which 4 trades failed due to incorrect placement due to me being thick/newbie/learner, 4 trades closed at a loss to limit the loss, 1 was assigned. Current profit is equivalent to 40 cases of beer, worth it. Since I’m not working my time is free, and I enjoy the process.

Currently starting to ramp up my trading and plan to generally place 4-5 trades a week, with DTE about 25-45 days. Increasingly trading in AXJO Index options.

My latest plan is based around FMG. I already have a small holding of FMG in my ‘Investment Portfolio’ and have decided that I want to increase my holding substantially. If I can get some income from options in the process it would give me some extra income.

My current (personal) belief is that FMG has pretty much ‘bottomed’. Last year dividend was $3.58. I believe, worst case scenario, dividend could half for 21-22, ie. $1.79. With the historical return on my Investment Portfolio being 14% pa. this is the return I need to achieve if I invest in anything. With the possible reduced dividend I thus value FMG at $12.80. If the dividend is any higher then I would obviously value the share higher. Thus, in combination with my ‘Investment Portfolio’ and my RRR (Required Rate of Return) I plan to sell multiple cash covered Put contracts at strike prices of say …. $12.25, $12.50, $12.75, $13.00, $13.25, $13.50) across multiple dates (4/11, 18/11, 16/12) in order to receive varying sizes of premiums. If I get assigned, then I am happy to be ‘forced to buy at this price’. Yes I know if FMG goes up over the next 1-2 months I should have just bought all my shares at $14 today, however my 'bottom' might not be correct. Staggering in with options and premiums is a form of DCA if the price takes another dive.

And that’s it. Not that exciting, but I’m enjoying the journey, making some beans from it, and for those who have no experience in options and are considering it I personally think one can grind some cash out of it, depending on your propensity for Risk.

Gunnerguy.

(Eventual future income WILL come from Capital Growth, Dividends AND Options premiums)


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## wayneL (21 October 2021)

@Gunnerguy have you read any of Charles Cottle's work? 

Pretty hard to get hold of these days, but well worth the search... and you have the intelligence to "get it".

FWIW


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## Gunnerguy (21 October 2021)

wayneL said:


> @Gunnerguy have you read any of Charles Cottle's work?
> 
> Pretty hard to get hold of these days, but well worth the search... and you have the intelligence to "get it".
> 
> FWIW



@wayneL  thanks.
Already found some stuff online.
Gunnerguy.


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## Gunnerguy (20 November 2021)

I havn’t posted for a while but I thought a quick update on my amateur options trading. Remember, I have a ‘relatively’ large investment portfolio (IP) so some of the bullish trades (STO AXJO Naked Calls) I make do not have protection as loosing a couple of option trades due to a rising market are a lot less than the gains that would be experienced in my IP.

So far since my start in June ….. 71 trades opened, 55 trades closed, 43 expired/BTC/STC for a profit, 12 ‘failed’.

‘Failures’ included

*Z1P* BTO $8 call in August expired 18/11 & *Z1P* STO Bull Put Credit Spread opened in August, STC with a loss in early November. Z1P has just continued to fall.

*FMG* STO Bear Call Credit Spread in August assigned/STC in October. FMG didn’t fall quick enough for me.

*CBA* Bear Call Credit Spread in August STC in October. CBA, at that time, just continued to rise more and more.

*BHP*, STO naked Put in August, and they decided to announce they were going to delist from UK Stockmarket, leaving me holding the bag of a number of shares at a price that is higher than current market price. 'Black Swan event'

…. And 4 trades that ‘failed’ due to ‘learners’ errors, but not expensive failures.

My most recent 27 trades have had only 3 ‘failures’ so my POP is improving, 89%.

So far ……. My Options trading profits covers my Annual tennis club membership fees, plus all golf rounds for the year, plus ‘expected’ Annual alcohol consumption, plus an extra 55 cases of bears for visitors …….Hopefully this will increase in time to cover the kids schooling .

I’m still nervous, selling low Deltas, but slowly getting confident and managing my risks.

Current in play trades include ….

STO AXJO 7800C, 7825C, 7850C, 8000C (Dec), STO CBA 88P (Dec) , BTO FMG 13P (Apr), STO IGO 9P (Dec), and QBE 11P (Dec).

Gunnerguy.

(Learning, trying, patiently, risk managed)


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## KevinBB (16 December 2021)

It was really lucky for the big boys who trade ASX options that the main index closed a fraction below 7300. It will make the settling of today's options expiry so much easier for them! 
KH


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## wayneL (16 December 2021)

KevinBB said:


> It was really lucky for the big boys who trade ASX options that the main index closed a fraction below 7300. It will make the settling of today's options expiry so much easier for them!
> KH



Max pain I assume?


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## KevinBB (16 December 2021)

wayneL said:


> Max pain I assume?




No... I haven't traded an option, ever. I do own IOZ and some overseas index futures, though.

I just get really cynical when I see the Aussie market open strongly, then close down to a figure just below what I would imagine is an option strike price. Especially when it happens on options settlement day. And, especially when overseas markets are going up in the same time frame.

I'm guessing that Santa will start his journey tomorrow.

KH


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## KevinBB (16 December 2021)

Sorry for a second post ...

The clincher for me was that, just now when I was reviewing the day's share price movements, many of the larger cap stocks (I own just a couple), those that will have a largish effect on the index level, were down, whereas many of the medium cap stocks (I own more than just a couple) had good share price rises . ... and then I see the US futures (I am long here) are going up ...

Oh, well, that's my rant for the month. Sorry it had to be in this thread.
KH


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## wayneL (16 December 2021)

KevinBB said:


> No... I haven't traded an option, ever. I do own IOZ and some overseas index futures, though.
> 
> I just get really cynical when I see the Aussie market open strongly, then close down to a figure just below what I would imagine is an option strike price. Especially when it happens on options settlement day. And, especially when overseas markets are going up in the same time frame.
> 
> ...



It is most often nothing more sinister than option market makers delta-hedging their book when gamma is at it's maximum.

Therefore max pain is not a conspiracy, just a function of market dynamics. FWIW


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## KevinBB (16 December 2021)

wayneL said:


> It is most often nothing more sinister than option market makers delta-hedging their book when gamma is at it's maximum.



And, that's exactly why I steer clear of options. I don't understand the Greeks.
KH


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## wayneL (16 December 2021)

KevinBB said:


> And, that's exactly why I steer clear of options. I don't understand the Greeks.
> KH



It's not easy to learn, but it's worth learning in my opinion.


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## KevinBB (16 December 2021)

Agree with you, @wayneL - I've held IOZ long term, on and off, for many years. There have been many times when I would have liked to have kept them, and used a hedge at times of market turmoil, instead of just selling them outright.
Maybe one day ..
KH


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## Sharkman (17 December 2021)

it's fairly normal behaviour known as pinning, happens quite a lot in the more liquid names, you just learn to deal with it as there isn't much you can do about it, the instos will do as they will.

i've lost count of the number of times i've been short gamma and the stock pins to my strike on expiry day. when it's right on the strike on expiry day it gets insanely expensive to close out, you can sometimes see stuff like 0.5% of the stock price for literally an hour of decay (this is in normal times not in say mar-jun 2020 when vols were thru the roof), and they WILL make you cross a lot of the spread if you want to close out.

however i find overall that pinning tends to be more of a help than a hindrance when it happens to a position that i don't particularly care whether it gets assigned or not. eg. i strip the CBA div and sell covered calls struck at $100. if pinning pushes it up from $99.50 to $100, that's helped me get what i wanted out of the position, since i was looking to sell at $100 after the 45 days are up anyway. if pinning pushes it down from $100.50 to $100, my stock would've been called away at $100 and i wouldn't have got the extra 50c of cap gains anyway. depending on the person it might even be a minor psychological aid in this situation if it ends up pushing the price back below (or above in the case of puts) the regret point.

some people deal with it by closing out their short options a week or two before expiry, which is one way to do it. if you're greedy for that quick final week decay like me but don't really want the deltas from a potential assignment, another way to deal with it is by buying longer dated contracts on expiry day once you see the stock hovering right around your short strike, forming a temporary calendar spread, then figure out what to do with the longer dated stuff next day once the outcome is known. a day's theta on a 1-2 month option is peanuts compared to final day theta, gapping might be an issue, but on balance it should work out better than paying crazy prices to close out an ATM short option on expiry day.


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## Rowdy.13 (5 January 2022)

Happy New Year All!

I've been lurking for a little and gone over a number of old threads in an effort to absorb knowledge and previous experiences, but I now turn to you as I've come to a cross-road - whether to continue with the Aus option market to switch to the US for liquidity.

I was aware the spreads can be quite large before I opened an account with Interactive Brokers, but I was thinking I should be able to have orders filled around the mid if I go for the underlyings with higher open interests/option volume. However, as I build experience using the paper trading account this doesn't seem to be the case (maybe this was ignorant of me). 

Is the simulated trading environment representative of the actual Aus options market? Or do you generally find you're able to have orders filled around the mid more often than not?

The Aus market is preferable (for familiarity and time-zone reasons) and I'd like to stick with it, but I'm considering switching to the US. 

Aside: which market data subscriptions are you currently subscribed to for Aus options? 

Bit of background, I've recently decided to add options to my repertoire in an effort to generate additional income and hopefully reach retirement a little sooner (I finished Uni a few years ago and I'm only in the beginning my professional career, but another 40ish years just doesn't appeal to me).

Any response will be greatly appreciated!

Thanks in advance

Rowds


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## Sharkman (5 January 2022)

Rowdy.13 said:


> I was aware the spreads can be quite large before I opened an account with Interactive Brokers, but I was thinking I should be able to have orders filled around the mid if I go for the underlyings with higher open interests/option volume. However, as I build experience using the paper trading account this doesn't seem to be the case (maybe this was ignorant of me).
> 
> Is the simulated trading environment representative of the actual Aus options market? Or do you generally find you're able to have orders filled around the mid more often than not?




i'm not a big believer in paper trading, the main reason being that with no skin in the game it fails to capture one of the most important aspects of trading - one's emotional responses to events. better to make actual trades with small amounts (ie. that you can afford to lose) of real money in my opinion - though with options make sure you have a firm understanding of how to work out your max risk before doing so. i started out trading 1 contract at a time (and back then the lot size was 1000, now it's only 100 so it's even easier these days to try it out with small amounts).

this would be another reason. presumably the paper trading account is simply hitting the bid/offer every time, which is unrealistic and would be an extremely bad idea trading Aust options. you're not forced to do that when trading for real.

generally in the liquid names you do get the mid or close to it for near the money strikes (25-75 delta is usually close enough) and 3 months or less to expiry. i've mused in other posts why the MMs show rubbish spreads like 0.80/1.20 only to insta-fill me the moment i chuck in an offer at 1.00. i guess it's to catch people out who don't know any better. it's not guaranteed though, in some situations they won't fill you until you've crossed most of the spread.



Rowdy.13 said:


> Aside: which market data subscriptions are you currently subscribed to for Aus options?




none. i get the live prices for free thru my account with a CHESS broker, so i put that up on one screen and the IB app (which i actually trade the options thru) on the other.


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## cutz (6 January 2022)

@Rowdy.13 

Should get your fills around the mid with the more liquid  series.

For ASX data, ASX total at $25 a month, this will give you data for equities / options / cfd's.


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## Gunnerguy (23 February 2022)

Hi all,

I thought it was about time that I updated my progress on my OZ options trading experiences.

*Background. *

For those who have not followed my intermittent posts, I have swing traded, Buy and Hold, shares for over 25 years or so and decided to try to get some additional income whilst holding a reasonably large portfolio of International and OZ shares. After 3-4 months of avidly reading, watching videos and learning I commenced trading options in May last year with setting up an account with IB, and funding it. I current only trade OZ options. I have geology background, but with a lot of finance and a Masters in Financial Planning I wanted to try to use my knowledge in the options area to get some extra income.

*Progress.*
Since May 2021 I have completed 109 option trades and currently have 20 trades open.
Of the 109 trades ‘closed’, 95 were STO, 14 were BTO. I generally try to gain from Theta decay.

95/109 trades were ‘closed/expired’ for a profit (premium), 87% ‘success rate’.

14 trades ‘failed’, of which 4 were assigned (and then received dividends &/or sold covered calls with), 1 trade was called away (at a loss unfortunately) , 5 were STC/BTC at a loss and 4 trades were simply beginner/user error, in the early months.

A ‘success rate’ of 87%. Yes there were a few pennies picked up in front of the steam roller by not that many.

*Where I am now.*

Well after 9 months at this ‘game’ I’m starting to feel comfortable with what I am doing. Selling covered calls, cash secured puts on shares I would be happy to own. Selling CC’s is quite nice, owning the share and then selling for a premium and occasionally getting assigned at a higher price than my cost based. Not making millions, however it does feel a bit like making money from nothing. Not necessarily easy but enjoyable. Bull Put spreads and Bear Call spreads also. I’m still a bit chicken and generally selling at deltas of .10 or .15. Yes premiums are lower but I am trying to build a solid base of experience and laddering up and down on my trades as the share prices move.

*Latest revelation.*

So with generating some reasonable income from STO’s on various companies I have increased my STO’s on ASX200 Index options significantly. Sell high calls and selling low puts. Yes some risk but the low puts are actually spreads to limit my potential losses if there is a fall. Even bought some ASX200 puts.

In a previous post I mentioned CC’s on my holdings and occasionally buying Puts to hedge my holdings, however I am starting to take my options trading to the next level.

This will be obvious to the experienced options traders here, however to those who are not this is what I am currently developing. This is probably very common, boring, or moronic ….. however I didn’t read about it, it just started to develop for me in my Index option trades over the past 3-4 months. It just became obvious over time as a strategy worthwhile experimenting with.

*Current Strategy.*

[Dollar values are purely for example, for those employed by the ATO should they read this post]

1. Current Investment Portfolio (IP) is $1,000,000. IP contains OZ and International shares.

2. Through analysis the IP has a Beta value of 0.6 w.r.t to ASX200.

3. ASX200 (AP) Index options are ‘European’, only exercise on XP date. Cash options, multiples of 10.

4. Today 23rd Feb ASX200 closed at 7,205.

5. 21/4 expiration (57 DTE) , AP 7600C : PM = $18, Delta = 0.124, *25* Contracts = $4,500 Premium.

Note, a delta that is a bit higher that I am usually comfortable with.

6. Potential results that may occur on 21.4.


*ASX200*​*ASX200*​*PM*​*IP Gain (B=0.6)*​*PM + IP*​*Option*​*Net*​*Closes at*​*Gain*​*Received*​*$ 1,000,000*​​*‘losses’*​​7200​+ 0 .0 %​$4,500​$ 0​$ 4,500​$ 0​$ 4,500​7300​+ 1.4 %​$4,500​$ 7,900​$ 12,400​$ 0​$ 12,400​7400​+ 2.8 %​$4,500​$ 16,000​$ 20,500​$ 0​$ 20,500​7500​+ 4.2 %​$4,500​$ 24,000​$ 28,500​$ 0​$ 28,500​*7600*​+ 5.6 %​$4,500​$ 33,000​$ 37,500​$ 0​$ 37,500​7650​+ 6.3 %​$4,500​$ 37,000​$ 41,500​-$ 12,500​$ 29,000​7700​+ 6.9%​$4,500​$ 41,000​$ 45,500​-$ 25,000​$ 25,500​7800​+ 8.3 %​$4,500​$ 49,000​$ 53,500​-$ 50,000​$ 3,500​7900​+ 9.7%​$4,500​$ 58,000​$ 62,500​-$ 75,000​-$ 12,500​8000​+ 11.1%​$4,500​$ 66,000​$ 70,500​-$ 100,000​-$ 29,500​


So ……… my ‘profit’ starts to reduce when ASX200 rises more than 6.3% in 57 days (10% percentile from the past 54 week analysis). With Ukraine, Inflation, Interest Rates, Fed & RBA, I personally think that the ASX200 rising 6.3% in the next 57 days is unlikely. Delta is 0.124 percentile is 0.106.

Is this a ‘Golden Goose’ ? What am I missing ? If I sell 25 contracts of the 7600C 21/4, I get a premium of $4,500, I don’t start loosing money until the ASX200 rises to 7650, +6.3%, which is actually above the ATH for the ASX200. Again ….. what am I missing ?

*What do I want to achieve.*

Yes an interesting one. I’ve mentioned in other boards that percentages are more important that $ Dollars. Wealth levels vary across ASF. I still believe that percentages are more important in the overall picture when discussing amongst fellow ‘profit seekers’ (I don’t really like the term ‘traders’, it’s a bit …….. well its OK if your trading beaver furs in the 1800’s in Canada as its for profit and survival, however trading shares (as oppose to Buy and Hold) I find is a bit …… dare I say it ….. Capitalistic, but anyway I digress …..

In my case, just for this options discussion, and to bring us down from our ‘trading ivory towers’ and remember that we are trading/risking real money, I am focussing on a dollar value for my options trading, just for this post ….

I want to achieve $50,000 from options trading on a portfolio of $1,000,000.

So based on the example above, 21/4 options on AP, giving a PM of $4,500, if I could do this every 6 or 4 weeks, it would get me close to my target. Gong for a high delta, and thus higher PM could get me there, however ………….. this post is just saying …….. I may have just ‘got it’ and understand how to fully use my IP to get income …… safely ……

Critics and comments greatly received.

If anyone is trading US options through IB I would welcome a DM and an opportunity to discuss as I am considering extending my options trading in to the US.

Gunnerguy.
(Learning,, patient, not over extending, cautious with Risk Management).


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## Sharkman (24 February 2022)

Gunnerguy said:


> Is this a ‘Golden Goose’ ? What am I missing ? If I sell 25 contracts of the 7600C 21/4, I get a premium of $4,500, I don’t start loosing money until the ASX200 rises to 7650, +6.3%, which is actually above the ATH for the ASX200. Again ….. what am I missing ?




your breakeven should be 7618, not 7650. for index options the premium isn't really $18, it's 18 points. XJO options are $10 a point, so 25 contracts means each point above 7600 loses $250 ie. 18 points will cost $4500. 7650 at expiry means you're down 8K (32 points * $250).

7600 seems a reasonable strike to me, it bounced off there last aug and again this jan, so there could be a bit of resistance at that level.

normally i don't like to sell low delta calls myself, because it's selling cheap gamma most of the time. but i haven't been watching the market too closely recently, apart from trying to get my CBA position called away having just stripped the div for franking credits, so possibly the IV is decent for low delta calls at the moment given the turmoil. though i'd imagine the delta skew is also quite steep as usually tends to happen in times of uncertainty.

do you remember where the IV was when you placed the trade?



Gunnerguy said:


> So based on the example above, 21/4 options on AP, giving a PM of $4,500, if I could do this every 6 or 4 weeks, it would get me close to my target. Gong for a high delta, and thus higher PM could get me there, however ………….. this post is just saying …….. I may have just ‘got it’ and understand how to fully use my IP to get income …… safely ……




in my eyes there are a few problems with this statement. though i'm not as experienced with index options as some of the others on here, i've only dabbled with them on occasion, so others will probably have a more educated view than mine.

first is that you're not doing it every 6 or 4 weeks, given that it's 8 weeks to apr expiry. this makes a big difference when you're talking about 10 delta calls, as for way OTM options the theta is actually higher further out from expiry - the underlying needs time to make such a big move, ie. if you sell 1 month 7600 strike calls to try and cycle thru these every 4 weeks, i'd guess the premium will be far, far less than $4500 or even $2250. at that point tick size starts becoming a headache, and the MMs might not even fill it at all.

second is that i would imagine (though as i said, haven't been watching the market too closely of late) that IVs are substantially elevated at the moment, due to what's going on in the world. once it mean reverts, the premiums on sold options will drop, so making the assumption that these can consistently be sold for $4500 a pop over the longer term doesn't seem realistic to me.

lastly i don't think safety in the stock market exists. a 10 delta is most definitely NOT safe. i hate to bring this up - i'm not having a go or anything, everybody gets things wrong from time to time and i certainly have on many occasions - but remember when you said "do we really think BHP is going to fall 10% by sep expiry"? what happened to BHP afterwards? theoretically about 1 in 10 of these is going to lose. if that one happens to blow right past the strike big time, it could easily wipe out the gains from the other 9.


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## Gunnerguy (24 February 2022)

@Sharkman 

thanks for your reply. Too much wine tonight to reply sanely. I will reply tomorrow.
However
1.  I haven’t placed the trade, just considering.
2. yes PM ‘s are not consistent on a monthly basis. My example is a ‘simple’ example’.
3. BHP is an individual stock, the delisting from London was a black swan. Non systematic risk for the index, but now a high proportion.
4. I am just looking at the concept. My Beta is actually closer to 0.7. The example is to give me some breathing space..
5. You don’t like a beta of 10 ? My last few trades have had a delta all around 7,8,9. Very conservative. If the market moves then I cover. Unfortunately I DO WATCH THE Matket. My MO is 4 hours every morning.....sat in front of live data.

I really do thank you for your effort to reply @Sharkman. I will further look in detail tomorrow you comments.

Just trying to develop a non discretionary , regular, trading strategy with options to get me $50K per year...... as a start.

Gunnerguy
(Showing appreciation to those with experience.)


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## Sharkman (24 February 2022)

Gunnerguy said:


> 3. BHP is an individual stock, the delisting from London was a black swan. Non systematic risk for the index, but now a high proportion.




there were other non-stock specific factors as well IIRC - didn't the iron ore price get hammered around that time? macro events can impact an index in a similar fashion.



Gunnerguy said:


> 5. You don’t like a beta of 10 ? My last few trades have had a delta all around 7,8,9. Very conservative. If the market moves then I cover. Unfortunately I DO WATCH THE Matket. My MO is 4 hours every morning.....sat in front of live data.




a delta of 10 you mean? i don't like selling 10 delta CALLS, but i will occasionally sell 10 delta PUTS, because of delta skew. eg. if the ATM IV of something is say 20, it's not beyond the realms of possibility to see a 10 delta call IV of 12.5 and a 10 delta put IV of 30. 99%+ of the time the skew will be puts over calls. of the very few times i have seen calls over puts, i think a takeover rumour of some sort was involved.

if that 10 delta put happens to be a strike that i would like to take delivery at (i see some support there, i want to strip the div for franking credits, or whatever) i might just go ahead and sell the puts to get the decay going. if i'm ok with the +delta, i generally feel i'm getting more adequately compensated for the risk by the significantly higher IV, as compared to the 10 delta calls.

to clarify - i'm not saying that selling 10 delta calls is bad. i'm just saying that i don't like to trade them for the above reasons - feels like picking pennies in front of a steamroller to me. but if you've thought it thru and think it's the right trade for you, then go for it, don't let some random dudes on the internet stop you!


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## wayneL (24 February 2022)

I don't really like the snatching pennies front in front of a steamroller allegory. Implies a slow moving behemoth that can be easily avoided so long as you don't freaking fall asleep in front of it.

When you get run over, it's not the steamroller that gets you, unless you're slow and old <cough>,  it's more like  blind crows picking at carrion on a rural highway frequented by road trains doing 130 km an hour.

And let's not forget that as you try to move out of the way, leaving aside allegories for the moment, you are going to experience volatility rush. Exiting is still going to hurt.

That is the game, bell curves, standard deviations, and leptokurtosis/fat tails.

it is my opinion that options do not reduce risk whatsoever given a notional underlying value, but merely reshape risk.

Success relies on and off and subjective analysis of risk reward ratios... with the added complexity of those risk and reward ratios being nonlinear.

FWIW


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## Gunnerguy (24 February 2022)

Thanks for your comments @wayneL . I have gravitated to AP Index options also because they are European executed. With the likes of BHP, CBA, FMG and dividends, someone can easily sneak up on you and call your shares away at a moments notice.

@Sharkman 

You are correct, my Breakeven is 7618, fat fingers on my side.

Yes my example was for April expiration, 7/8 weeks. You are correct. I’m just bouncing some numbers and yes if I did the strategy monthly the premiums would be lower, however I may consider doing a 60 DTE every 30 days. I get a higher premium with 60DTE rather than 30DTE. I just have to do some testing on DTE and overlapping trades.

Yes with the high anxiety at the moment and big market moves IV will be high, thus premiums higher and if things ‘quieten down’, IV will reduce and the premiums will also. In the short term I may actually gain from the IV ‘crush’ but longer term the premiums will likely be lower. I just have to balance DTE, Delta, and premiums against the Beta of my IP.

With my 10 Delta yes there statistically will be 1 in 10 times the ASX will go over the strike price, however with the IP and related Beta I hope to be ahead compared to the possible rise over the strike price. Yes there is risk but I am trying to manage this with my potential IP gains.

With Inflation, interest rates, Covid, and now Ukraine I believe, possibly wrong though, that the chances of the ASX200 rushing up to 7600 or 7700 in 30/40/50 days is highly unlikely. I think there are more Macro evens that are pushing the market down/flat. The only event that may cause a ‘melt up’ is if the FED do not raise interest rates due to Ukraine. I think that is a possibility. Another reason to kick the can down the road. If the FED do not raise in March or April then the market may well go up 10%-15% over …… 30/40/50 days.


Thanks for all your comments.

Gunnerguy.
(Learning, listening, adapting, adjusting ........ moving slowly forward)


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## Sharkman (24 February 2022)

wayneL said:


> I don't really like the snatching pennies front in front of a steamroller allegory. Implies a slow moving behemoth that can be easily avoided so long as you don't freaking fall asleep in front of it.
> 
> When you get run over, it's not the steamroller that gets you, unless you're slow and old <cough>, it's more like blind crows picking at carrion on a rural highway frequented by road trains doing 130 km an hour.
> 
> And let's not forget that as you try to move out of the way, leaving aside allegories for the moment, you are going to experience volatility rush. Exiting is still going to hurt.




you're probably right. i try not to interpret it too deeply though, i just take it in the spirit with which it was (presumably) originally intended - as a way of cautioning people that repeatedly taking on positions with a high probability of a negligible gain and a tiny probability of a massive loss will likely bite them on the a#$e sooner or later. i think it's done a good job in that regard, after hearing it for the first time, it readily sticks in the mind as a constant reminder of the dangers of doing that.


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## wayneL (24 February 2022)

Sharkman said:


> you're probably right. i try not to interpret it too deeply though, i just take it in the spirit with which it was (presumably) originally intended - as a way of cautioning people that repeatedly taking on positions with a high probability of a negligible gain and a tiny probability of a massive loss will likely bite them on the a#$e sooner or later. i think it's done a good job in that regard, after hearing it for the first time, it readily sticks in the mind as a constant reminder of the dangers of doing that.




The fat tail  is speeding down the road right now... Apologies for the mixed metaphors.


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## Sharkman (24 February 2022)

Gunnerguy said:


> With the likes of BHP, CBA, FMG and dividends, someone can easily sneak up on you and call your shares away at a moments notice.




this is only an issue in 2 months out of every year. and the large caps will all have European style options (the ones with strikes that end in .01 and .51 etc) that can be used to mitigate this.

though TBF, i've flip flopped quite a bit on these European style options. i liked them initially, as i found them very convenient when stripping divs for franking credits, which is a tactic i'm quite partial to, as you can probably tell.

then i went thru a phase lasting several months where i struggled to get any sort of decent fill on them (this was all a few years ago), so i wrote them off as being rubbish due to bad liquidity, and went back to using American style, watching them constantly and being prepared to roll/close out if i saw danger of them getting called away prior to ex-div.

i'm back on the European style train again, now that my portfolio is predominantly long term buy & hold, and i prefer not to have to watch the market religiously every minute that it's open these days. it doesn't hurt that fills on the Europeans seem to have improved a bit either. i sold CBA feb 100.01 European covered calls back in dec immediately upon having the stock put to me at 100, and with the stock hovering right around that 100 level in the lead up to feb 16 ex-div, it was much more relaxing not having to watch it like a hawk, trying to figure out if/when to roll/close out to protect the div.


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## Gunnerguy (22 March 2022)

*Rolling a Covered Call Up and Out ..... twice*

Just looking for some feedback from the community on rolling my CBA covered Call. 

I own 400 CBA with a cost base of $100. Caveat(s) - I am happy for them to be called away at a profit and understand that I am limiting my upside if the shares go higher.

Trade costs included below at $1.100.

Option Trade 1.
7/2 STO 4 x 21Mar 102C PM = +$0.305. Premium = +$120.9. Net = +$120.9

Option Trade 2.
[Diagonal/Calander Spread ?] - Rolling Up and Out. Trade completed last week.
16/3 BTC 4 x 21Mar 102C PM = -$2.300. Premium = -$921.1. Net = (+120.9 - $921.1) = -$800.2
16/3 STO 4 x 21Apr 104C PM = +$2.905. Premium = +$1,160.9. Net = (-$800.2 + $1,160.9) = +$360.7

With CBA now at $106.75 I am considering rolling again.

Option Trade 3. (Currently considering this).
Rolling out but at the same price.
22/3 BTC 4 x 21Apr 104C PM = -$4.66. Premium = -$1,865.1. Net = (+$360.7 - $1,865.1) = -$1,504.4
22/3 STO 4 x 19May 104C PM = -$5.64. Premium = +$2,254.9. Net = (-$1,504.4 + $2,254.9) = +$750.5

So if my Maths are correct ......
1. If I don't get assigned, I obviously continue to hold the shares.
2. Rolling has increased my original option 'income' from +$120.9 to +$750.5.
3. If I get assigned my option income is still +$750.5 and my share gain would be ($104 - $100) x 400 = $1,600.

So what's not to like ??? Why am I worried/scared to roll up / out on a covered call ? I did it once already, why should I not do it again ?

...... When I look at the individual P/L's for each BTC/STO trade, they look ugly ..... Closing the first option trade results in a -$800.2 loss. Closing the second option trade results in an increased net loss of -$1,504.4. I just don't like the look of these..... but should I ?

The FINAL result of all this rolling is ..... I have a higher net premium whether or not I get assigned.

Should I be worried about the individual losses for the trades or just ignore them and look at my final result.

I would really appreciate some feed back as I'm just wondering why I don't like this. What am I missing.

Gunnerguy.
(10 months of options trading, 149 trades, and still learning, patience).


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## Sharkman (22 March 2022)

Gunnerguy said:


> *Rolling a Covered Call Up and Out ..... twice*
> 
> Just looking for some feedback from the community on rolling my CBA covered Call.
> 
> ...




funnily enough i was in a similar position. i sold the mar $100 calls on 18/2 for $1.60. i took delivery when the dec $100 puts were assigned, stripped the div, then had the feb european covered calls expire worthless, so i'd already collected 3 sets of premiums + the div + the franking credits and fulfilled the 45 day rule by then. as the position had already served its purpose, i just let them get called away last week.

rolling up & out should not be an automatic decision the minute covered calls go ITM. at some point doing so becomes counterproductive. i would argue CBA has now reached that point. i'm not an expert chartist by any means, but i can see the RSI is edging close to 80, and in recent months it has corrected sharply on a few occasions on reaching this sort of level. it's starting to look a bit overbought to me.

the danger of rolling covered calls up & out when the underlying is rallying hard is that it either erodes your returns by costing premium, or it ties up your capital for longer periods, or both. and if it happens to pull back sharply to your original strike by the time the new options expire, it then becomes a terrible trade as now you've taken on all the costs of rolling (keep in mind it's not just the brokerage, it's also whatever fraction of the spread the MM will make you cross) and don't have the cap gain to show for it. stocks generally go down faster than they go up!

if the underlying barely creeps above my strike and i expect it to continue rallying at a measured pace over the next month or two, then i'd probably look towards rolling up & out. but in this case it exploded well past my strike so i decided to just take the assignment and look for a pullback to that $100 level sometime in the next couple of months, whereupon i can look to sell the jun/jul $100 puts, strip the aug div, then sell covered calls again.

if your gut feeling is telling you that rolling is iffy, then let the stock go. having the fortitude to forego upside is a crucial part of selling covered calls, when it gets this far past the regret point, sometimes you have to admit to yourself, look, i got it wrong, i'll take whatever gains i've secured so far, i won't chase it any further, and i'll recoup the dry powder so it's there when better opportunities present themselves. i had to do exactly that last week when i had basically the same trade on myself.


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