Any option writers out there?

[sails]

Thanks for the info Sails,

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

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

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

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

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

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

 

[jackson8]

hi all

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

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

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

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

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

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

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

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

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

any thoughts?
Gary

 

[sails]

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

hi all

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

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

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

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

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

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

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

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

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

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

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

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


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

any thoughts?
Gary

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

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

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

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

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

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

 

[Grinder]

hi all

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

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

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

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

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

any thoughts?
Gary

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

Hope this helps Jackson

 

[jackson8]

thanks guys for all your input

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

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

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

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

risk and money management are hopefully a key to further success

Gary

 

[mazzatelli1000]

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

Common plug with wealth spruikers.

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

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

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

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

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

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

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

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

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

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

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

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

The doubt about whether money can be made.

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

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

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

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

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

 

[jackson8]

am interested in anyones thoughts on this play

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

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

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

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


any thoughts appreciated
gary

 

[cutz]

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

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

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

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

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

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

Hope i haven't bored you too much.

Catch you later.

 

[cutz]

am interested in anyones thoughts on this play

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

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

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

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


any thoughts appreciated
gary

Hi Gary,

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

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

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

 

[Grinder]

Hey Jackson,

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

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

 

[jackson8]

Hey Jackson,

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

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

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

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

 

[sails]

Hi Gary,

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

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

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

Just some food for thought...

 

[cutz]

G'Day Again,

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

 

[Grinder]

G'Day Again,

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

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

 

[cutz]

Gotcha Grinder,

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

 

[jackson8]

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

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

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

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

 

[sails]

G'Day Again,

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

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

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

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

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

 

[cutz]

Hello again Sails,

Sorry I did mean verticals.


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

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

 

[jackson8]

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

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

 

[sails]

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

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