How to learn about options...

[wayneL]

Thanks sails,

I will take a look at them. Damn that impliedvolatility website must have taken some time to make for one member! But it looks like as it develops, it could really be something!

Hoadley does look like a good site also!

If your a person than can learn using visual props, there is no better tool than Hoadley's modeler that sails mentioned (or similar software).

For me, it was the one single thing that broke the greek enigma and helped me understand what they really are and how one can trade them. You can play with it for hours... easier than Rubik's cube too.

Caution: There is a risk that it can turn you into an options nerd who speaks with strange words.

 

[Buffettology]

If your a person than can learn using visual props, there is no better tool than Hoadley's modeler that sails mentioned (or similar software).

For me, it was the one single thing that broke the greek enigma and helped me understand what they really are and how one can trade them. You can play with it for hours... easier than Rubik's cube too.

Caution: There is a risk that it can turn you into an options nerd who speaks with strange words.

ha ha, just reading the website does my head in! So many words and tools I have NO CLUE about!

I still only understand the few tools I came accross in my book that I asked about in my previous post. This Options Strategy Evaluation Tool (OSET) appers to incorporate some of those things (volatility chains/probability calculator) and some other things of which I am not sure exactly of what they are.............

Think I need to really invest some time into that website and go through all the demos and tutorials!

 

[Tinpusher]

Hi,

I've just returned from 5 years in Nth America where I used to trade derivatives (CME) when not on shift moving metal.

I'm trying to get a feel for Australian Share volatility to go back to trading options since I can't seem to find anything locally equivalent of the CMEs Emini S&P 500 and found this site from page 1 superb.. http://www.impliedvolatility.com.au/.

A quick question for Aussie option gurus: I'm Bearish on a few stocks and fond of the risk management of vertical spreads, what works better for you Bear Call Spreads (credit) where both contracts end up OTM or Bear Put Spreads (debit) where both end up ITM? And why?

The Hoadley download has a default Bear Put Spread, but you have to put in the Bear Call Spread manually if anyone cares to play with the concept on that tool BTW.

Thanks,
TinP

 

[sails]

Hi,

I've just returned from 5 years in Nth America where I used to trade derivatives (CME) when not on shift moving metal.

I'm trying to get a feel for Australian Share volatility to go back to trading options since I can't seem to find anything locally equivalent of the CMEs Emini S&P 500 and found this site from page 1 superb.. http://www.impliedvolatility.com.au/.

A quick question for Aussie option gurus: I'm Bearish on a few stocks and fond of the risk management of vertical spreads, what works better for you Bear Call Spreads (credit) where both contracts end up OTM or Bear Put Spreads (debit) where both end up ITM? And why?

The Hoadley download has a default Bear Put Spread, but you have to put in the Bear Call Spread manually if anyone cares to play with the concept on that tool BTW.

Thanks,
TinP

Welcome, Tinpusher!

Definately whatever finishes OTM - reason is fees and slippage to close an ITM side. Oz fees are not user friendly - and then when it's only you and the MM, slippage can widen considerably. Also, if ITM, high probability of being assigned on the short - and not necessarily the whole lot. The times I have been assigned has usually only been in 1 or 2 lots and so one ends up paying full minimum fees while still managing the remainder of the unassigned position. So letting them expire worthless when OTM is definately preferable.

Didn't realise the Hoadley tool had the ability to search for spreads - will check it out! But then I'm currently checking out the US options market since our MMs here decided to quit qiving quotes during the recent volatility which co-incided with our expiry - wasn't impressed!

Cheers

 

[Tinpusher]

Thanks for the advice Sails!

Twas my thinking (ie most options expire worthless) thanks for the confirmation.

Also, on the anticipated 'big' move what do you think of 'backspreads' in the stock option market (bullish...write a call ATM or even ITM and long 2 calls JOTM, hopefully revenue neutral)? The problem as I see it, is the move has to be a big 'un and may be more suited to 'news' reactive markets such as futures (??).

I've never done it in anger but the concept of limited loss potential and no limit on gains and the mathematics looks good.

PS Thanks for the welcome.

 

[sails]

Thanks for the advice Sails!

Twas my thinking (ie most options expire worthless) thanks for the confirmation.

LOL not advice - only my opinion!

Actually, I disagree that most options expire worthless - this generally only applies to OTMs as most traders will sell anything with intrinsic value. ITMs are usually either closed out before expiry or are exercised. Just check the course of sales the day after ETO expiry and you will see all remaining ITMs being exercised - usually with the code of EP or EC.

Also, on the anticipated 'big' move what do you think of 'backspreads' in the stock option market (bullish...write a call ATM or even ITM and long 2 calls JOTM, hopefully revenue neutral)? The problem as I see it, is the move has to be a big 'un and may be more suited to 'news' reactive markets such as futures (??).

I've never done it in anger but the concept of limited loss potential and no limit on gains and the mathematics looks good.

Yes, backspreads do need a big move - but they can also be hurt by falling IV. The short call doesn't neutralise the vega of the two long calls. Although it can be put on for a credit in a low IV environment, margin will be required - meaning back spreads are not risk free. These can rapidly move into their loss area as expiry approaches and if the underlying is trading between the two strikes and for this reason, they are usually better to have some time on their side.

I like to break these types of strategies up eg. the call backspread is simply a bear call spread with an extra long call - helps to understand where the risks are lurking.

Personally, I have found them more useful on the put side provided IV is at low levels when entering and they can do very well with strong down moves due to the movement plus IV increasing as well. However, they are simply another tool in the option tool-box.

IMO, they are not a set-and-forget strategy - unless the market moves strongly away and remains well clear of your strikes and you get to keep any initial credit.

 

[Tinpusher]

unless the market moves strongly away and remains well clear of your strikes and you get to keep any initial credit.

I was only thinking of it in a big move to hedge against a sentiment spike that could see my stops hit but I can ride the bow wave.

Thanks again mate.

 

[itakacs]

Guys,

I'm at the "1/ Unconscious Incompetent" stage of learning Options trading for fun, pleasure and excitement. I've read a few books, most of them were recommended on this forum and never attended any seminars to keep the purity of my soul.

What concerns me is that I could not find any Australian option trading step-by-step kind of guide that would help me through the basics. I still don't understand how someone finds a cheap option, monitors it on a daily basis, etc.
Is there any software that can download Options data from ASX or from data providers and run pre-set rules on the data to filter out meaningless noise from value?
Or is it a fully manual process to collect the data of all the avail. Options, the IV, etc. from ASX and other web sites?

I heard about some applications like OptionVue that can be used for something like that, but the pricing has scared me away.

Can you please recommend some books, training materials, etc. that would explain me these steps? What I learned so far about the process is the following in some simplified steps:

1. find a stock that is trending and sends a buy signal
2. check the ASX web site for available options
3. GAP here
4. buy the option
5. monitor the stock
6. use your exit strategy to get out

I have a big gap in my knowledge at step 3. I have read books about Options, but they are only about the theory and not about the physical selection process especially on the Australian market (not if it was any different to other markets I guess).

Thanks in advance.

 

[wayneL]

The GAP is in only considering buying purportedly "cheap" options as a directional strategy, probably as a means of leverage.

Get that out of your mind for a start and you'll have half a chance.