Options - how do they work?

[stefan_invester]

Thanks for the info guys

I dont know why, but i found this site,http://www.marketpunter.com.au
and i have been reading about Binary options, and it seems like a really easy way to make money for some reason :S

but I don't know if thats a legit site, because i contacted them, and i need to transfer my money to a bank account in cyprus.... so yeah its a bit weird.
best to keep away i guess

 

[mazzatelli]

@stefan
Generally exotic options are better to use than vanilla options, better Greek exposures [e.g. discontinuity beyond the barrier in the case of no touches, minimal vega, all gamma </= 7 days out etc], but they are very complex, even for professionals.

MM's will hold all the edge, and unless you know how to model your own vol surface to price the skew and can track hedging parameters its best to stay away. When explained simply, it sounds so good - but there is a reason a lot of these are not allowed to the public and subject to gambling regs.

If you want to play around with binaries - join Oanda and play with FX box options. Again slightly different to binaries - but at least they are a trusted counter-party.

 

[ROE]

Thanks for the info guys

I dont know why, but i found this site,http://www.marketpunter.com.au
and i have been reading about Binary options, and it seems like a really easy way to make money for some reason :S

but I don't know if thats a legit site, because i contacted them, and i need to transfer my money to a bank account in cyprus.... so yeah its a bit weird.
best to keep away i guess

Nothing is that easy ...if it is easy then I say it's easy to lose money

most financial advertising are designed to build you dreams, just remember that
and when those dreams dont come true it will be a F**ken nightmare

stay with a trusted financial operator when it come to financial stuff and in Australia
it's the ASX

That site look like a gambling site based on market derivatives.

 

[wayneL]

Re: How do Options work?

oh I think he mean the company issue options, not ETO that how I read it...
he now want to convert to shares.

If that the case I think you contact the company, filled in some form with a cheque
and they issues you the shares.. I never deal with company issue options, mainly ETO.

Company options are still call options and may still have extrinsic value to be lost.

Unless extrinsic value is zero, it is still better to sell the options and buy the shares, rather than exercising.

 

[mazzatelli]

Stay with ETO, they guarantee someone on the other side will honour the contract
because they have margin on your balls and the price is a little more transparent

Most of the decent operators offering retail exotics are arms of the large banks &/or brokers e.g. UBS, Societe Generale, Oanda, Saxo

Anyway the closest replication to the binaries using vanilla options are vertical spreads - so ASX ETO's would be a fruitless uphill battle.

 

[Pairs Trader]

the spreads, commissions and lack of liquidity in options will eat you alive

 

[wayneL]

the spreads, commissions and lack of liquidity in options will eat you alive

Yes and no.

Lots of things can eat you alive. If trying to swap long puts and calls for stock, the above "might" be true... but not necessarily so.

But you can do stuff with options you can't do with stocks and this is where they come into their own.

As with everything in trading "it depends".

 

[skc]

Thanks for the info guys

I dont know why, but i found this site,http://www.marketpunter.com.au
and i have been reading about Binary options, and it seems like a really easy way to make money for some reason :S

but I don't know if thats a legit site, because i contacted them, and i need to transfer my money to a bank account in cyprus.... so yeah its a bit weird.
best to keep away i guess

Your local friendly (and slightly more reputable) CFD providers also offer binaries.

Your money is probably safer with them than an cyprus account, but I highly doubt that it will be easy to make money from 'trading' binaries.

Here's a screen shot on the closing value of ASX200.



Actually that Buy 7.4 for ASX200 to finish 0 to 25pts down seems like a good bet

 

[sydants]

yes i understood there would be costs involved with the brokerage of buying/selling the options just there was a 8% gap between share price and option price+excersise cost which just seemed like free money

 

[operandi]

OK so why would you trade options? ( binary's ETO's or otherwise) but if you must! Dont sell em no matter what any marketeers tell you but if u must cause its only a matter of time before u get enamoured by the credit you get in the account buy the strike above(calls) below( puts), learn the Greeks especially gamma and theta cause ull prob run ur delta's.

What likely may happen is: ull go long options, theta will chew into ur long premium, this will happen a few times and then ull think, fxck it ill sell em and get paid, ull get comfortable living off the fat of short premium not realising vol has gotten crushed to the point that the strangle is lean at which point in time vol will explode cause someone or something extraneous has occured and will take away all ur lovely little profits uve accumulated over the last months.

The good option traders ive seen trade options long, pay for premium so it costs em nothing to have on, keep em on their books over and over again, and when they kick in they go buy a house CASH.

 

[wayneL]

OK so why would you trade options? ( binary's ETO's or otherwise) but if you must! Dont sell em no matter what any marketeers tell you but if u must cause its only a matter of time before u get enamoured by the credit you get in the account buy the strike above(calls) below( puts), learn the Greeks especially gamma and theta cause ull prob run ur delta's.

What likely may happen is: ull go long options, theta will chew into ur long premium, this will happen a few times and then ull think, fxck it ill sell em and get paid, ull get comfortable living off the fat of short premium not realising vol has gotten crushed to the point that the strangle is lean at which point in time vol will explode cause someone or something extraneous has occured and will take away all ur lovely little profits uve accumulated over the last months.

The good option traders ive seen trade options long, pay for premium so it costs em nothing to have on, keep em on their books over and over again, and when they kick in they go buy a house CASH.

There is a time to short premium, there is a time to long premium and there is a time to spread.

 

[mazzatelli]

The good option traders I've seen trade options long, pay for premium so it costs em nothing to have on, keep em on their books over and over again, and when they kick in they go buy a house CASH.

What do they do? Buy strangles?

 

[sails]

...The good option traders ive seen trade options long, pay for premium so it costs em nothing to have on... CASH.

How can you pay for something that costs you nothing?

And if that means selling premium to eventually pay for long premium, then there is a risk of reduced profit (capped by the short) in the event of the big move...

 

[operandi]

How can you pay for something that costs you nothing?

And if that means selling premium to eventually pay for long premium, then there is a risk of reduced profit (capped by the short) in the event of the big move...

Nah IMO ur not thinking like an option trader.. ...When ur long options u pay(buy) premium, that premium "wastes away" as they get closer to expiry. Wasting away means losing money for the trader. Trader looks down at his sheets knows how much he's losing so he hussles around other strikes, order flow and the underlying to pay for this. If he's husled well, he's got the long options on for "nothing" (or essentially paid for), if he's over he's happy BUT if premium explodes (cause thats the kicker), he's very happy indeed. It's not a reduced profit if ur loaded up and spread out.

IMO unless uve got the "couta" electronic eye trading software dont even go there the blokes in London and Chicago are just too on the money. These guys are on the money http://goo.gl/rmwUY ( btw is this allowed in this joint)

Always spread, spread everything against everything and everything against everything again

 

[wayneL]

Nah IMO ur not thinking like an option trader.. ...When ur long options u pay(buy) premium, that premium "wastes away" as they get closer to expiry. Wasting away means losing money for the trader. Trader looks down at his sheets knows how much he's losing so he hussles around other strikes, order flow and the underlying to pay for this. If he's husled well, he's got the long options on for "nothing" (or essentially paid for), if he's over he's happy BUT if premium explodes (cause thats the kicker), he's very happy indeed. It's not a reduced profit if ur loaded up and spread out.

Gamma scalping?

Please tell us more.

IMO unless uve got the "couta" electronic eye trading software dont even go there the blokes in London and Chicago are just too on the money.

Why tell us muppets about this then?

 

[mazzatelli]

Nah IMO ur not thinking like an option trader.. ...When ur long options u pay(buy) premium, that premium "wastes away" as they get closer to expiry. Wasting away means losing money for the trader. Trader looks down at his sheets knows how much he's losing so he hussles around other strikes, order flow and the underlying to pay for this. If he's husled well, he's got the long options on for "nothing" (or essentially paid for), if he's over he's happy BUT if premium explodes (cause thats the kicker), he's very happy indeed. It's not a reduced profit if ur loaded up and spread out.

IMO unless uve got the "couta" electronic eye trading software dont even go there the blokes in London and Chicago are just too on the money. These guys are on the money http://goo.gl/rmwUY ( btw is this allowed in this joint)

Always spread, spread everything against everything and everything against everything again

The firm you quote are market makers employing high freq/algorithmic trading, no different to Optiver, Tibra etc.

What you described, isn't even the way these firms trade!!!

 

[cutz]

LOL,

Correct me if i'm wrong but I thought "the sheets" disappeared back in the ninties.

 

[kingcarmleo]

Options provide more leverage as the underlying assets increases significantly.