Options Mentoring

The underlying is BHP, the strikes are at 30 and 35, net premium is $2820, the circumstances around this trade are I initially wanted to set it up as bearcall spread and I totally cocked up the long call leg as I described in the wings thread, i.e. the hedge buy to open went in as a sell to open which I had to reverse just before the market closed and add some, so I ended up short 4, and only long 1. Last night lying awake thinking about what to do I decided to close out the hedge and introduce a higher amount of further out long calls.

The reasoning for this is if the price hovers around today’s level everything is fine, if it moves up to towards 35 with a week to go I might go for a diagonal roll. If the BHP keeps driving up I am protected from assignment due to the long puts becoming profitable. This position expires in Dec but I feel a little more comfortable with this instead of a bearcall as BHP seems to be moving up unrestrained.

Yep, I did run this through hoadlys and there is definitely more risk and theta between the strikes is a killer, but I’m more comfortable with this especially the way BHP is running.

Due to what happened yesterday this has been my sloppiest trade to date but i feel it won't bite me too hard.

WayneL

It's good to hear from you again.

Hi Cutz,

It sounds like you are comfortable with the position and, more importantly, have a pre-determined management plan. And at least BHP has better liquidity than some.

I think one has to find their own niche in options trading and seems trial and error is the best way to get there with so many different strategies and moves available.

I have often read that managing positions is most probably the key to successful options trading - and you seem to have that under control!

Be interesting to see if Wayne has any suggestions...

Thanks Sails.

Probably not the best spread to use but due to the amount of friction in my
brain the only why I get it is through actual experience when trying new things.

In theory I guess this trade would have been suited to increasing volatility and I’m not sure if BHP can continue its surge so we’ll see how it goes.

Not much really to add. If it's the risk profile you desired at the time and are aware of the risks, that's completely fine. See how it plays out.

All stuff for the experience pot.

G’Day Everyone

I was after an opinion on setting up spreads,

Basically I’ve set up credit vertical spreads on an US index fund, Feb expiry. I started off with the Call side then added the Put side when the market turned so I ended up with a condor, last week I closed out the short call leg which turned out to be a bit premature.

This morning I’ve started looking at the March expiries and I decided to buy some cheap OTM calls which I eventually plan to use as the hedge for the call credit spread.

Does anybody else use this strategy to put on spreads rather than putting on the spread at once? I tried this with XJO options FEB expiry, (i.e. picking up cheap calls in preparation for a bounce just before late last weeks collapse)
but as it turned out the calls I purchased are now so far OTM that the market will have to move up quite a bit to put on a viable short call leg.

Normally I set up spreads at once. Am I wasting my time legging in to spreads as described above? My first attempt with the XJO call spread looks like it may fail, as there only 17 days to go till expiry.

It’s starting to appear that the strategy I’ve described could be relying too much on picking direction which i'm finding is impossible to do these days.

Any thoughts?

hi cutz

have tried this sort of stragety as well by purchasing way otm options with a fair bit of time left as a first leg into a spread
but after consideration i figure that if the market moves enough to make it profitable i then have just repurchased the position to close out for a profit with only one brokerage fee
its something i have tried to get my head around
have some wotm xjo puts which may use as an insurance to short some bhp or nab puts similiar to a credit spread but utilising index as the wings and stock options as the short ..........hope this all makes sense . its a bit early for me on a saturday morn.

cutz said:

G’Day Everyone

I was after an opinion on setting up spreads,

Basically I’ve set up credit vertical spreads on an US index fund, Feb expiry. I started off with the Call side then added the Put side when the market turned so I ended up with a condor, last week I closed out the short call leg which turned out to be a bit premature.

This morning I’ve started looking at the March expiries and I decided to buy some cheap OTM calls which I eventually plan to use as the hedge for the call credit spread.

Does anybody else use this strategy to put on spreads rather than putting on the spread at once? I tried this with XJO options FEB expiry, (i.e. picking up cheap calls in preparation for a bounce just before late last weeks collapse)
but as it turned out the calls I purchased are now so far OTM that the market will have to move up quite a bit to put on a viable short call leg.

Normally I set up spreads at once. Am I wasting my time legging in to spreads as described above? My first attempt with the XJO call spread looks like it may fail, as there only 17 days to go till expiry.

It’s starting to appear that the strategy I’ve described could be relying too much on picking direction which i'm finding is impossible to do these days.

Any thoughts?

Click to expand...

I don't try & leg in. Don't find it worth it, can't pick direction even in a calm environment. If I was going to do it, would got another month out, can give you more time, keep gamma away. I ailways spread em, might not be same expiry but both legs get put on at the same time.

Hi Guys,

I’ll put up one of my positions for comment, it’s one that’s going a tad pear shaped. What was originally an XJO iron condor has turned into a call back spread due to the fact that I closed out the put short side and added long calls as defence, the strikes are as follows, 3700/4200 ratio of 1 to 2. (6 short 12 long may ex).

Due to the market pushing upwards I am now approaching the valley of death as mazza nicely put it, no convenient instruments exist for gamma scalping, with 2 weeks to go I need a solid push up or down on the XJO.

Any tips anyone ?, I’m inclined to sit it out for 2 weeks and maybe add some more longs because anything is possible (up or down) but I’m wondering if I should roll out Monday into June in case we get bogged down around the 4250 zone.

Thanks

Cutz.

cutz said:

Hi Guys,

I’ll put up one of my positions for comment, it’s one that’s going a tad pear shaped. What was originally an XJO iron condor has turned into a call back spread due to the fact that I closed out the put short side and added long calls as defence, the strikes are as follows, 3700/4200 ratio of 1 to 2. (6 short 12 long may ex).

Due to the market pushing upwards I am now approaching the valley of death as mazza nicely put it, no convenient instruments exist for gamma scalping, with 2 weeks to go I need a solid push up or down on the XJO.

Any tips anyone ?, I’m inclined to sit it out for 2 weeks and maybe add some more longs because anything is possible (up or down) but I’m wondering if I should roll out Monday into June in case we get bogged down around the 4250 zone.

Thanks

Cutz.

Click to expand...

Hi cutz

I am empathetic to your situation and I don’t know that I can be of any help as I am only new to the game , but I will offer you my thoughts on the situation

Firstly one can only hope that bad sentiment will set in again and the market falls , that would be the obvious but there is no guarantee of that happening

By adding more longs are you talking about out of the money as you would need quiet a rapid push upwards for them to be of much benefit , I suppose its bit of a gamble.

Rolling out may only be prolonging the agony especially if the market keeps rising and rolling out and up it is still going to hurt. Especially as your shorts are quite deep itm.

Out of curiosity where was the market when you put the spread on and did you think about defending the position earlier in the game when the trade started going against you .

I subscribe to a thread by a usa. IC Trader who suggests making adjustments in stages as soon as the trade starts going against you . he suggests taking long positions underneath the short strike as a defensive strategy as your short becomes threatened
It obviously costs some but offers a bit of protection on any further upward movement. If the strike is further threatened he would then buy more protection of the same

I suppose there has to be a trade off between throwing more money into the hat or just plain relinquishing the position

Sorry that I can not be of more help , hopefully someone with more experience than myself can offer some tips

I will add a link to one of his latest blogs as it may be relevant to your situation
http://blog.mdwoptions.com/options_for_rookies/2009/05/trading-iron-condors-more-risk-reducing-investment-ideas.html

Hi gary,

It was the 14 of Apr, and I was feeling particularly bearish, (it shows because XJO was trading just above 3700), it started as a 5 to 8, then a 6 to 8 and finally a 6 to 12 as the days/weeks progressed, in hindsight I could have purchased some STW to flatten out the position at around 3800 but the push through 3900 took me by surprise.

3850 will get me back in the green and so would 4550 so I’ll guess I’ll suck it and see, it least the put leg turned out OK, I traded in and out of that short leg twice moving the strikes up.

Unfortunately STW doesn’t seem to follow XJO precisely and i can’t short it to defend a pear shaped put spread.


BTW the long calls where quite cheap when i did the final adjustment, only $40 each, also thanks for the link.

jackson8 said:

Hi cutz

I am empathetic to your situation and I don’t know that I can be of any help as I am only new to the game , but I will offer you my thoughts on the situation

I will add a link to one of his latest blogs as it may be relevant to your situation
http://blog.mdwoptions.com/options_for_rookies/2009/05/trading-iron-condors-more-risk-reducing-investment-ideas.html

Click to expand...

Hi,

I appreciate your linking to my blog. That's how I found my way to this forum.

Back spreads produce wonderful looking risk graphs, but, as you already know, become very risky positions when held to expiration. That's one of the reasons I recommend buying calls with equal or lower (or puts with equal or higher) strike prices than your short options.

Thus, instead of buying more 4200 calls, I like the idea of buying (to close) some of your short calls and selling new call spreads that are further out of the money to partially offset the cost of those calls. It's too late to do this for May positions, and is more appropriate with more time before expiration.

Here is the idea in greater detail:
http://blog.mdwoptions.com/options_...dors-more-risk-reducing-investment-ideas.html


Mark

Hi Mark,

Welcome to the forum.
I have read your posts on ET back in the day and found some insights very valuable.

Thank you for popping in and helping

G’Day Mark,

Thanks for your comments,

Yep I agree rolling out some shorts earlier would have been a better strategy.

I guess in hindsight my biggest error was putting on a position that reflected my sentiment to heavily, as it’s turned out i was incorrect but I’ll see how the market plays out in the next two weeks. I’ve always liked backspreads as it gives me a certain level of comfort knowing that an extreme move will allow me to save the position, (except for when the market is bogged down between the strikes )

Yes, welcome to ASF, Mark!

We can certainly use some help here. WayneL was a wonderful souce of knowledge, but has been AWOL for some time now - we are hoping he will return one day. Mazza pops in occasionally these days and shares his wisdom with us.

Personally, I don't have the necessary risk tolerance for ICs and have found them difficult to adjust when things go pear shaped, and so feel I am lacking in practical experience to answer questions such as the one Cutz asked.

I used to be an avid ET (options) lurker - only occasional now. Learned a lot over there and have also read some of your posts. It takes a bit of time and patience to sift through some of the rubble though.

Trading options in the Oz market is pretty tough with high data fees, broker fees, exchange fees and unacceptable slippage, IMO. I have found it doesn't suit all types of options trading over here.

Cheers

mazzatelli1000 said:

Hi Mark,

Welcome to the forum.
I have read your posts on ET back in the day and found some insights very valuable.

Thank you for popping in and helping

Click to expand...

PS - Nice to see you pop in too, Mazza! Hope all is going well...

welcome to ASF, Mark!

I don't have the necessary risk tolerance for ICs and have found them difficult to adjust when things go pear shaped, and so feel I am lacking in practical experience to answer questions such as the one Cutz asked.

I used to be an avid ET (options) lurker - only occasional now.

Trading options in the Oz market is pretty tough with high data fees, broker fees, exchange fees and unacceptable slippage, IMO. I have found it doesn't suit all types of options trading over here.

Cheers

G'day to all.

Thanks for the welcome. Due to the time difference, I doubt I'll be able to reply to questions immediately, but will continue to pop in here.

Regarding iron condors and adjustments: I don't believe any specific strategy is best for everyone - and iron condors have not treated me well as the markets are making alrge moves in one direction.

Options are tools that can be used to adjust the risk of any position: delta, gamma, theta, or vega risk can be changed as needed. But, with fees so high and slippage too costly, it's sad that you must try to trade positions that require as few adjustments (none is best) as possible. That's very limiting.

Does IB charge too much in Oz? (or is it Os?) [Please help me out if I use incorrect terms - I don't want to be rude!] We always had high commissions, then competition began to reduce those fees. Today, they are very low at some brokers.

Again, I appreciate the welcome.
Hope to see you often.

Mark

hi mark

having read much of the material that you have made available on your site it is good to hear from you

in my previous posts on this thread i have made mention of the fact that i have followed your blog and have found it a valuable source of information. have found your twitter site a valuable point of access to your posts as well as others who have the same interests in options trading

i have been trying to aquire a copy of your 'options rookies book' but have been unable to find a distributer here in oz,
do you know of a distributer whom i may be able to contact to purchase a copy.

i know that i can purchase it os. but the shipping fees seem a bit outrageous so am still trying to find a copy through local channels

also have you thought of making the book available for purchase as a downloadable ebook. it seems to be the way now with the speed and ease of access to the internet

gary

jackson8 said:

hi mark

having read much of the material that you have made available on your site it is good to hear from you

in my previous posts on this thread i have made mention of the fact that i have followed your blog and have found it a valuable source of information. have found your twitter site a valuable point of access to your posts as well as others who have the same interests in options trading

i have been trying to aquire a copy of your 'options rookies book' but have been unable to find a distributer here in oz,
do you know of a distributer whom i may be able to contact to purchase a copy.

i know that i can purchase it os. but the shipping fees seem a bit outrageous so am still trying to find a copy through local channels

also have you thought of making the book available for purchase as a downloadable ebook. it seems to be the way now with the speed and ease of access to the internet

gary

Click to expand...

Gary,
Thanks.

I have had this request from others in OZ. I think it's a shame that shipping costs are so high. It costs 13.80 USD in postage - for me to ship the book from here. The publisher charges more. I have no idea what Amazon gets for shipping.

The publisher is unwilling to sell an electronic version, and I have no control over that decision.

I did not come to this forum to try to sell books (but would be very pleased to do so). This site has a bookshop. Maybe I can get them to order a small number (5?). I know that would save on shipping costs. I'll write to them and see if I get get the book available at a low enough price to make it attractive.

If others express an interest, that may be enough to persuade the bookshop owners.

Thanks for inquiring. I'll let you know if I hear anything.
Mark

Mark Wolfinger said:

...G'day to all.

Thanks for the welcome. Due to the time difference, I doubt I'll be able to reply to questions immediately, but will continue to pop in here.

Regarding iron condors and adjustments: I don't believe any specific strategy is best for everyone - and iron condors have not treated me well as the markets are making alrge moves in one direction.

Options are tools that can be used to adjust the risk of any position: delta, gamma, theta, or vega risk can be changed as needed. But, with fees so high and slippage too costly, it's sad that you must try to trade positions that require as few adjustments (none is best) as possible. That's very limiting.

Does IB charge too much in Oz? (or is it Os?) [Please help me out if I use incorrect terms - I don't want to be rude!] We always had high commissions, then competition began to reduce those fees. Today, they are very low at some brokers.

Again, I appreciate the welcome.
Hope to see you often.

Mark

Click to expand...

Mark, no problem with delayed replies. I think we all understand the time differences perfectly - some of us stay up a bit too late at times to watch the action on the US! We have a few short cuts when typing Australia - Oz, Aus, Ozzie, Aussie, etc.

IB's option pricing offers a huge improvement for small lots under 10. Most Oz brokers have a minimum fee structure which usually improves a little once you get over 10 contracts. Not good for newbies wanting to get their feet wet in live option trading, so IB offers some relief there. However, for much larger positions, it is possible to get it cheaper per contract than IB.

I have traded some US options with TOS and with the likes of GOOG and NDX - all for $1.50 per contract traded. Also, US data is free, no extra exchange fees and very little slippage. Although we have 1000 shares per contract in standard Oz options, some of our share prices are well below the price of US shares. That's the reason I went for the higher priced NDX, as I needed less contracts per trade and the fees were no more than pocket money.

Compare that to here in Oz - data fees start at $37.50 per month (IB's data fee) and can go up to $100+ per month if used in conjunction with other useful software packages. Then the ASX charges $1.12 for every option contract traded. Add to that brokers fees which range from a minimum of about $26 - $45+ per trade (or leg of a trade). If you go over 10 contracts, then it increases around 10% of that per contract. And then slippage - can be pretty wild if it's down to you and the MM with no one else in sight. Although BHP and a few others are more liquid, but again, it severely limits the opportunities. IB charges a flat rate of $3 per contract (includes exchange fees) which is a bonus for newbies or for those of us wanting to try out something new - but it doesn't resolve the problem of slippage.

Oh, and the other thing is that very few Oz brokers allow you to trade option spreads online. Of course, IB is one that you can do some spreads. Although it once denied me a basic butterfly as it said that combo wasn't available. Otherwise, I email options spread orders to my favoured Oz options broker. Once they have entered the position into the system, I am then able to completely manage the position on my own with a lot of flexibility. But emailing is pretty cumbersome and then, because it's a spread, you are at the mercy of a MM for a fill. Some Oz brokers won't let you do credit spreads and are very picky with any sort of options selling. So lots of limitations.

As it's not practical for me to be up at night to trade at this point in time, so I rarely trade option positions in our local market. Currently trying my hand at futures - I reckon the losses incurred will be no worse than the costs of trading options! It's a shame as I have put an enormous effort into learning options only to find it's pretty difficult to overcome the fee issues here.