Options Mentoring

[tech/a]

Fraid youll have to pay for live data.

I use Marketcast.$165/mth (SBS feed)
Think Bullcharts is $145/mth(Internet Feed)

 

[wayneL]

hi wayneL & tech /a and other traders...thanks for the interesting information on options etc.
I have only been paper trading and was successfull inside 2weeks.
so i went in and bought bhp calls monday sold tues. 20% gross profit.

However , i have good relationship with broker and trust him.

My question is i have only the use of ASX.site which is 20 minutes delay or so
normally as you know you have m/depth to help see the supply demand of stocks instantly...ASX options i see open interest and volume only.

Is there a site which can have this info. faster and market depth .
thanks for your help.

Yep, as tech/a says you will pay handsomely for live data. One other source which may be less expensive is www.sanford.com.au

As far as market depth is concerned, I think with options it is totally irrelevant....particularly with aussie options where in 99% of cases, the market maker is on both sides of the bid and ask.

So you either hit the bid/ask, or place your order and wait to see if the market comes to you.

Cheers

 

[money tree]

comsec has good free options data

I never pay the ask or sell at the bid. Divide the spread and place your order in the middle.....eg:

spread 20/24

put order in @ 22

90% of the time you will be filled within 2 mins. The slightest volatility of the underlying will get you a fill.

 

[seaurchin]

THANK YOU VERY MUCH FOR THAT ADVICE FROM BOTH OF YOU.
M/depth ..well that is good then as it does help me make decision on intraday trading sometimes in bullish market buying shares.
Options ...as you suggest irrelevant market makers both sides.
Could any of you offer an opinion on what to buy next?
or is this time to wait on sideline?
much appreciated for your time. I will look to find a BUY and study and shall post it and ask for opinion ..hope that ok.cheers

 

[eddievanhalen]

Gday Wayne - I'm not an options traders as such but have a basic understanding. Well done on the thread etc..........just thought I'd point out a typo to avoid confusion for the newbies

Post #15 you said "Most people refer to intrinsic value as time value." when you obviously meant extrinsic.

Cheers,

Ed.

 

[wayneL]

Gday Wayne - I'm not an options traders as such but have a basic understanding. Well done on the thread etc..........just thought I'd point out a typo to avoid confusion for the newbies

Post #15 you said "Most people refer to intrinsic value as time value." when you obviously meant extrinsic.

Cheers,

Ed.

Ah yes, thanks Eddie. Perhaps Joe could correct that for us.

Thanks in advance.

 

[RichKid]

Ah yes, thanks Eddie. Perhaps Joe could correct that for us.

Thanks in advance.

I think I've fixed it (post #15), let me know if I stuffed up.

BTW, is there somewhere I can get graphs like the ones shown by Pos for IV?? Are there free tools? I just use Comsec protrader2 and it's pretty basic for options but does have an option price calculator, don't know how good it is though. What do the guru's think of that price calculator?? Is it what they call 'fair value'? It shows my IV and the greeks with some variables like, time to expiry etc so I can fiddle with it a bit.

 

[DTM]

I think I've fixed it (post #15), let me know if I stuffed up.

BTW, is there somewhere I can get graphs like the ones shown by Pos for IV?? Are there free tools? I just use Comsec protrader2 and it's pretty basic for options but does have an option price calculator, don't know how good it is though. What do the guru's think of that price calculator?? Is it what they call 'fair value'? It shows my IV and the greeks with some variables like, time to expiry etc so I can fiddle with it a bit.

Rich, where do you find that feature?

 

[RichKid]

Rich, where do you find that feature?

Hi DTM,
Which one? The options calculator? It's free with Protrader 2 (released last week). Go to the prices menu at the top toolbar (top left corner of screen): Prices-Exchange Traded Options- ETO valuation calculator. Pretty nifty, just don't know enough about options to know what to make of it. Thanks to Wayne, Pos, Guy Bower, Chris Tate (and you!) that should soon change.

Anyone who doesn't have Protrader2 can see a demo of it on the www.commsec.com.au website- it'll have a sample of how the calculator works. You only need to place one options trade per quarter to get it free so I'm stoked about the money I'm saving (since I manage to lose so much!).

 

[wayneL]

The last greek is Theta

Most people will recognise this as Time Decay and is the theoretical amount that the value of an option will reduce in a day, all else being equal.

I DO like to quantify Theta and this is easily done in the strategy modeller by going to the position greeks menu and selecting theta. It will show you the theta in dollars for the whole position.

Lets think about why theta exists. We talked about "risk premium" above when we discussed extrinsic value and how time equals risk of the option expiring ITM. So logically each day that goes by means one less day of risk for the option writer. So risk premium reduces as time goes by...hence decay....easy.

As with the other greeks, it is handy to know when and where theta is greatest and least.

Theta is greatest when the option is ATM and, quite obviously, is higher the further away from expiry.

The higher the IV of an option the greater the theta.

We are told that Theta increases the closer to expiry it gets and ramps up considerably in the last 30 days in the life of the option. But this is only true ATM or near the money. Away from the money theta DEACREASES as time goes by.

Theta decreases the further away from the money you get. So as delta approaches 100% or 0%, theta is almost zero, even in the last few days.

The reason we want to know about theta is the most obvious of all the greeks. We want to know how much it is going to cost us to hold bought option positions and what we gain in return for taking on the risk of holding short (written) option positions; and so helps in the management of those open positions...exits etc.

Thats the last of the greeks. Next We go into a little more detail about Implied Volatility, then onto strategies.

Cheers

 

[wayneL]

More about Implied Volatility....

Earlier I described what IV is, but IV has some nuances that the option trader should know about. This knowledge, at the very least, will save you some losses and can also lead to easy profits if one knows what to do with it.

Firstly, most technical traders will know that periods of low volatilty will follow periods of high volatility, and that periods of high volatilty will follow periods of low volatility. In other words, volatility tend to cycle up and down. This is measurable statistically via standard deviation equations.

"Implied Volatility" tends to somewhat mirror this statistical volatility in most cases.

How does this help? Well as IV is priced into the option, it may be an indication of when we should be buying and or selling options. The old addage of "buy low, sell high" applies to IV as well.

In other words if IV's are high, it would not be an ideal time to be a buyer of options. Not only will theta be higher, but you may be faced with declining IV's and therefore a rapidly decreasing extrinsic option value. This means you have to be VERY right. Even if you are right about your view of the market, but not right enough, you may STILL LOSE.

On the other hand if you buy options when IV's are in the lower quartile of there IV range, you may benefit from INCREASING IV....maybe enough to completely negate theta.

Of course the opposite applies when writing options.

The second little nuance of IV, is "Volatility Skew"

Volatility skew comes in two flavours price skew and time skew

Price skew is when the IV of options of the same expiry date but different strike price are higher/lower. that is to say that they are skewed.

Typically, IV's will increase the furthar away from the money you get. This is often refered to the "volatilty smile" because of the shape of the IV's plotted on a graph.

Time skew is when the IV of options of the same strike price but different expiry are higher/lower. For example, at the time of writing, June ATM IDCC call options are trading at 118% whereas the Jan '06 options are trading at 53%.

Time skew is a little harder to find than Price skew, but represents a golden opportunity to lay on some low risk, high probability spreads.

 

[wayneL]

That's enough confusion for this thread....unless there are any questions, I'll move on to something else........

Cheers

 

[wayneL]

Here are some ioption quotes for IDCC that clearly show both time and price volatility skew....implied volatilities are in the red box marked.

Cheers

 

[dutchie]

Wayne, thanks for a great thread.

Would you be able to give us a few examples (using real values) of the use of the different greeks. I understand what each greek represents but am a bit fuzzy as how they can be used in trading (or not trading).

Thanks, Dutchie

 

[hissho]

time to update this post......

where can i get that "ioption" wayne?

cheers

 

[wayneL]

time to update this post......

where can i get that "ioption" wayne?

cheers

"ioption" should simply read "option", a result of fat fingers... apologies for the confusion.

The screenshot is simply interactivebrokers option quote platform... part of their Traders Work Station.

Cheers

 

[wayneL]

I also like to lump in Implied Volatility with the greeks even though, strictly, it is not one of them.

I have always lumped in volatility into the greeks even though it doesn't have a greek name. But I have discovered (or rather realised) that it does.

The measure of 1 standard deviation as an annualised figure (commonly known as implied volatility) is an input into the BSOPM. This measurement in fact has a greek name - SIGMA.

Happy at last, IV is a greek after all LOL

 

[hissho]

thanks Wayne! no wonder google got nothing when i tried to search "ioption"...

2 quick questions:
1) where can i find "cws"? can u put it on your website or email me?
2) if i don't have access to brokers option quote platform, what can i use to find out greeks and SV and IV?

thanks a lot in advance
hissho

 

[wayneL]

thanks Wayne! no wonder google got nothing when i tried to search "ioption"...

2 quick questions:
1) where can i find "cws"? can u put it on your website or email me?

I'll email it to you. PM me your email.

2) if i don't have access to brokers option quote platform, what can i use to find out greeks and SV and IV?

The option strategy modeller mentioned at the start of this thread will give you all the current greeks... including "sigma" (IV hehe). The derivatives add-in will calculate SV as well.

What markets are you looking at... ASX or US? Then I can tell you where to get IV and or SV history. Generally, You can get US IV/SV data for free from www.cboe.com. AUS data you generally have to pay for, or have webiress.

Cheers

 

[Magdoran]

Hello Wayne,


I’m pleased to see the great job you are doing with options. You’ve come a long way indeed from when we chatted on the SG site a few years ago about options, well done!

So, are you trading options in the US mainly, or Australia, or both? I also note you made some comments on silver on another thread, are you trading options on futures too?

I’m curious about what kind of strategies you’re into these days too... like are you doing any ratio positions, perhaps with mixed strikes and mixed expiry dates? Pretty amazing what you can do, isn’t it?

Anyway, I hope you don’t mind me posting a few observations and slightly alternative viewpoints on your thread for general interest.

Top marks for the initiative!


Regards


Magdoran