XJO - Does anyone trade it?

[DTM]

Hi all

I just wanted to know if anyone trades the XJO options series. Yesterday I bought 4150 calls when it was around 4170 and sold them today at 4194. I was wanting to know what the reward ratio per point was as the profit was only 35% even though it had moved 24 points. The returns don't seem very rewarding as opposed to shares.

Your input would be greatly appreciated.

Regards

Daniel

 

[positivecashflow]

How long till expiry were the options you bought?

 

[DTM]

How long till expiry were the options you bought?

Hi PC

17 March 2005 strike price of 1450

 

[wayneL]

DT,

Did you buy near the open? The market makers will be playing at high IV's if an up day was anticipated. As the day wears on, volatiliy returns to normal.

This is what it sounds like...volatility crush. The equivelent of a few days theta all in one day, cause delta shoulda been around 60%.

Typical market maker games.

 

[DTM]

DT,

Did you buy near the open? The market makers will be playing at high IV's if an up day was anticipated. As the day wears on, volatiliy returns to normal.

This is what it sounds like...volatility crush. The equivelent of a few days theta all in one day, cause delta shoulda been around 60%.

Typical market maker games.

Hi Wayne

I bought yesterday in the afternoon because price behaviour looked like it was going to spike today. This morning it did spike and I sold out before 12. It seems that whenever it spikes up, it normally peaks around 12, just before or just afterwards.

Pardon my ignorance, but could you explain that part about volatility crush again in english? Sorry but am not too familiar with the greeks and relationship of market makers.

Thanks in advance

 

[wayneL]

Hi Wayne

Pardon my ignorance, but could you explain that part about volatility crush again in english? Sorry but am not too familiar with the greeks and relationship of market makers.

Thanks in advance

DT

I don't know how much you know so apologies if too simplified.

Think of the value of an option as having two components...intrinsic value, which is the portion of value that is in the money (if in the money) and extrinsic value, which is the "time" value.

This time value is a reflection of the risk that the option will expire in the money. The higher the volatility, the higher the risk it will expire ITM. Therefore this time value will be higher.

Now if the implied volatility (i.e. the market makers perception of this risk) is high today for some reason the time value of the option will be expensive.

However if for some reason the MM's percieve lower risk tommorrow (hence lower IV) the option will be priced considerably lower.

This is volatility crush, and has the same effect as several days of theta (time decay) rather than the one days theta.

Hope that helps

 

[DTM]

DT

I don't know how much you know so apologies if too simplified.

Think of the value of an option as having two components...intrinsic value, which is the portion of value that is in the money (if in the money) and extrinsic value, which is the "time" value.

This time value is a reflection of the risk that the option will expire in the money. The higher the volatility, the higher the risk it will expire ITM. Therefore this time value will be higher.

Now if the implied volatility (i.e. the market makers perception of this risk) is high today for some reason the time value of the option will be expensive.

However if for some reason the MM's percieve lower risk tommorrow (hence lower IV) the option will be priced considerably lower.

This is volatility crush, and has the same effect as several days of theta (time decay) rather than the one days theta.

Hope that helps

Thanks Wayne, very helpful.

 

[rembrandt]

Hi DTM,

Firstly, does anyone trade the XJO ... you betcha ... money for jam !!

Secondly, on your numbers the XJO rose 0.05% for a 35% profit ... that is 70:1 leverage sunshine ... it doesn't get any better than that ... ave is around 25:1 for a bought OTM position. (remember leverage works both ways ... it can bite you hard if yer wrong)

Thirdly, why did you wait until Friday to enter ... we closed our LONG ... most entered the previous Friday !!!

You can follow our last XJO trade on HC ...(if your mods allow the link) URL DELETED

Cheers ...

 

[Joe Blow]

Hi DTM,

Firstly, does anyone trade the XJO ... you betcha ... money for jam !!

Secondly, on your numbers the XJO rose 0.05% for a 35% profit ... that is 70:1 leverage sunshine ... it doesn't get any better than that ... ave is around 25:1 for a bought OTM position. (remember leverage works both ways ... it can bite you hard if yer wrong)

Thirdly, why did you wait until Friday to enter ... we closed our LONG ... most entered the previous Friday !!!

You can follow our last XJO trade on HC ...(if your mods allow the link) URL DELETED

Cheers ...

Hi rembrandt,

I had to delete your URL because I felt it would set a bad precedent here at ASF. Please don't take it personally though. Your thread over at HC looked interesting. Feel free to start similar threads here anytime.

For anyone interested in the URL, please send rembrandt a private message. I'm sure he'll pass it along.

 

[DTM]

Hi DTM,

Firstly, does anyone trade the XJO ... you betcha ... money for jam !!

Secondly, on your numbers the XJO rose 0.05% for a 35% profit ... that is 70:1 leverage sunshine ... it doesn't get any better than that ... ave is around 25:1 for a bought OTM position. (remember leverage works both ways ... it can bite you hard if yer wrong)

Thirdly, why did you wait until Friday to enter ... we closed our LONG ... most entered the previous Friday !!!

You can follow our last XJO trade on HC ...(if your mods allow the link) URL DELETED

Cheers ...

Hi Rembrandt

Thanks for the reply. I only entered the trade that day because the price pattern was showing that it was going to shoot up the next day, so am more of a short term trader. I am interested to know what kind of returns you would expect percentage wise if I had made the trade a week earlier. I normally don't trade the XJO (although I keep watch of it) and would like to know more.

Thanks for clearing up the reward risk ratio. The call options I had paid for were itm so the reward of 35% didn't seem all that great as compared to shares (although I'm probably wrong because you'd know more).

Thanks again

Daniel

 

[rembrandt]

Hi JoeBlow ... IMHO threads such as these need to be done selectively as at best might be considered hubris and at worst interpreted as 'advice' by ASIC watchdogs ... we want to be play by the rules.

As we all know, there is more to trading ETO's than pretty charts ... taking profits is a skill in it's own right ... XJOBQ moved in the last TWO DAYS from around $0.55 to current Bid of $0.27 ... a drop of 51% before the chart 'technically' called the SHORT reversal.

Updated chart looks like this ...

Cheers ...

 

[DTM]

Nice chart rembrandt. What indicators are you using and what charting software do you use.

 

[wayneL]

Nice chart rembrandt. What indicators are you using and what charting software do you use.

DT,

In the absense of rembrant....

The software is metastock

Indicators look like a chandelier setup plus an EMA oscillator.

Interested in the interpretation....

Cheers

 

[DTM]

DT,

In the absense of rembrant....

The software is metastock

Indicators look like a chandelier setup plus an EMA oscillator.

Interested in the interpretation....

Cheers

Hmmm... A bit hard to interpret as I have to visually draw candlesticks but will have a go.

Basically good time to buy is when the two sets of lines cross (in the set with the 3 lines, only two have to cross) and price changes markedly ie close is much higher than open giving you a long up candlestick (look at the bottom of the middle wave retracement).

A good time to sell is when the two sets of lines cross each other (at the peaks) but the open and close of the day has to be close together (ie open is nearly the same/lower as close) giving you a doji or short candle stick with little or no body.

Off course this is only a generalization and a more aggresive interpretation than most would like.

 

[money tree]

wrote 20 XJO Jun05 4300.0 Call @ 63.0

 

[DTM]

wrote 20 XJO Jun05 4300.0 Call @ 63.0

Big Call Money Treee, I hope you get it. Would you like to share your reasoning behind it? Is it part of a spread?

 

[money tree]

well one reson is the 4250 double top

second reason is the rally this week has been due to spi/xjo divergence into expiry. as I have seen before, the trend often reverses after an expiry day. probably the market makers way of raping the option traders.

third reason is I expect a correction by June, and if not, my breakeven is 4300 + 63 = 4363, which may be a struggle.

 

[rembrandt]

Hi Crashy (aka MoneyTree)

We are LONG nicely green ...

Ignored the double-top preferring to test support at 4225.

Smart-money just wrote 300x$0.68=$204k ... serious margin.

Tomorrow will be interesting ... lol

Updated chart looks like this ...

Cheers ...

 

[money tree]

bought back the calls today for 64c, -1

a breakout has been confirmed. will short later

 

[Qlds007]

Crashy

Could you clarify something for me on the XJO series.

I was under the impression that 1 contract was equivalent to 10 shares however in another online program i run it states it is the usual 1000.

Also is the usual cash / stock margin requirements of circa 50% required in an XJO trade? Presumably there is only cash settlement on expiry?

Appreciate your info on this one.