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Thread: Dr. Dave's Options Thread

  1. #11
    Siriusowner is offline
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    Quote Originally Posted by bassmaster View Post
    nice info siriusowner and thanx for sharing your strategy
    Thank you bassmaster. Dr. Dave had a good idea by starting this thread BUT if you really want to make serious money trading options, you have to think out of the box.

    Brokers will tell you that selling options is too risky, they will recommend that you do not open a vertical or a straddle if you do not understand options or that you can only buy the options... But if you are a trader and study a little bit, you will see that all that is not more risky than owning the stock...

    Of course there's the leverage but if you know that 1 contract = 100 shares, how many contracts will you trade if you usually trade 1000 share lots ?


    Anyway, good luck trading options... is a risky business but I do not see it as being more risky than trading or buy and hold stock for the long term.

  2. #12
    Dr. Dave is offline
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    Quote Originally Posted by Siriusowner View Post
    Don't get too complicated trying to explain simple stuff.

    Look, here's a good options education site:

    http://www.interactivebrokers.com/en...&ib_entity=llc

    Remember the CBOE ? sign up for the free CBOE site. They have an agreement with optionsxpress in which optionsxpress provides about 12 to 15 free courses about options. Heck, open an account with optionsxpress just for its educational material. They are expensive so, open it with $2000 and place 1 or 2 trades every few months to keep it open.

    Delta, Gamma, Vega, Theta, otherwise known as the greeks, and volatility constantly change and therefore the direction of the trade (left, right, left, right...) so instead of overtrading, place a trade and forget about it. Just manage it but do not overtrade...if you get bored post on this site, etc ...

    BTW: Try not to trade options just on price, that is one of the cardinal sins. Always, always look at the option volatility (not the stock BETA, BUT the option volatility). If it is too high, the option is expensive, if it is too low, the option is cheap.

    The holy grial of trading options is: How to know if volatility is high or low ? There's 2 volatilities I use: Implied volatility and historical volatility. Compare one to the other to get a feeling but usually when implied goes above historial then it is high and therefore the options price is high. Thinkorswim has all this information readily available in one place so you do not have to use sites like ivolatility.com. Thinkorswim also has probability analysis, the greeks, volatility analysis, prophet (go to prophet.net to learn about it), charts, spread scan, MarketWatch from WSJ, risk profiling, etc ....

    Obviously, the best broker to trade options ? Thinkorswim. It is expensive but their platform worths its every penny. Everything in one place. I vote optionsxpress #2 and interactive brokers #3.

    SOMETHING VERY IMPORTANT: If you insist on buying options only, never buy them out of the money (I'll probably be selling them to you)... The probability of them expiring worthless is too high...
    Awesome, thanks for your help... post all you want.

    I have been using a decreasing ATR and bollinger band compression to guage the volatiility and the option price. So far, my best trades have been using those as an indicator. I didn't know of the implied vs. historical way of measuring them.

    Also, thanks for mentioning TOS. I was trading options with a group that really loved it, I just didn't know whether the greek calculations came with it, and how it would run on my mac. You have me convinced I should give it a shot.

    So far, I've been just buying what appears to be breakouts, so the furthest I go out of the money is just one strike. My win/loss is about 65% on my spreadsheet where I keep track, and 85% if you remove the idiotic trades I held over earnings. As I'm learning, I'm trying to keep my trade sizes small, that's why I have been trading one strike out of the money. But, as things progress, if I can keep my track record close to 50%, I"ll bump things up a bit.

    You're also right about overtrading... I've been trying to be more patient.

    I did take a few online courses at CBOE, I need to see if I can't take a few more, it was a while back.

    When you sell something like puts, do you wait after a consolidation period and then sell during what looks like a decent trend up?

    Thanks for the info.

    I was going to place some snapshots of the greek calculators I'm mucking with, if you have the time, can you verify I have things right?

    Dave
    Last edited by Dr. Dave; 08-19-2009 at 01:48 AM. Reason: Your to you're - lol
    Positions: Change so often, it's no longer useful to update this...

  3. #13
    Dr. Dave is offline
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    Quote Originally Posted by Siriusowner View Post
    Thank you bassmaster. Dr. Dave had a good idea by starting this thread BUT if you really want to make serious money trading options, you have to think out of the box.

    Brokers will tell you that selling options is too risky, they will recommend that you do not open a vertical or a straddle if you do not understand options or that you can only buy the options... But if you are a trader and study a little bit, you will see that all that is not more risky than owning the stock...

    Of course there's the leverage but if you know that 1 contract = 100 shares, how many contracts will you trade if you usually trade 1000 share lots ?


    Anyway, good luck trading options... is a risky business but I do not see it as being more risky than trading or buy and hold stock for the long term.
    Yeah, these days, I like the ability to trade things for a few days, buying and holding something takes way too much capital from your account, and with the swings, its tough to guage how long a run will be. I'm not even close to trading 1000 share lots, lol. Anyway, I pattern/TA trade, and it was playing www.chartgame.com that made me decide to start doing 1-5 day option trades. As with breakouts, or bounces of different types of support/resistance, and keeping a tight stop - usually the high/low of the day I enter, or the boundry of a tight pattern, it has been pretty fruitful.
    Positions: Change so often, it's no longer useful to update this...

  4. #14
    Dr. Dave is offline
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    I went to the prophet site, what part of it is in TOS?
    Positions: Change so often, it's no longer useful to update this...

  5. #15
    billhart22 is offline
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    I am loving this thread! I am dumber than dirt, but I am a lurker!

  6. #16
    Siriusowner is offline
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    Quote Originally Posted by Dr. Dave View Post
    I went to the prophet site, what part of it is in TOS?
    All of it.

  7. #17
    Siriusowner is offline
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    Quote Originally Posted by Dr. Dave View Post
    Awesome, thanks for your help... post all you want.

    I have been using a decreasing ATR and bollinger band compression to guage the volatiility and the option price. So far, my best trades have been using those as an indicator. I didn't know of the implied vs. historical way of measuring them.

    Also, thanks for mentioning TOS. I was trading options with a group that really loved it, I just didn't know whether the greek calculations came with it, and how it would run on my mac. You have me convinced I should give it a shot.

    So far, I've been just buying what appears to be breakouts, so the furthest I go out of the money is just one strike. My win/loss is about 65% on my spreadsheet where I keep track, and 85% if you remove the idiotic trades I held over earnings. As I'm learning, I'm trying to keep my trade sizes small, that's why I have been trading one strike out of the money. But, as things progress, if I can keep my track record close to 50%, I"ll bump things up a bit.

    You're also right about overtrading... I've been trying to be more patient.

    I did take a few online courses at CBOE, I need to see if I can't take a few more, it was a while back.

    When you sell something like puts, do you wait after a consolidation period and then sell during what looks like a decent trend up?

    Thanks for the info.

    I was going to place some snapshots of the greek calculators I'm mucking with, if you have the time, can you verify I have things right?

    Dave
    I am a volatility trader. I sell out-of-the-money puts when their volatility is high. I usually sell one or two strikes out of the money. That is when you will get the most for your sale... i.e, $5 Sept put has a volatility of 95% and a $7.5 Sep put has a volatility of 80%, the $5 put is $0.45 and the $7.5 is $0.55. the underlying is trading at $8.00, which one would you rather sell ? (I would not sell any option that is below $0.50 but that does not mean that I would sell the $7.5 put in this case). I will give you the correct answer tomorrow.

    There's not much about the greeks other than Delta is how the option price will behave regarding the underlying movements. Usually for calls the farther away from the money, the lower the Delta, as it gets closer to the money, the Delta tends to 1. The puts have negative delta. At the money options have a delta of 1 or -1.

    Stocks have a delta of 1, always. This is why when you own a stock with a pps of $5.00 and you buy protection, say a $5.00 Sept put, since it is at the money, the put will have a -1 delta so, you will be what is called "delta neutral"... basically where every market maker out there intends to be at.... but we are not market makers, are we ?

    Gamma is the relation of how delta will change regarding the underlying price change. Your option gamma is important if you want to mantain certain direction for a given period of time.

    Theta is about time decay. If you sell options you may want your Theta to be large. If you buy them you want it small. In other words is how much an option loses in value as time pases by and how fast.

    Vega is a volatility relationship. If you sell options you want to sell high volatility options, high Vega (one strike out of the money at the most).

    Rho is the interest rate relationship. Irrelevant these days.

    In the end the one that I consider the most important is the Delta, that is the one that will tell us in which direction we are trading....
    Last edited by Siriusowner; 08-19-2009 at 03:05 AM.

  8. #18
    Dr. Dave is offline
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    Quote Originally Posted by billhart22 View Post
    I am loving this thread! I am dumber than dirt, but I am a lurker!
    LOL - You're the king of the Market Watch
    Positions: Change so often, it's no longer useful to update this...

  9. #19
    Dr. Dave is offline
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    Quote Originally Posted by Siriusowner View Post
    I am a volatility trader. I sell out-of-the-money puts when their volatility is high. I usually sell one or two strikes out of the money.

    There's not much about the greeks other than Delta is how the option price will behave regarding the underlying movements. Usually for calls the farther away from the money, the lower the Delta, as it gets closer to the money, the Delta tends to 1. The puts have negative delta. At the money options have a delta of 1 or -1.

    Stocks have a delta of 1, always. This is why when you own a stock with a pps of $5.00 and you buy protection, say a $5.00 Sept put, since it is at the money, the put will have a -1 delta so, you will be what is called "delta neutral"... basically where every market maker out there intends to be at.... but we are not market makers, are we ?

    Gamma is the relation of how delta will change regarding the underlying price change. Your option gamma is important if you want to mantain certain direction for a given period of time.

    Theta is about time decay. If you sell options you may want your Theta to be large. If you buy them you want it small. In other words is how much an option loses in value as time pases by and how fast.

    Vega is a volatility relationship. If you sell options you want to sell high volatility options, high Vega (one strike out of the money at the most).

    Rho is the interest rate relationship. Irrelevant these days.

    In the end the one that I consider the most important is the Delta, that is the one that will tell us in which direction we are trading....
    Great! I'm going to study up on Delta for a couple of days, I have been paying attention to Theta... but usually, buying things 3 weeks from expiration haven't been much of a problem on these short trades. I got burned months and months ago when I first tried a few with a longer term (greedy) outlook... ie. I'd be up 100%-150%, but hold, then be down -80% in no time flat. Greed is not good - at least in timing trades.
    Positions: Change so often, it's no longer useful to update this...

  10. #20
    Siriusowner is offline
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    Quote Originally Posted by Siriusowner View Post
    I am a volatility trader. I sell out-of-the-money puts when their volatility is high. I usually sell one or two strikes out of the money. That is when you will get the most for your sale... i.e, $5 Sept put has a volatility of 95% and a $7.5 Sep put has a volatility of 80%, the $5 put is $0.45 and the $7.5 is $0.55. the underlying is trading at $8.00, which one would you rather sell ? (I would not sell any option that is below $0.50 but that does not mean that I would sell the $7.5 put in this case). I will give you the correct answer tomorrow.
    The answer is: I probably will wait or look somewhere else. This is a low volatility play, probably a defence stock (not many defence stocks trade at these levels though). The reason I will wait or not sell it is because the $7.5 put is too close to the current pps and cheap when compared to the $5 put. The $5 put is below my $0.50 rule BUT it is attractive since 0.45/5 = 9% meaning that I would get a 9% gain in this investment. I still probably would not sell it. I'd wait until volatility jumps up to sell the $5 put (pullback). And this is without analyzing any of the greeks.

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