Registered User
Joined: 2/21/2007
Posts: 797
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whether or not you like or dislike or agree or disagree with big block, i would like to hear people's opinions, experiences, facts about options. let us try to keep this an educational thread. craig s. probably gets tired of locking threads, i bet he has better things to do. being the hoe handle that i am, i've read a couple of books about options and ,whoa, this is way above me. maybe it would just take time and alot of practice to learn trading options. i realize that tradilng options properly, there is a way to protect your losses, short or long. big block says by adding options that one can either eliminate or at least increase stop distance because you have an option to protect your downside. i have stopped holding anything overnite. check out, for the past 10 months, AMLN, TIN, HRS, BIIB, & ESPECIALLY WCG. just a few of the gappers down. those would take alot of good trading to make up for those losses. granted i didn't check to see if those gappers were at reporting times. those are all from the russell 1000 which i trade, hopefully because they should be less volatile, but anything can happen anytime. the problem with exiting towards the end of the day, is that any big initial moves the next morning are missed, but also miss the down gappers. better miss the big up than get clobbered by the downer. ok sports fans, educate us, keep it clean and civil, maybe someday we can teach wall street a lesson
johnc
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Registered User
Joined: 9/25/2007
Posts: 1,506
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John ...
There is really nothing new about hedging a position ... most would argue that it is a very smart way to play the game ...
It's just like buying homeowner's insurance ... although the chances of your home burning to the ground are fairly slim ... you are willing to give away a small piece of the pie ... to insure that you don't lose most ... or all of the pie ...
If you are buying stock "long" ... then you might invest a relatively small amount of money in put options ... i.e. the short side ... that will "pay off" to cover your losses if you're wrong ...
There are a myriad of options strategies .... some that hedge underlying securtiy positions ... many that involve only options ... like straddles .... that will pay off on a big move in either direction ...
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Registered User
Joined: 2/5/2006
Posts: 1,148
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john-
if you trade in the intermediate term, or off the daily or 60 minute charts with good profit potential(say 10-20%), and use good money management, holding stocks overnight isn't a problem. morning gaps will even out and generally won't blow your risk:reward ratio out of the water. if your trading just to a make a point or two, then yes morning gaps can destroy several trades profit. personally, i prefer to make a few good trades each month, rather than constantly be in and out of the market everyday. i stay more focused and sane that way.
regarding options, if i had a long term investment, i couldn't sell, i'd consider put options as a hedge, if i got a sell signal. as far using options to hedge in trading portfolio, i just soon use a well placed stop and good money management . trying to hedge all my trades would be a major pain in the butt.
i suppose if your making a very risky trade, you may consider buying an option instead of the underlying security to limit losses. keep in mind, commissions are higher, options don't always move in sync with the underlying security, and they have an expiration dates.
thats my 2 cents, but i would be interested in hearing mr. bigblocks options strategy.
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Registered User
Joined: 12/17/2004
Posts: 2
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Options were actually created to reduce a persons risk in the market. They are a very good tool when used correctly. I prefer to sell option as opposed to buying them. Option lose most of their time value in the last 90 prior to expiration givng a seller of options somewhat of an advantage.
The shear number of strategies available with options can be overwelming. I would suggest learning one strategy at a time, maybe doing covered calls or something you understand and then move into other strategies like credit spreads or call backspreads. One of my favorite strategies is to buy long term leap options about 15-20% in the money and selling short term at the money option against my position. The short position (the selling of the option) takes advantage of time decay. The purchase of the in the money leap won't lose time value as quickly. You can keep rolling the short term options over to the next months as needed to keep reducing your risk and collecting premiums.
As with any purchase in the market you have to cut your loses short and keep an eye on your stocks to try and aviod a big loss.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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John I think that you need to learn the books. Reading then is not enough.
Funny I have to disagree with you on this one. Let me tell you I just had a friend who called me in tears about CEGE. Go and check the chart. Not long ago, I recommended to him to insure his trade (mostly being a biotech) he laught at me. He got toasted on over $40.000.
We are working now in reparing the damage with... yes options. Now he believe any word I say.
How is a stop order going to catch that? What kind of money management is going to stop that?
This happens more often that you would think.
Another friend call me last week for advice on an order that he claims he closed with Fidelity, and it seems never got closed. His position was unprotected and the stock dump next day - costed him over 25,000. Now I don't know the specific of this trade as this was a lost caused. As long as he had no confirmation on the trade there isn't much he is going to be able to do against Fidelity. I told him that it is always the investor responsability to protect his capital, and that includes confirming physically that an order has been closed as requested.
Trades are not risky until they are - then is too late for protection. Just like if you wait for the hurricane to come before protecting your home. What do you think is going to happen?
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Hey John I got carried away with the response to funnymony. Anyways, I just wanted to say that I din't mean to discourage you.
What I meant in my short response to you is that reading the books alone will not be enogh. You need to study them, and when it comes to options that means interacting with those books.
Try to do that, and when you have some questions and such stop by - we will try to help you.
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Registered User
Joined: 10/26/2005
Posts: 238
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My preferred options strategy is straddles, an example would be AMGN Jan09 65 strike however I if I enter a large lot trade especially short positions then I will buy options to manage risk which is rule # 1. AB
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Registered User
Joined: 2/5/2006
Posts: 1,148
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QUOTE (BigBlock)
John I think that you need to learn the books. Reading then is not enough.
Funny I have to disagree with you on this one. Let me tell you I just had a friend who called me in tears about CEGE. Go and check the chart. Not long ago, I recommended to him to insure his trade (mostly being a biotech) he laught at me. He got toasted on over $40.000.
We are working now in reparing the damage with... yes options. Now he believe any word I say.
How is a stop order going to catch that? What kind of money management is going to stop that?
This happens more often that you would think.
Another friend call me last week for advice on an order that he claims he closed with Fidelity, and it seems never got closed. His position was unprotected and the stock dump next day - costed him over 25,000. Now I don't know the specific of this trade as this was a lost caused. As long as he had no confirmation on the trade there isn't much he is going to be able to do against Fidelity. I told him that it is always the investor responsability to protect his capital, and that includes confirming physically that an order has been closed as requested.
Trades are not risky until they are - then is too late for protection. Just like if you wait for the hurricane to come before protecting your home. What do you think is going to happen?
bigblock-
cege is a great example why i don't even trade biotech, lol. or maybe if your trading biotechs its better to just buy the option, rather than the stock.
i'm not claiming to an expert, or that my way is the only way, but the way i've learned to trade was to keep 80-90% of my total portfolio invested longer term. for me thats ultralong or ultrashort the indexes, or cash. the other 10-20% i use for trading for individual stocks. of that 10-20% i generally keep that spreadout over 5 or so stocks. this way if i get blasted by a morning gap, its still a small % of my total portfolio. i've beeen trading stocks for quite a few years, and fortunately have avoided getting blasted by a "cege".
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Registered User
Joined: 9/7/2005
Posts: 133
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John,
Do a google on 'thinkorswim'. They have a very nice papertrade software that sets you up with account and delayed option data (you only need to provide username/password, no other info for papertrade). A neat feature is the 'thinkback' which allows you to go back in time to create option positions and see how they would have done. The interface is seemingly very complete and allows for tremendous flexibility in putting on option positions. I really enjoy it .
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Registered User
Joined: 9/7/2005
Posts: 133
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Also, they have a good 'options school' under the support tab on home page with lots of good info on setups, positions, greeks, etc.
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Registered User
Joined: 2/21/2007
Posts: 797
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been on vacation; thanks for the advice, i'm sure it helped others also
johnc
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Registered User
Joined: 5/1/2007
Posts: 158
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I used to trade individual stock options - rarely do that any more. If I didn't have a day job, I'd be tempted.
The bid/ask on individual options can be a killer - and if you put in a limit order, it may only get filled if the market is moving against you. Plus, the minimum bid/ask spread on an in-the-money option can be a nickel or dime - so if I buy ten, that's $50 or $100 less for me - if not two nickels or two dimes. So I trade active index options only.
OTOH, the ETFs make my swing trade style of investing profitable. I'd be retired if I could just make myself buy UYG when bank stocks are oversold - trouble is, FNM FRE WM and LEH are still overpriced by 100% ...
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Registered User
Joined: 2/5/2006
Posts: 1,148
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QUOTE (tllucero) I used to trade individual stock options - rarely do that any more. If I didn't have a day job, I'd be tempted.
The bid/ask on individual options can be a killer - and if you put in a limit order, it may only get filled if the market is moving against you. Plus, the minimum bid/ask spread on an in-the-money option can be a nickel or dime - so if I buy ten, that's $50 or $100 less for me - if not two nickels or two dimes. So I trade active index options only.
OTOH, the ETFs make my swing trade style of investing profitable. I'd be retired if I could just make myself buy UYG when bank stocks are oversold - trouble is, FNM FRE WM and LEH are still overpriced by 100% ...
fnm fre wm leh are probably the type of stocks you'd want to buy options on.
i think i'd rather have been shorting financials on strength instead of buying on weakness.
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Registered User
Joined: 7/23/2006
Posts: 9
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I think it would be great if Blocks supported options. I have been trading them for a few years. However I think it would be a a big job... just collecting requirements would be huge. After saying that, a worthwhile starting point might be a historical study each option chain's implied volatility.
However, there are other things I'd like to see in Blocks before that is attempted... such as past and future ex dividend dates, past and future earnings announcement dates... I could go on...
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