Registered User
Joined: 12/18/2008
Posts: 150
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some people are always asking me about options trading.. which option to trade, why i trade that option, when to buy, when to sell, etc.. so i decided to write this up real quick and keep things simple and easy for everyone to understand...
some of my rules of thumb are that if im expecting a small move in the underlying, ill buy 1-2 strikes in the money in order to have the option move with the stock.
if im expecting a moderate move, ill normally buy in the money 1 strike or at the money.
if im expecting a big move, ill normally buy out the money by 1 strike, ABC is at $100 and im expecting a move to $110 today, i would look to buy the 110 calls.. if i expect a move to 106, i would probably buy the 105 calls
and finally... the last rule is if you havent been able to generalize when and where the underlying stock is planning on moving, then you really shouldnt be trading options just yet
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Registered User
Joined: 8/15/2006
Posts: 132
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wse,
do you ever use staddles? I have been using them for earnings plays. My best option trades are when I go against the grain, yesterday the market was up so I was getting a good deal on some puts which were in the green by the end of the day. For the indexes I use the tick and look for divergence for entry, lucky or good it seems to work.
Scott
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Registered User
Joined: 10/7/2004
Posts: 2,126
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QUOTE (wse) some people are always asking me about options trading.. which option to trade, why i trade that option, when to buy, when to sell, etc.. so i decided to write this up real quick and keep things simple and easy for everyone to understand...
some of my rules of thumb are that if im expecting a small move in the underlying, ill buy 1-2 strikes in the money in order to have the option move with the stock.
if im expecting a moderate move, ill normally buy in the money 1 strike or at the money.
if im expecting a big move, ill normally buy out the money by 1 strike, ABC is at $100 and im expecting a move to $110 today, i would look to buy the 110 calls.. if i expect a move to 106, i would probably buy the 105 calls
and finally... the last rule is if you havent been able to generalize when and where the underlying stock is planning on moving, then you really shouldnt be trading options just yet
It seems to me that you are an expert (with the sarcastic pun intended).
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Registered User
Joined: 1/12/2009
Posts: 235
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QUOTE (BigBlock) QUOTE (wse) some people are always asking me about options trading.. which option to trade, why i trade that option, when to buy, when to sell, etc.. so i decided to write this up real quick and keep things simple and easy for everyone to understand...
some of my rules of thumb are that if im expecting a small move in the underlying, ill buy 1-2 strikes in the money in order to have the option move with the stock.
if im expecting a moderate move, ill normally buy in the money 1 strike or at the money.
if im expecting a big move, ill normally buy out the money by 1 strike, ABC is at $100 and im expecting a move to $110 today, i would look to buy the 110 calls.. if i expect a move to 106, i would probably buy the 105 calls
and finally... the last rule is if you havent been able to generalize when and where the underlying stock is planning on moving, then you really shouldnt be trading options just yet
It seems to me that you are an expert (with the sarcastic pun intended).
I'd be real curious to see BigBlock's trading methodoloy, methods posted in real time, account size, and other various traits to determine if he acutally is that great or just a kid with a lot of time on his hands. When people like him are asked to either put up or shut up. It is usually the latter. Sure talks a lot of crap for a guy with 2,000+ posts.
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Registered User
Joined: 2/21/2007
Posts: 797
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QUOTE (BigBlock) (with the sarcastic pun intended).
He is consistent.
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Registered User
Joined: 2/13/2005
Posts: 368
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Ever heard of selling Naked Puts?? Say the stock is at $103. You can sell the upcoming month APR 100 Put for X.XX dollars. You get the premium immediately, if the stock drops to $100 or less, you will be required to buy the stock at $100. So, you get the options premium plus the stock that you wanted to own at a better price. You'd get 100 shares of stock for $100 plus (for example) $120 in premiums making your price pershare work out to $98.80 per share. ($100 x 100sh = $10,000 - $120prem = $9,880) Beats paying retail.
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Registered User
Joined: 12/18/2008
Posts: 150
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i do like straddles but prefer butterflies when it comes to playing earnings... when i do play straddles, i choose different strikes depending on my bullish/bearishness... normally whichever side i favor more ill go in atm or itm 1 strike... and the opposite side i will go in atm or otm 1 strike
but typically how i prefer to play it is if i expect a large move... i would do something like...
ABC is $100
Buy $100 call
Sell $110 call
Buy $90 put
or
Buy $105-110 call
Sell $115-120 call
Buy $90 put
when it comes to naked options, i prefer not to do them just bc of various things such as the cash requirements to do it. you still have to tie up a % to cover the position 'just in case' - these are all in house rules
by the way big blocks... just so you know, i chose to mention strikes in my first post in that way i did bc most newbies like yourself dont understand the greeks. but if anyone wants to talk greeks, i dont mind getting into them.. going by strikes is easier as an atm strike will generally move 33-50% with the stock and fhe deeper itm you go, the more it moves like the stock and the further otm you go, the less it moves like the stock
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Registered User
Joined: 8/15/2006
Posts: 132
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wse,
I will have to play with that strategy, I have never done a butterfly. My typical straddle was brought on by the idea of buying a stock coming into earnings and selling the day before but then I started doing things like selling calls against my stock and if I sold the stock before just do the straddle if I was unsure how the earnings would be viewed by the street.
Scott
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Registered User
Joined: 10/7/2004
Posts: 264
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QUOTE (traderm30) QUOTE (BigBlock) QUOTE (wse) some people are always asking me about options trading.. which option to trade, why i trade that option, when to buy, when to sell, etc.. so i decided to write this up real quick and keep things simple and easy for everyone to understand...
some of my rules of thumb are that if im expecting a small move in the underlying, ill buy 1-2 strikes in the money in order to have the option move with the stock.
if im expecting a moderate move, ill normally buy in the money 1 strike or at the money.
if im expecting a big move, ill normally buy out the money by 1 strike, ABC is at $100 and im expecting a move to $110 today, i would look to buy the 110 calls.. if i expect a move to 106, i would probably buy the 105 calls
and finally... the last rule is if you havent been able to generalize when and where the underlying stock is planning on moving, then you really shouldnt be trading options just yet
It seems to me that you are an expert (with the sarcastic pun intended).
I'd be real curious to see BigBlock's trading methodoloy, methods posted in real time, account size, and other various traits to determine if he acutally is that great or just a kid with a lot of time on his hands. When people like him are asked to either put up or shut up. It is usually the latter. Sure talks a lot of crap for a guy with 2,000+ posts.
You'll have to buy his magic indicator and secret algorithim. Good luck.
"Buy low. Sell High. Fear, that's the other guy's problem." Winthorp.
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Registered User
Joined: 12/18/2008
Posts: 150
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not here to waste time arguing
as i was mentioning in my previous post, using greeks is another way to judge options rather than simply going in the money, at the money, or out the money by a certain# of strikes.. you can use the 'delta'
depending on your data provider, you can usually get info on option delta
option delta basically tells you the % the option will move with the stock...
for example, ABC at $100...
$100 call option may have a delta of .50, meaning that for every $1 that ABC moves, the option should move about .50
$70 call option may have a delta of .75 meaning that for every $1 that ABC moves, the option should move about .75
puts have negative deltas, but the same is true...
$100 put option may have a delta of -.50, meaning that for every $1 that ABC moves, the option should move about .50
$130 put option may have a delta of -.75 meaning that for every $1 that ABC moves, the option should move about .75
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Registered User
Joined: 4/6/2009
Posts: 5
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QUOTE (wse) not here to waste time arguing
as i was mentioning in my previous post, using greeks is another way to judge options rather than simply going in the money, at the money, or out the money by a certain# of strikes.. you can use the 'delta'
depending on your data provider, you can usually get info on option delta
option delta basically tells you the % the option will move with the stock...
for example, ABC at $100...
$100 call option may have a delta of .50, meaning that for every $1 that ABC moves, the option should move about .50
$70 call option may have a delta of .75 meaning that for every $1 that ABC moves, the option should move about .75
puts have negative deltas, but the same is true...
$100 put option may have a delta of -.50, meaning that for every $1 that ABC moves, the option should move about .50
$130 put option may have a delta of -.75 meaning that for every $1 that ABC moves, the option should move about .75
It seems to me that the information here is at the least misleading and incorrect.
Greeks are simply sensitivities to option risk charateristics. To understand this you have to go back to the definition of options, and then remember the seven factors that affect an option premium.
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Registered User
Joined: 1/30/2009
Posts: 267
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QUOTE (Bassambasir) QUOTE (wse) not here to waste time arguing
as i was mentioning in my previous post, using greeks is another way to judge options rather than simply going in the money, at the money, or out the money by a certain# of strikes.. you can use the 'delta'
depending on your data provider, you can usually get info on option delta
option delta basically tells you the % the option will move with the stock...
for example, ABC at $100...
$100 call option may have a delta of .50, meaning that for every $1 that ABC moves, the option should move about .50
$70 call option may have a delta of .75 meaning that for every $1 that ABC moves, the option should move about .75
puts have negative deltas, but the same is true...
$100 put option may have a delta of -.50, meaning that for every $1 that ABC moves, the option should move about .50
$130 put option may have a delta of -.75 meaning that for every $1 that ABC moves, the option should move about .75
It seems to me that the information here is at the least misleading and incorrect.
Greeks are simply sensitivities to option risk charateristics. To understand this you have to go back to the definition of options, and then remember the seven factors that affect an option premium.
Care to share them? It may be obvious but my brain is dead today and could use some wakin' up.
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Registered User
Joined: 9/25/2007
Posts: 1,506
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I'd love to hear more as well ....
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Registered User
Joined: 12/18/2008
Posts: 150
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there are 6 factors not 7.. id like to hear what you think the '7' are
time value
change in stock price
time until expiration
interest rates
volatility
if you think delta is number 7 then youre absolutely wrong as implied volatility and delta are independent of each other
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Registered User
Joined: 3/6/2009
Posts: 78
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hmm, not to get into this argument, but being curious, i googled this and came up with seven
The current price of the underlying financial instrument
The strike price of the option in comparison to the current market price (intrinsic value)
The type of option (put or call)
The amount of time remaining until expiration (time value)
The current risk-free interest rate
The volatility of the underlying financial instrument
The dividend rate, if any, of the underlying financial instrument
so who's right
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Registered User
Joined: 12/18/2008
Posts: 150
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#1 and #2 are similar so the info there is a bit redundant
dividend rate belongs with #1. dividends paid out affect security price and therefore affect option price
whether its a put or call doesnt change the premium. premiums are independent of that
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Registered User
Joined: 2/21/2007
Posts: 797
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It seems to me that the information here is at the least misleading and incorrect.
Greeks are simply sensitivities to option risk charateristics. To understand this you have to go back to the definition of options, and then remember the seven factors that affect an option premium.
[/QUOTE]
Nothing nasty here, just some info that more education is needed. I think WSE was trying to be too nice and explain options, but he just didn't specify that a whole lot more is involved.
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