Saturday, November 28, 2009

Re: [TheOptionClub.com] GOOG [was Re: Basic Calendar Question]

 


To suggest that GOOG bares anything more than passing similarity to another (or any other) stock is to say that having learned to drive a car, well, they all can be driven competitively against professional drivers with the same techniques and skills, be they Porsches or Subarus or anything in between.

I, too, bought GOOG at IPO in the Dutch auction.  I thought I paid a fair enough price and not as high as I might have expected.  I merrily sold off chunks at $180 +/- ... sweating every dollar and hoping I hadn't missed the "peak" because there's a rule of nature that a 100% gain is an immutable maximum profit in investing.  I repeated the same short-sighted lunacy time and time again through the intervening years to date, all the while trading options based on skills I developed in the 2001 thru 2002 mayhem while trading ARBA amongst a few other hot properties back then like BRCD while trying to diversify (fool's errand) into "safe" stocks like BRK/b.  I eventually learned that diversification is irrational; by scattering your eggs across the ground instead of having them safely packed into egg crates designed for their long term good condition, the eggs are like carpeting bombing -- no target, but certain to do untold damage.  So I gradually focused in on a selection of about a dozen stocks, then some of those failed to make the grade and were replaced (rather like the Dow or the S&P) until I came down to just four excellent stocks.  No two bare any similarity other than to be afloat in the same market water, rising and falling, sometimes quickly, sometimes slowly.

Back to Google, I most recently sold GOOG at $585 in '08 after a brutal cut down from $747 despite almost a year of trying to fly the thing through an economic "perfect storm" (and what a horribly overused term that's become.)  This week, I declined to sell at $585 and I don't regret the position despite all the brouhaha in the markets arising in other corners of the planet over the Thanksgiving holiday and a similarly timed event important to Muslims.

Over the years, I've developed an insanely simple system to monitor the price action of that handful of stocks.  I follow along when the markets develop momentum in stocks like GOOG and BIDU.  Some prefer RIMM or GS as better bellwhethers and so on.  I'm continually watching to see if one of my four main stocks will be "outdone" (by examining at least a year of trailing data.)

I employ much the same basic trading tools and planning on all my positions, but when properly adjusted and prepared for a given underlying, they are very different vehicles requiring very different driving skills.

So I can only encourage others to not presuppose that having learned to race in one car will prepare them to be competitive in all cars or even other similar cars.  We're not all Schumacher or Hamilton let alone Jack Brabham or Jackie Stewart.

Back to back-testing; I can say that the system I've developed since the beginning of the "Goldman Sachs takes over the world" crash in 2008, is just as applicable to a frisky fresh IPO GOOG as it is to the muscular stalwart we trade today.  But the devil is in the details and the same strategy needs significant reworking to trade well on BIDU and it's very different again for other stocks, let alone futures.  Interestingly enough, I've found exactly the same strategy trades well on /es and /ym unchanged.

If I were to advocate your side of the debate, I'd say that the core skills all traders must develop are widely applicable to anything from options on futures to forex:  Knowing the market internals;  Understanding the broad market conditions and trends; managing risk; minimizing losses and developing a repeatable, systematic trading plan.  

Well, a market exists because there's always at least two sides to the trade, so I am pleased to find a limitless population of traders willing to take the other side of my trades.


On Fri, Nov 27, 2009 at 9:05 PM, mcatolico <mcatolico@mindspring.com> wrote:
 

Not sure if I'm getting your point exactly but – having traded goog every month since it started trading in '04 (I think) – I can say that it does have its own little quirks but in general it's really no different than any other trading vehicle.  

 

Prices/implied volatility are just the consensus bet on value. If you trade that vehicle either or long or short you are simply doing what everyone who trades is doing i.e., saying that the market consensus is either too high or too low and that you think differently.  Any vehicle that has occasional binary events (such as earnings releases) is likely to have a few multi-strike gaps (though a ten point move in a 580 stock is hardly earth-shattering). And just as likely, there will be periods of consolidation or indecision when price seems to go nowhere for months. If you could find a model that back-tested profitably in goog, you would have a model that back-tested profitably in just about every other tradable instrument. Now whether that backtest would be of any value going forward is a completely different story.

J

 

 

 

From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Adam Green
Sent: Friday, November 27, 2009 3:32 PM
To: OptionClub@yahoogroups.com
Subject: Re: [TheOptionClub.com] Re: Basic Calendar Question

 



I haven't read the whole thread, but I would caution anyone using horizontal positions or anything relying upon limited movement (not volatility) in GOOG.  As we caught a glimpse over the holiday break, it has no hesitation to move through a strike.  Look at days when GOOG has moved through more than three strikes ... or find a month when a Straddle on GOOG would not have been profitable (assuming a reasonably durable trading plan.)  F'rinstance, I can't back-test it easily on thinkorswim (maybe someone can show me?) but I've noted for some years now that I can buy a Straddle, wait for it to move through a strike, take profit off the one side and roll it vertically or horizontally either adding or subtracting contracts depending upon preset rules for risk and profit based on technical analysis of price action, especially momentum and overall market action.

On Fri, Nov 27, 2009 at 12:32 PM, bben1006 <bben1006@yahoo.com> wrote:

 



MC--
I did, and this is what I got with an IV of 55% - I wonder why?(I must have mistyped something…)? In any case, I think that with your Hoadley's calculator it will be very easy for you to replicate the entire comparison exercise (FSLR vs GOOG, say) — for the point I was trying to make.

Regards,
BBen


--- In OptionClub@yahoogroups.com, "mcatolico" <mcatolico@...> wrote:
>
> Why wouldn't you use an option calculator? With your parameters on goog I
> get the 630 implied value at 14.95 or so.
>
> -----Original Message-----
> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
> Behalf Of bben1006
> Sent: Thursday, November 26, 2009 11:12 AM
> To: OptionClub@yahoogroups.com
> Subject: [TheOptionClub.com] Re: Basic Calendar Question
>
>
>
> Your best way to realize/see the differences between these stocks is to
> 'standardize' the option chain of each underlying by dividing the entire
> chain (put and call prices and the strikes all for the same month) by the
> current price of the underlying stock. The resulting standardized chains
> will illustrate to you the (nonlinear) pricing-effect of the volatility,
> giving you the relative costs of the options in relative terms to the
> percent at-the-money and out-the-money strikes.
>
> For example (all with approximate round-offs) : FSLR is currently $120.97,
> with ATM IV 55%.
> The Dec 130 call is nearly 7.5% out-of the money and has a relative price of
> 2.28% ($ 2.75/$121).
>
> Compare this to, say: GOOG, currently at $584.75, with ATM IV 22% .
> The Dec 630 call is also nearly 7.5% out-of-the money, but it has a relative
> price of only 0.22% ($1.25/$585). Note that in order to match on the FSLR
> volatility, the price of this GOOG 630 Call option should be about $13.3.
>
> You can do the rest of the calculations.
>
>
>
>
>
> --- In OptionClub@yahoogroups.com, "Peter Gum" <peter.gum@> wrote:
> >
> > Take look at the premiums on things like AMZN, GS, BLK and IBM, for
> example.
> > The absolute amounts are substantial, though I have not done the
> > money-at-risk or ROI calculations. An enlightening exercise can be to
> > compare the return on the spread with the premium on a comparably priced
> (to
> > the spread) stock. Spreads of any sort look attractive sometimes.
> >
> >
> >
> > phg
> >
> >
> >
> > -----Original Message-----
> > From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
> > Behalf Of billb_
> > Sent: Monday, November 23, 2009 9:37 AM
> > To: OptionClub@yahoogroups.com
> > Subject: [TheOptionClub.com] Re: Basic Calendar Question
> >
> >
> >
> >
> >
> > I don't understand what price has to do with any strategy to be quite
> > honest. If price of the underlying gave you an edge, wouldn't that be
> arbed
> > away?
> >
> > --- In OptionClub@yahoogro <mailto:OptionClub%40yahoogroups.com> ups.com,
> > "drrobhansen" <robhansen5252@> wrote:
> > >
> > > I had heard either during a webinar or maybe in a magazine that calendar
> > spreads are best put on with high priced stocks. Is there anyone that
> would
> > explain to me why it would be advantageous? Or maybe I'm just mixing this
> up
> > with some other strategy?
> > >
> > > Thanks,
> > > RFH
> > >
> >
>
>
>
>
> ------------------------------------
>
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--
Adam






--
Adam

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