Wednesday, March 31, 2010

Re: [TheOptionClub.com] Re: Is my thinking correct?

 

James,

that is brilliant, thanks for that.
Synthetics are a complete new world!

However, I am (primarily) an option premium seller, so I want to sell Theta and therefore the idea of selling the put.
Also, with the big bid/ask spread and relatively low option volume, I would have a hard time selling the call for a decent price.

best, gis



On Wed, Mar 31, 2010 at 10:30 AM, JP <jp@jpfinancial.co.uk> wrote:
Gis

Your current position of a covered call at the 29 strike is the equivalent of being short the 29 strike put.

If you sell the stock and sell the 37 strike put, your adjusted position becomes short the 29 call / 37 put [a 'Guts' strangle].

If you want to be short the 29/37 strangle then it would be much easier to simply sell the 37 call.

Your adjusted position is then long stock / short the 29 call / short the 37 call; which is the equivalent of being short the 29/37 strangle.

Is it worth it ... only you can decide that?

Cheers
James

--- In OptionClub@yahoogroups.com, Meuter Gisbert <gismeu@...> wrote:
>
> Hi,
>
> I entered a paper trade with UWM
> Bought a covered call when it was at 30
> short April 29 call and long stock.
> Now it is around 33.90 and I want to sell the stock and sell an April 37
> put.
> The reason is that I get a little extra money or profits, since the put has
> still some time value left
> and my forecast is sideways to down towards April expiration.
> I increase my risk a bit obviously, but my question is
>
> am I overlooking something here by exchanging stock with a short put
> or do I really get some extra money? (provided at expiration UWM
> is between 29 and 37)
>
> thanks, gis
>




------------------------------------

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[ConservativeOptionStrategies] Re: Tracking software

 



--- In ConservativeOptionStrategies@yahoogroups.com, "optionsmike"
Michael,
That's what I'm doing, but of course that takes some, or all, of the profit out of the CC sale. I'm compensating for that by selling an OTM cash secured put. If I want to get out of a stock though, I have to buy back the CC which raises my cost back up. Since stock prices and option bid/asks are continually changing and I'm trying to be alert to both opportunities and dangers, I'm looking for an optimal record keeping method.
Lou

<michael@...> wrote:
>
> Louis,
> I cannot recommend any software but I will mention you may wish to collar your longer-dated and already profitable cc with a protective put.
>
> Michael
> www.safe-options-trading-income.com
>
> --- In ConservativeOptionStrategies@yahoogroups.com, "Louis" <loupi3@> wrote:
> >
> > Since being burned too often with trailing stops, I'm trying to develop a method of protecting my downside while still maintaining profits.
> > Combinations of strike prices, option months, option combinations, rolling up, rolling down, etc, etc gets tedious to track on an ongoing basis on an excel sheet when I'm using different option combinations for different time periods on different underlyings.
> > Does anyone know of any prepackaged software that will enable me to track relatively automatically, for instance, cost and current price of underlying, cost or premium of options used, profit or loss on any rollups with cost or premium of new option positions, all resulting in a final profit or loss on any sale as well as open positions?
> > Thanks for any help.
> > Lou
> >
>

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[TheOptionClub.com] Re: Is my thinking correct?

 

Gis

Your current position of a covered call at the 29 strike is the equivalent of being short the 29 strike put.

If you sell the stock and sell the 37 strike put, your adjusted position becomes short the 29 call / 37 put [a 'Guts' strangle].

If you want to be short the 29/37 strangle then it would be much easier to simply sell the 37 call.

Your adjusted position is then long stock / short the 29 call / short the 37 call; which is the equivalent of being short the 29/37 strangle.

Is it worth it ... only you can decide that?

Cheers
James

--- In OptionClub@yahoogroups.com, Meuter Gisbert <gismeu@...> wrote:
>
> Hi,
>
> I entered a paper trade with UWM
> Bought a covered call when it was at 30
> short April 29 call and long stock.
> Now it is around 33.90 and I want to sell the stock and sell an April 37
> put.
> The reason is that I get a little extra money or profits, since the put has
> still some time value left
> and my forecast is sideways to down towards April expiration.
> I increase my risk a bit obviously, but my question is
>
> am I overlooking something here by exchanging stock with a short put
> or do I really get some extra money? (provided at expiration UWM
> is between 29 and 37)
>
> thanks, gis
>

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The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
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[TheOptionClub.com] Is my thinking correct?

 

Hi,

I entered a paper trade with UWM
Bought a covered call when it was at 30
short April 29 call and long stock.
Now it is around 33.90 and I want to sell the stock and sell an April 37 put.
The reason is that I get a little extra money or profits, since the put has still some time value left
and my forecast is sideways to down towards April expiration.
I increase my risk a bit obviously, but my question is

am I overlooking something here by exchanging stock with a short put
or do I really get some extra money? (provided at expiration UWM
is between 29 and 37)

thanks, gis


__._,_.___
Recent Activity:
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

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[ConservativeOptionStrategies] ConservativeOptionStrategies@yahoogroups.com

 

The following stock(s) triggered our "Stop-Loss" target(s):

Wednesday, March 31, 2010
9:30 am EST

Bought (2) CENX Apr 15 (QYU1017D25) call option contract at $0.45 (ask).

Sold 200 shares of CENX (Century Aluminum Company) at $14.20 (bid).

G

My JAN-2010 to MAR-2010 CC Trades -

http://groups.yahoo.com/group/ConservativeOptionStrategies/message/5726

Also see "KCM 2010 Trading History.doc" in files section.

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[TheOptionClub.com] Re: Best Adjustment Method

 

Ricky

Hi, I have taken your prices / scenario and illustrated a variety of possible alternative adjustments that might be suitable depending on the traders view of market direction / volatility / risk tolerance / position size / trading method.

The file is located in the Files Section / Best Adjustment / Condor Adjustments 01.

I have used calls to illustrate the adjustments [although in practice it may be more effecient to trade the equivalent put spread].

Most of the adjustments 1 to 7 are pretty conventional Call spreads/flies/condors which roll the risk / breakeven upwards but have quite different risk graphs depending on the strikes chosen.

Adjustments 8 and 9 are a little unconventional and inspired by Charles Cottle's mentoring programme.

Adjustment 8 is buying the 190/200/205 Skip Strike Fly.
Adjustment 9 is selling the 175/180/190 BWB.

Hope this is of some interest.
Cheers
James

--- In OptionClub@yahoogroups.com, Ricky Jimenez <rickyjim@...> wrote:
>
> You are right, Michael, that 190 was the best outcome but I wouldn't
> call it a winner. To settle the argument (without pistols, boxing
> gloves, etc.) as to whether this adjustment is possible, I went to the
> OCC Options Calculator and put in the numbers you gave. Volatility
> 35%, 28 days until expiration, underlying at 185 and got for the
> initial position, the prices:
> 175c 13.09,
> 180c 9.86,
> 190c 5.03,
> 195c 3.41.
>
> Then I changed the underlying to be at 191 with 26 days until
> expiration:
> 185p 4.40
> 190p 6.60
> 190c 7.625
> 195c 5.38 (not so cheap after all). Attached is the expiration graph
> with the original condor in blue and the adjusted position in black.
>
> On Fri, 26 Mar 2010 18:45:49 -0500, "mcatolico"
> <mcatolico@...> wrote:
>
> >
> >
> >-----Original Message-----
> >
> >Ricky asked:
> >
> ><...> an example would be -190c/+3 195 to net into a 2X4 backspread on the
> >call side and maybe I'd look to get a bit of a credit by selling the
> >-190p/+185p vertical
> >>
> >Have you checked this one out with an options calculator or a real
> >ticker, Michael? Please post the details if so.
> >
> >MC - it's theoretical and the prices may be a small debit or credit
> >depending on time/volatility. The point is that I'm suggesting an adjustment
> >based on circumstances. Price is important always but so are the resulting
> >risk & opportunity profiles. That's why there is no cookie-cutter approach
> >to trading.
> >
> >I think you are saying, add 185p -190p -190c + 3*195c to the original
> >condor, 175c - 180c - 190c +195c getting
> >175c -180c +185p -190p -2*190c +4*195c. The adjustment seems to
> >require a large debit because of the 3 long 195 calls and according to
> >a rough expiration graph I drew, the trade will lose big at 190, total
> >disaster at 195 and be unprofitable if the position ends up below 205
> >or so.
> >
> >MC - no way would the adjustment be a large debit. it's basically an iron
> >butterfly (credit spread) plus a couple otm long calls (minor debit) that
> >may or may net into a total debit depending on the obvious factors. As far
> >as what the position looks like it's clear that at 190 you have a winner
> >(not a loser) since everything is worthless besides the long 175/180 call
> >vertical. worst case is definitely 195 but so what? The original condor is
> >also a "total disaster" at 195 and the point is that if things move toward
> >195 the embedded backspread will make money and can be scalped thus getting
> >to an overall net position to a much healthier cost point. The thing is
> >that ALL trades - and thus ALL trade adjustments - are decisions made under
> >uncertainty. You make a bet, when the bet goes sour you adapt and change it
> >all the time trying to fight for profitability. It's not magic but it's not
> >all luck either. If you develop an understanding about what a pending trade
> >profile looks like (i.e. understand what it will do under a variety of
> >subsequent price and volatility conditions) and you are acutely aware of
> >what your current risk profile consists of (i.e. your current position
> >relative to how it may have changed due to the changing market) and you
> >synthesize the two (possible adjustment relative to current position), then
> >you will eventually develop the skill and feel needed to succeed.
> >
>

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The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

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Tuesday, March 30, 2010

RE: [TheOptionClub.com] Understanding Delta Hedging (AAPL)

 

The 1SD is an artificial if not completely arbitrary trigger point (at least it is based on some data intrinsic to the instrument you are trading). Yet there are many more trigger points that others (not me) use:  support/resistance levels, fixed levels like the next strike, and so forth. So there is no BEST strategy here.

 

that said, if you do follow a standard deviation trigger, the move should be calculated for multiple time intervals: 1 day, 1 week, 1 hour whatever. NOTE: the level should always be calculated from your last trade or adjustment. If you keep a set of different levels at the top of mind then you will be prepared for taking action at multiple time frames. A lot will depend on the time frame that you trade, the nature of your position (long versus short vega) and on and on. 

 

Often it's just a matter of figuring out a key price point for the options. For me, this is really where I find myself making most of my trading decisions. basically I take the perspective of the opposite side of my trade and try to understand a reasonable price point where my counterpart would look to lock in profit in such a way that the resulting position is nearly or completely risk free.  For instance, let's say you have that  -230/+240 call spread and you received $3.00 credit for it. well that means your counterpart has the +230/-240 for $3 debit. if for some reason the -240/+250 spread becomes worth $3 then your counterpart can now create a risk free fly (+230/-2 240/+250) for zero debit thus no risk and all potential reward. Because your counterpart can make the adjustment successfully at this point – regardless of really caused the price move such as changing volatility or rising underlying, that means that you must alter your own position defensively. This can be a one day single standard deviation move or a two week slow creep or whatever. The point is that the market is screaming at you to do something about your position and do it in a hurry.

 

Whether you are trying to get delta neutral or just trying to nudge things along you need to see all these possible trigger points without getting paralyzed or panicky. The SD method is a decent shorthand that keeps you from reacting too quickly, but the price-based approach helps you make a decision without regard to the dozen different factors changing the potential calculation of that SD.

 

From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Chris Madrolle
Sent: Tuesday, March 30, 2010 8:02 AM
To: OptionClub@yahoogroups.com
Subject: Re: [TheOptionClub.com] Understanding Delta Hedging (AAPL)

 




Interesting adjustment strategy which is only triggered if the underlying moves 1SD in a day.

(In the example below $ 3.60). But when do you trigger an adjustment when SPY increased progressively during 14 days in a row without reaching 1 SD in a single day as it did in March?

Should'nt you take the cumulative SD variance rather than the one day and if so, is 1 SD still the right criteria.

 

Thanks as always for very clear explanations.

 

Chris.


 

 

From: mcatolico <mcatolico@mindspring.com>
To: OptionClub@yahoogroups.com
Sent: Sat, March 27, 2010 9:54:32 PM
Subject: RE: [TheOptionClub.com] Understanding Delta Hedging (AAPL)

 

Technically you did the correct thing. However things can get very tricky -
especially if you are short volatility as with this position. one thing to
consider is that gamma - and hence deltas - are not linear so that your
current 25 delta options do not stay at 25 deltas as the underlying (and
time or IV) move. Further, the volatility level you use completely
determines how you should calculate your delta level. the whole point to
delta hedging is that instead of playing price direction you are solely
betting on volatility. And since you are short vega, you are betting that
whatever iv level you sold the position at will be higher than aapl's
subsequent real volatility. If you over adjust your deltas, you will
eventually trade away all your potential profit. And the more you hedge
using stock, the more you will likely convert the position into a synthetic
short straddle or strangle. So make sure you have a decent risk graph so
you can literally see what your position is turning into.

Another consideration is "how" you manage your deltas. trading stock is the
cleanest method in that you are solely manipulating deltas and not messing
with any other Greeks. However, there are many times where you might want to
consider using options - either long or short - to sculpt the position. for
example instead of buying 150 shares you could have gotten the same delta
coverage by buying two 75 delta calls or buy selling three 50 delta puts and
so forth. Again, if you are new to this (or even very experienced) make sure
you see the impact of various strategies on a risk graph.

Finally, there is no set rule that says you need to be exactly delta neutral
with a position so try to decide if the resulting position is tolerable from
a risk/reward perspective more so than from a mechanical "now I have zero
deltas" rule-based approach.

Advice? My suggestion is to take it slow and let the market make some
significant moves - at least a standard deviation change - before
readjusting your delta risk. example: at 25% volatility and 230 price, aapl
has to move about $3.60 in a day to trigger a 1SD move. If you are adjusting
more frequently you are in effect buying back your short vega at a higher
price than the 25% I'm assuming is the vicinity you sold it at. When trading
short vega (i.e. delta hedging), if you over adjust you are in effect
locking in small losses all along the way. So the trick with this - and why
it requires a cast iron stomach - is to do nothing until you absolutely are
forced to make a move.

-----Original Message-----
From: OptionClub@yahoogro ups.com [mailto:OptionClub@yahoogro ups.com] On
Behalf Of L
Sent: Wednesday, March 24, 2010 10:15 AM
To: OptionClub@yahoogro ups.com
Subject: [TheOptionClub. com] Understanding Delta Hedging (AAPL)

Dear All,

I'd like to get some feedback and guidance as I try my hand at Delta
Hedging.

I sold an Iron Condor on Apple, but have taken off the PUT side and am now
concerned only with the remaining Call Vertical.

It's a Call Spread on AAPL (6 contracts April of -230C/+240C) . Now AAPL is
at 230, my position has a delta of .25, so I loose a quarter for each dollar
apple rises.

I just bought 150 shares of AAPL at $230, reasoning that to neutralize the
.25 delta, I would need to buy 6 contracts X .25 of shares.

So for the time being, or for the next dollar rise anyhow, I'll balance the
loss in the spread by the gains in the shares. this will work until, if AAPL
keeps rising, then the Delta will rise too and I'd be back holding some
loosing Delta. At that point I'll consider rolling.

This is my first use of this technique, and I'd love to hear from those who
have used this idea before:
- did I do this right?
- where do I go from here? I guess I keep an eye on my overall Delta and
adjust the share position as needed to try to remain D neutral.
- Anything else you think I should be aware of.

Many thanks
Lance

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The goal of TheOptionClub is to provide a forum for members to work together
for the purpose of furthering our individual understanding option trading.
All messages and postings, and any materials circulated are provided for
discussion and educational purposes only. No statement contained in any
materials from TheOptionClub should be considered a recommendation to buy or
sell a security or to provide investment, legal or tax advice. All
investors are encouraged to consult a qualified professional before trading
in any security. Stock and option trading involves risk and is not suitable
for most people. There is no guarantee that any information provided is
accurate and, may in fact, be wrong. It is understood that the participants
in TheOptionClub have varying backgrounds and degrees of experience in
option trading, and that regardless of experience each member is considered
a student. As such, any information distributed through TheOptionClub
should be considered with a critical mind and not relied upon as an
authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscr ibe@yahoogroups. comYahoo! Groups Links




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The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

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[ConservativeOptionStrategies] Re: Tracking software

 

Louis,
I cannot recommend any software but I will mention you may wish to collar your longer-dated and already profitable cc with a protective put.

Michael
www.safe-options-trading-income.com

--- In ConservativeOptionStrategies@yahoogroups.com, "Louis" <loupi3@...> wrote:
>
> Since being burned too often with trailing stops, I'm trying to develop a method of protecting my downside while still maintaining profits.
> Combinations of strike prices, option months, option combinations, rolling up, rolling down, etc, etc gets tedious to track on an ongoing basis on an excel sheet when I'm using different option combinations for different time periods on different underlyings.
> Does anyone know of any prepackaged software that will enable me to track relatively automatically, for instance, cost and current price of underlying, cost or premium of options used, profit or loss on any rollups with cost or premium of new option positions, all resulting in a final profit or loss on any sale as well as open positions?
> Thanks for any help.
> Lou
>

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