Yes I would love to do that but I am still building back up my account balance from doing it all wrong. I have currently reduced my weekly balance to only 500 available capital per week to trade roughly about 10 percent of my account. If I lose that 500 I am done for the week I have yet to hit that stop. I watch a total of 5 stocks SNDK DIS POT HAL and JPM. I have a stock from different sectors incase one sector is not trading up or down I have a trade to get in using another sector. I then use moving averages 5 8 21 days along with specific candle entry points off the daily and 15 min charts for entry. I then identify the recent highs and lows of the stock and try to enter the trade 1 to 2 dollars deep into the money for a fast return when the stock moves. I have made some mistakes with entry but I put my stops at 50 percent loss according to option price in case I am wrong. I find me mostly playing SNDK recently with very good return since the range has been around 5 dollars. I almost lost 50 percent of a trade this week when it broke out to a new high this week the retreated quickly making a very nice melted reversal on the daily chart. I entered the 46 put around 44.50 the stock passed that point and went to 45.20 or so then retreated back down to around 43.50 this gave me a very nice setup to hold the option over night and see if it would fill the gap to the down side which it did I exited the trade at 41 and made an overnight profit of around 300 because my delta was so high on the move down.
I understand it is impossible to pick the direction of a stock all the time and be right but I find the charts tell you what to do and I have to stay neutral to direction. I actually don't even watch the market direction while I trade because it plays no part in what a stock chart is doing. If you look at SNDK on friday is a good example of this. Yes it went down like the overall market but it went right back to the 50 retracment line from the recent low and high and consolidated for another trip up. After getting out of my short at this same point I then went long SNDK playing a 40 call not as deep in the money as normal because the delta on this trade was around 74 for every dollar move which is really nice for an option. I entered once the stock made three melted candles to the downside around 40.80 with the volume dropping good setup for a break to the upside. The stock then keep trying to break up then just took off to 42 in 30 mins. To reduce risk and theta loss I pulled this off for a nice 85 profit. So this week I started with the 500 capital and closed the week with 1250.
I am just interested on how calendars and verticals work for all of you. I see a lot of the emails going back and forth but for a profit of 50 with a lot of risk doesn't make sense to me just looking for more options as the market will trade side ways and sometimes that will make nice returns for slower or non moving stocks.
Thanks
Zodiespk
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These are very much directional trades. Given the high deltas of DITM options, they are basically stock replacement trades. If you are good at picking direction, then these can work out quite nicely. However, because of the leverage, it can go against you quickly if you’re wrong. You can comfortably trade 1-2 contract spreads with a 5K account. Calendars (long vega, long theta), Iron Condors (short vega, long theta), and selling vertical spreads (short vega, long vega) can be used as monthly income trades as part of a larger portfolio.
From:
Sent: Thursday, May 13, 2010 4:04 PM
To:
Subject: Re: [TheOptionClub.
Needing some help:
I have been trading options now for about 2 years. I have taken some pretty bad losses over that time, but in the last 4 months have been making back money consistantly playing deep in the money calls or puts. I hear a lot of people playing calendars, verticals, butterflys etc. I am having a hard time seeing how to make money with those vehicles becuase of the amount of buying power it takes. Let say I have 5k which is the best vehicle to use with the most limited risk and a good potiential on return? I only trade naked calls and puts and before use to buy out of the money strikes now that I buy deep in the money I am finding it easier to make 20 percent on a trade in 1-2 days holding. Any feedback would be welcome.
Thank you
Arthur
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From: Kae Man <kaeman50@yahoo.
Date: Thu, 13 May 2010 05:14:50 -0700 (PDT)
To: <
Subject: Re: [TheOptionClub.
| Yes; I know about those other charts, but you have to know what specific stock / option you are looking for which I don't always know. I take a vertical approach to the large set of data, then filter out based on criteria those I should drill into. When the data is vertical all in one place like it is on those other web sites, I do this easily; and can look at many more options and stock pricess in a shorter period of time.
Well, I thought you were going to tell me that you line up charts of the option and the stock to visualize the relationship between the two. TOS and the Nasdaq web page both offer free charts of options. One thing I might point out though, is that if you were to use vertical spreads instead of single options, your leverage would be much better per your account margin. Try it - look at how much you could buy with say $500 and see that you could probably make about 8 times more with a spread, within a likely range of stock price. Its after a 30% and up that a single option might pay off more, but how many moves like that do you really get? Anyway, thats all interesting. R --- On Wed, 5/12/10, Kae Man wrote: From: Kae Man Subject: Re: [TheOptionClub. com] Over/underpriced options To: OptionClub@yahoogro ups.com Date: Wednesday, May 12, 2010, 12:20 PM You are partly correct, there is no way of knowing when a stock will trend the other way; but there is a way to make a strong educated guess based on historical performance the range the stock price will be in before it changes direction and trend up for a period. After the market closes, and on the weekends is when I pull the data; I was using data from stockdataguru. com, but their site went down; I now use ioptionprice. com, a new site. It is not that pretty, but I think they are still refining it. Intra-day analysis is too risky because of all the junk out there in the news driving sentiment. I track a number of stocks historical movement every day (say about 100 different stocks at a time), and model them based on some calculations I use to determine a "buy in" range. The stock is trending down, and the daily price volatility is high compared to the norm (the absolute value of the difference between the open and high plus the open and low). It is not always the lowest the price the stock will fall to before I buy in, but from that point the stock price usually moves up 20% at a minimum within 30 - 40 days. Understanding the stock value, company, sector, etc. is to me a better way to estimate/anticipate if a stock price will move up. Then the other side is what you already know, with stock price movement, comes option price movement. (I am talking calls only, puts are for the true gamblers; I don't touch them.) I look at the historical option prices to see how the option price has moved during the contract, it gives me insight to the stock price / option price correlation; seeing the history day by day together really helps. Eventually I sell the stock and option long before the stock price hits the option strike price; both are trending up so I take a little money and run. Multiply this times about 10 - 15 stocks and option contracts per month; at it adds up nicely. My worst case is holding a stock longer than 40 days, and loosing marginally on a contract; but it is not the norm and when I sell the stock I make back what I loose on the contract. I am concious of holidays, dow average, earnings releases, and common things like that; they sometimes have an impact on the stock price. Since I have been doing it, I have had 2 copanies go bankrupt on me; one was a bank and the other was a greek company. In both cases, I knew not to buy, but I didn't listen to my concious. This is how I do it. Other people may have diffent methods... --- On Wed, 5/12/10, rvd wrote: From: rvd Subject: Re: [TheOptionClub. com] Over/underpriced options To: OptionClub@yahoogro ups.com Date: Wednesday, May 12, 2010, 2:34 PM By definition, "trend" would mean the stock would stay in the particular direction, otherwise it would not be a trend. So this could work. Altho there is no way to determine when the trend will no longer be a trend. With all the small movements each day hour, minute, one can never tell which small move will end up changing the bigger trend. How do you compare an option trend with a stock trend? Ross --- On Wed, 5/12/10, Kae Man wrote: From: Kae Man Subject: Re: [TheOptionClub. com] Over/underpriced options To: OptionClub@yahoogro ups.com Date: Wednesday, May 12, 2010, 8:55 AM I think all that "typical" volatility analysis people do is a bit over-rated; it is fancy guessing. Basically it is a 50/50 chance; either the option will go up or it will go down. What I do is look at the historical trend of the option price as it closes every day, and then trend it against the underlying stock price movement; along with other market, sector indicators. I think this is a more logical, simpler way of guessing (anticipating) price movement. Does anyone else use this approach.... --- On Wed, 5/12/10, Ricky Jimenez wrote: From: Ricky Jimenez Subject: Re: [TheOptionClub. com] Over/underpriced options To: OptionClub@yahoogro ups.com Date: Wednesday, May 12, 2010, 1:30 PM The problem is that the original question was unclear since the OP did not exactly say how it was determined that the options were overpriced by 10 cents. I would guess that Sveta put the option into a calculator and entered a volatility which turned out to be less than the current IV of the option in question. Was the 10 cents the difference between the midpoint of the bid/ask spread of the actual trading option versus what was determined from the calculator? I am surprised it was that close. On Wed, 12 May 2010 05:34:43 -0600, "Dennis Alverson" wrote: >It is debatable of whether options are every over or under priced. Because >the speed and liquidity of the market place, option prices are typically >what they should be based on the forces of supply and demand. The option >pricing models are just that, models. The price of an option is determined >by the pressures of supply and demand. For instance, the price of the option >determines the IV of that option when plugged in to the Black-Scholes >pricing model. The IV does not determine the price, but is a reflection of >the price. When you write or short an option, you are making an IV or time >play, i.e. you are betting the IV will drop or the option will decay over >time. IV and time decay are strongly related an affect the extrinsic value >of an option. > > > > _____ > >From: OptionClub@yahoogro ups.com [mailto:OptionClub@ yahoogro ups.com] On >Behalf Of Sveta >Sent: Monday, May 10, 2010 11:08 PM >To: OptionClub@yahoogro ups.com >Subject: [TheOptionClub. com] Over/underpriced options > > > > > >How much does an option have to be over or under priced to be considered >just that? I put a couple of options through Black-Scholes and they were >overpriced by 10 cents. Or does it have to be overpriced more then that to >be considered for writing? >Thanks guys > > |
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