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MvR

Diary of an options trade ( United States Steel )

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EOD 13

Sorry for the delay.. busy couple days moving the boat.

On Wednesday, X really took off, ending on $8, and hurting my short 7 Straddle. This put my running P&L on -$20, compared with the stock only P&L of $127.  

EOD 14

Standard loss mitigation procedure is to roll the out-of-the-money option to a new in or at-the-money strike for the same month to take in some more premium, or roll the whole position to further out expiry, again to take in more premium. I rolled the short put from 7 up to 8 yesterday morning.

I was also mindful of earnings coming out after the close yesterday, and didn't want to hold this particular position through earnings, so later in the day, after X had dropped a little down to the 7.60 area, I closed out the position, ending with a final P&L of $2.

As a trader of options for income, this is a perfectly acceptable result. Not a winner, but not a loser either. If I'd been aiming to own the stock, I wouldn't have left a naked short call in place, and would have sold a higher strike put more likely to be exercised. 

Anyhoo, having exited the position basically even, I decided to have a little punt with a new position for earnings. In this case another Big Lizard ( short 7.5 call and put, plus a long 8 call ), sold for $0.52 per share or $52, with no upside risk, expiring today. The aim was to capture the rapid fall-off in premium that happens after earnings are announced. It's looking like this could be $15-20 in profit when the markets open, and the worst outcome would be getting put the stock at $7.50 minus 0.52 or rough $7 after commissions.. after which I'll sell calls against it.

So this is where we stand so far.

181649683_Screenshot2020-04-30at20_04_44.thumb.png.36afde7f3013e38753e850fe89186c37.png

180431392_Screenshot2020-05-01at10_50_54.png.347bbddbc42aa1acd74e4a533b9c77f5.png

 

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18 hours ago, billfunk said:

I found these guys quite interesting: https://www.youtube.com/user/tastytrade1

After a few days of watching them I decided that the best way to trade options was to be a seller and harvest Theta or else look for pivot points in the market and place small naked bets which you either lose entirely or make a shit ton.

Absolutely.  I learned from these guys a few years ago, basically apply the same techniques, but with my own technical analysis and DB's macro input as well.  It works well.

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Posted (edited)

EOD 15

I closed out the Big Lizard about an hour after the market opens, for a $17 profit after commissions. As it turns out, the stock pinned on 7.50 at the close yesterday, so if I'd held on I'd have been up just under $50, but seeing my personal profit target met, I got out. Total profit for the whole 15 day position was $19.  Not much, but apart from the time it's taken to write these updates, the whole thing took maybe 15 minutes of my attention.

The interesting thing with this whole exercise is it demonstrates how even with various bad calls, missed opportunities, forgetting about earnings and multiple adjustments, I still came out with a profit, which is what matters at the end of the day.  This is ultimately due to the options sellers' statistical edge, which comes in exchange for the willingness to take on risk others are trying to offload, and the willingness to give up the unlimited upside of a pure long stock position.

506211839_Screenshot2020-05-02at13_54_05.png.78f10692527ab4de89da8ce6e401cafa.png

Edited by MvR

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On 02/05/2020 at 13:54, MvR said:

EOD 15

I closed out the Big Lizard about an hour after the market opens, for a $17 profit after commissions. As it turns out, the stock pinned on 7.50 at the close yesterday, so if I'd held on I'd have been up just under $50, but seeing my personal profit target met, I got out. Total profit for the whole 15 day position was $19.  Not much, but apart from the time it's taken to write these updates, the whole thing took maybe 15 minutes of my attention.

The interesting thing with this whole exercise is it demonstrates how even with various bad calls, missed opportunities, forgetting about earnings and multiple adjustments, I still came out with a profit, which is what matters at the end of the day.  This is ultimately due to the options sellers' statistical edge, which comes in exchange for the willingness to take on risk others are trying to offload, and the willingness to give up the unlimited upside of a pure long stock position.

506211839_Screenshot2020-05-02at13_54_05.png.78f10692527ab4de89da8ce6e401cafa.png

Nice one M.I've learned I jsut need some study time.

It does seem very complicated.

It's not about the nominal profit for me but the percentage.You can add zeroes to tehse things.My own trades ar nudging up 20-50% but these are mdeium term holds to Jan 21 possibly.

My only break even is Alcoa but I've been really busy of late so struggled to get the time to put the time in.Desperate in a way to get some money on XOM but the calls rocketed last week.

WIll start building positions this week I hope as my uni work is finished for now.

Lets' keep thsi thread going as it's an invaluable resource and more trading specific than the big deflation thread.

Thanks for the time you've put in M.

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Posted (edited)
1 hour ago, sancho panza said:

@MvR

Just sizing up some shorts here.Poss AMZN/MSFT/AAPL.

We've had a nice run up,llooks overcooked.Possibly looking to Oct 20.

Could be, though personally I'm not seeing any negative divergence on the W%R(45) on the daily chart, so I won't be partaking at this point.. I don't tend to take short ( negative delta ) positions in stocks using options, though I sometimes think about it and then kick myself a little ( not much ) when the stock subsequently drops and I miss out on a nice trade :).

I short sometimes in my IG spread-betting account by focusing on short term 15m and hourly charts, Ichimoku and W%R(45).   I'll wait for clear negative divergence on the daily first, then the hourly ideally has to show some W%R divergence too, and at least be above -20, and Ichimoku must have a red cloud in future.  Then I'll look to the 15m, same indicators, and place a small short with a tight stop. I'll expect to get stopped out a few times before catching a real top.  I'm rubbish at exiting these sorts of trades though.. usually taking profits too early. 

If I'm taking short-biased positions in my income generating options trading account, I'll buy a slightly out of the money put spread ( long a near the money put, short a further away put ) aiming to pay 50% of the distance between the strikes... so if the strikes are $5 apart, I'll want to be paying about $2.50 per share for the combo. I'll move the strikes until this formula fits, then take profits if we reach 50% of my maximum profit. i.e. I pay $2.50 per share for the $5 wide spread ( $250 ) giving a max profit ( and max loss ) of $250, so when the spread is worth $3.75 a share ($375) I'm $125 in profit and exit the position. I'd generally do this a month to 2 months out.

Over a decent number of occurrences, it works out as if it were a 50/50 coin toss in terms of reward, but with sightly better than 50/50 probability of success due to the options dynamics and trade management strategy, and maybe even better odds with good TA.   It's not a strategy to make big profits on an individual trade though.

Edited by MvR

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Posted (edited)

Thought I'd share this one @sancho panza.

I'm seeing the tiniest hint of negative divergence in GLD on the W%R(45).. from the early April new high, to today....very subtle, and while I'm bullish gold, it's notorious for false breakouts, so I fancied a trade betting on a small pullback before heading higher.

708624723_Screenshot2020-05-15at19_24_38.thumb.png.6efaf7b5ce48bb13fa97c216b47de0c1.png

My GLD shares were called away, and I've already closed out the short 161 put of a Big Lizard (-161p/-161c/+163c) I've got on at the moment, so I can afford to take on some more downside risk too.

I want to bet on a small pullback, but also want to go long if we get that pullback. I also believe it might not pullback and instead carry on higher from here, so I don't want any risk to the upside if that happens.

So, a put ratio spread seems a good play here.  This is a long put, with two short puts further out of the money. I choose strikes that let me take the trade at close to zero cost.  In this case I bought a near-to-the-money 163 put expiring next Friday 22nd, and sold two 161 puts for the same expiry. In the end I paid 0.02 per share for the spread ( or $2 ), plus £4 in commissions, totalling $6.. close enough to zero for me.

1784666224_Screenshot2020-05-15at19_49_38.thumb.png.f38ffdcbe4b187d1a70b539569fe0f13.png

If GLD goes up, they all expire worthless and my max loss is that $6. If GLD ends next Friday at $161 ( and I hold them to expiration ), I achieve my maximum profit of the difference between the strikes, ($2 per share or $200), minus my initial cost ( $6 ), or $194 profit.

If GLD ends up below $161, I still get the $200 as my long put and one of the short puts combine to form a put spread which gives that $200 maximum profit, and the other short put will be exercised by the counter-party, meaning I'll be put 100 GLD at $161.

Overall then, my breakeven price level on the trade to the downside is $159, and below that I'll only be carrying a loss due to the GLD I'd have had put to me at $161. not a problem, since as I said, I'm bullish and happy to own it at that price. 

478685296_Screenshot2020-05-15at19_18_20.thumb.png.e7a2ec03658565c986b22e50679c8a82.png

GLD was trading at $164.50 when I put on the trade, and it's already pulled back a bit, but the position isn't showing a profit yet since the two short puts have expanded in value faster than my one long put. However, since they're further out-of-the-money, they will erode fast as time goes by, offering the chance for me to exit with a small profit even if we don't pull back.

Edited by MvR

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Thanks ever so much for the detail in your post.I'mworking nights on my two normal invesment work days this week.I'm so interested in thsi line of options trading you're intorducing but I think it needs some serious time on my part.

I went long some XOM calls last week,jsut in time,not a big piece of the pie but enough to give me a flavour.

STarngely,I decied over the weekend to curtail my PM exposure to SOuth Africa and sold some GFI/HMY/IAM at the start of trading.I felt it had had a strong run(gold) and hope to buy the pull back.Unwilling to risk dropping my exposure much more as I think the PM space will run again.Just funny you had similar thoughts.....

 

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Posted (edited)
17 hours ago, sancho panza said:

Thanks ever so much for the detail in your post.I'mworking nights on my two normal invesment work days this week.I'm so interested in thsi line of options trading you're intorducing but I think it needs some serious time on my part.

You're welcome :)

I notice X pulled back since I exited my position. it might have been interesting to see how the options vs stock played out, as the options would be quite a way ahead if I'd kept going with it.  I did put on another -7.5p/-7.5c/+8c Big Lizard in X the other day and that's $18 up.  Small change, but it all adds up.

Meanwhile, the GLD ratio spread is doing nicely. Both the long 163 put and the short 161 puts are still out of the money, so if we close Friday at these levels, it'll be a $6 loser overall, but for now the further-from-the-money 161 puts are eroding faster than the 163 put as expected, so the position is running a $17/£14 profit for now. 

1964485950_Screenshot2020-05-19at14_37_40.thumb.png.6909136fc0a24817d0a7ef2e98605607.png

17 hours ago, sancho panza said:

STarngely,I decied over the weekend to curtail my PM exposure to SOuth Africa and sold some GFI/HMY/IAM at the start of trading.I felt it had had a strong run(gold) and hope to buy the pull back.Unwilling to risk dropping my exposure much more as I think the PM space will run again.Just funny you had similar thoughts.....

No harm in taking some profits. one can always put in some new ladders of buy orders to get back in.  Sometimes I'll close out trades only to get back in later in the day, and the few hours out of the market give me chance to re-examine the situation without the emotional pressure of a trade in play. 

Edited by MvR

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On 19/05/2020 at 14:57, MvR said:

You're welcome :)

I notice X pulled back since I exited my position. it might have been interesting to see how the options vs stock played out, as the options would be quite a way ahead if I'd kept going with it.  I did put on another -7.5p/-7.5c/+8c Big Lizard in X the other day and that's $18 up.  Small change, but it all adds up.

Meanwhile, the GLD ratio spread is doing nicely. Both the long 163 put and the short 161 puts are still out of the money, so if we close Friday at these levels, it'll be a $6 loser overall, but for now the further-from-the-money 161 puts are eroding faster than the 163 put as expected, so the position is running a $17/£14 profit for now. 

1964485950_Screenshot2020-05-19at14_37_40.thumb.png.6909136fc0a24817d0a7ef2e98605607.png

No harm in taking some profits. one can always put in some new ladders of buy orders to get back in.  Sometimes I'll close out trades only to get back in later in the day, and the few hours out of the market give me chance to re-examine the situation without the emotional pressure of a trade in play. 

GLD hasn't taken much of a pull back M.Hows this trade gone?

Shares have been hit a bit today which is working out for my Monday sales

image.png.66e308b997504ef8f0c6b7bbc6b4e126.png

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10 hours ago, sancho panza said:

GLD hasn't taken much of a pull back M.Hows this trade gone?

I closed it out during the dip into the $161.xx area, meaning the long 163 put was well in-the-money, whilst the short 161 puts were out-of-the-money and mostly eroded away. I actually "legged" out of the combo, selling the 163 put first, and then buying back the 161 puts a little later after GLD had bounced a little.  I was exposed to more downside risk during that process, but was I was fine with that as it was within my personal exposure limit in this account. ( I am happy to be briefly long up to 300 shares, or short 3 puts )

Annoyingly I forgot to document the trade, but checking back on my statements, I made about £100.  I wish I'd taken screenshots now... sorry!

I'd mentally written off the trade and was considering closing it out for a small <$10 profit, but then I noticed the W%R(45) divergence that appeared on Wednesday on the hourly chart.

120418668_Screenshot2020-05-22at09_22_13.thumb.png.d4750680fd0f7b2a1b4ee0c72b6722c4.png

These divergences on the hourly are very reliable indicators of a swing high or low, which is why I decided to hold on to the trade and was able to exit for a nice profit when I did.

BTW, I never normally document the P&L of individual trades, partly because my trading activity has all the "badges of trade" required by HMRC for me to be considered "carrying out at trade", rather than speculating, which means  my profits count as income, rather than capital gains, and I can simply declare my mark-to-market P&L for the year on my tax return. As I previously mentioned, IB's reporting is very good, so even if I was declaring profits as capital gains, I can easily read the totals straight off their reports. 

Edited by MvR

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54 minutes ago, MvR said:

I closed it out during the dip into the $161.xx area, meaning the long 163 put was well in-the-money, whilst the short 161 puts were out-of-the-money and mostly eroded away. I actually "legged" out of the combo, selling the 163 put first, and then buying back the 161 puts a little later after GLD had bounced a little.  I was exposed to more downside risk during that process, but was I was fine with that as it was within my personal exposure limit in this account. ( I am happy to be briefly long up to 300 shares, or short 3 puts )

Annoyingly I forgot to document the trade, but checking back on my statements, I made about £100.  I wish I'd taken screenshots now... sorry!

I'd mentally written off the trade and was considering closing it out for a small <$10 profit, but then I noticed the W%R(45) divergence that appeared on Wednesday on the hourly chart.

120418668_Screenshot2020-05-22at09_22_13.thumb.png.d4750680fd0f7b2a1b4ee0c72b6722c4.png

These divergences on the hourly are very reliable indicators of a swing high or low, which is why I decided to hold on to the trade and was able to exit for a nice profit when I did.

BTW, I never normally document the P&L of individual trades, partly because my trading activity has all the "badges of trade" required by HMRC for me to be considered "carrying out at trade", rather than speculating, which means  my profits count as income, rather than capital gains, and I can simply declare my mark-to-market P&L for the year on my tax return. As I previously mentioned, IB's reporting is very good, so even if I was declaring profits as capital gains, I can easily read the totals straight off their reports. 

so when you talk about going short puts you mean writing them ?

It's a slow process M......:-)

No worries o0n the P&L/screenshtos.I'm sjut trying to get used to the logic which is quite complex to me on intial view.

My Uni essays get handed in this weekend so hopefully I'll have more time thereafter to get my head aroudn these techniques.

We still haven't heard back from IB ref application.Fees on Saxo are highish.

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20 minutes ago, sancho panza said:

so when you talk about going short puts you mean writing them ?

It's a slow process M......:-)

No worries o0n the P&L/screenshtos.I'm sjut trying to get used to the logic which is quite complex to me on intial view.

My Uni essays get handed in this weekend so hopefully I'll have more time thereafter to get my head around these techniques.

We still haven't heard back from IB ref application.Fees on Saxo are highish.

Yes.  Being short a put means I wrote/sold it, which means I can be put the stock, and therefore have risk to the downside, similar to a simple long stock position.  

I can see how the terminology can be confusing to start with, but once you get it, it really is far simpler than it initially appears! :) 

Once you've got your account set up, the best way to learn is just to make some small, fixed risk trades in cheap stocks, and watch how they move. X, being under $10, is ideal for this. I'll happily suggest some specific trades for you copy.

Edited by MvR

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