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MvR's Options Trading Thread


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With a few people showing interest learning to trade options, I've started this thread as a place for everything options related so as not to clutter up other threads.  It should also make the info easier to find rather than having to dig through DB's excellent deflation / reflation thread.

To start with, here's a a couple of great learning resources.  The first, TastyTrade, is the media and eduction arm of TastyWorks, a US based options and futures brokerage set up by a group of former pit traders.  They have some great courses for absolute beginners .. all of them are free. Just click on the Learn link to find them.

https://www.tastytrade.com/tt/

The second is Option Alpha,  a YouTube channel dedicated to the same subject, describing the same sort of strategies.  I get the feeling the Option Alpha guy learned from TastyTrade given the similarities. All the beginner's stuff you really need to know is free. You really don't need to pay a penny to learn this stuff.

https://optionalpha.com

https://www.youtube.com/channel/UCQAvjhqp559qSQx2dcg9WVg

One problem with most books and online options education is that whilst they describe the strategies well,  actually putting the strategies into practice can feel like a scary step into the unknown. Therefore I'll be adding my own material too, based on my own real-life trading, to help demonstrate how it all works in practice. 

For now, here's a link to a thread I started a while back, but I intend to continue on this thread from now on. 

 

Edited by MvR
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On 29/08/2020 at 17:24, MvR said:

With a few people showing interest learning to trade options, I've started this thread as a place for everything options related so as not to clutter up other threads.  It should also make the info easier to find rather than having to dig through DB's excellent deflation / reflation thread.

To start with, here's a a couple of great learning resources.  The first, TastyTrade, is the media and eduction arm of TastyWorks, a US based options and futures brokerage set up by a group of former pit traders.  They have some great courses for absolute beginners .. all of them are free. Just click on the Learn link to find them.

https://www.tastytrade.com/tt/

The second is Option Alpha,  a YouTube channel dedicated to the same subject, describing the same sort of strategies.  I get the feeling the Option Alpha guy learned from TastyTrade given the similarities. All the beginner's stuff you really need to know is free. You really don't need to pay a penny to learn this stuff.

https://optionalpha.com

https://www.youtube.com/channel/UCQAvjhqp559qSQx2dcg9WVg

One problem with most books and online options education is that whilst they describe the strategies well,  actually putting the strategies into practice can feel like a scary step into the unknown. Therefore I'll be adding my own material too, based on my own real-life trading, to help demonstrate how it all works in practice. 

For now, here's a link to a thread I started a while back, but I intend to continue on this thread from now on. 

 

Thank you MvR. This looks just what I was looking for (not that I had any idea really what i was looking for tbh!). I have begun reading through the content. 

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42 minutes ago, sancho panza said:

OK dyodd and all that but throwing a question out there.If tehre's going to be a melt up to 4500 on the S&P by start jan,

what are the leveraged single stock options to play it with.

being me,I'm thinking oil big small medium.

poss copper.

I haven't looked at single stock options for the melt up, but I bought 5x November 20th 385-420 SPY call spreads just before the close yesterday.. crazy by my standards, but having tried spread-betting to get into a position for a melt-up, and being stopped out, I thought what the hell. Even I take crazy low-probability gambles occasionally.

David Hunter's original "3500 by Labor Day" worked out, and now he's calling for 4200-4500 by the election, so these are the most leveraged gamble I feel comfortable with on that potential outcome. 

Low probability of success, but big payout if they work out, and if I can stick with them.

These sorts of plays on David's calls, with profits taken (often too) early are how I grew my speculative account from $4300 to $17500 over the last 18 months.

I also bought 5 x March 400 calls. When I buy long calls, I like to give them more time than I think I need.. hence March, not January.

1270887461_Screenshot2020-09-09at20_28_00.thumb.png.295a180095aa2eeab804c589537b793d.png

As it happens, I'm up about 60-70% on them today, which is nice.

As a rule, if I am buying calls for a long-shot gamble like this, I like to buy they twice as far out in the future as I think the move will take, around the .10 delta area.

I assume they'll be losers, so play-money only.

 

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44 minutes ago, MvR said:

I haven't looked at single stock options for the melt up, but I bought 5x November 20th 385-420 SPY call spreads just before the close yesterday.. crazy by my standards, but having tried spread-betting to get into a position for a melt-up, and being stopped out, I thought what the hell. Even I take crazy low-probability gambles occasionally.

David Hunter's original "3500 by Labor Day" worked out, and now he's calling for 4200-4500 by the election, so these are the most leveraged gamble I feel comfortable with on that potential outcome. 

Low probability of success, but big payout if they work out, and if I can stick with them.

These sorts of plays on David's calls, with profits taken (often too) early are how I grew my speculative account from $4300 to $17500 over the last 18 months.

I also bought 5 x March 400 calls. When I buy long calls, I like to give them more time than I think I need.. hence March, not January.

1270887461_Screenshot2020-09-09at20_28_00.thumb.png.295a180095aa2eeab804c589537b793d.png

As it happens, I'm up about 60-70% on them today, which is nice.

As a rule, if I am buying calls for a long-shot gamble like this, I like to buy they twice as far out in the future as I think the move will take, around the .10 delta area.

I assume they'll be losers, so play-money only.

 

Yeah thats my view M.Nice result from last night.Taking some calls/puts is way more efficient than traidng spread bets imho

I was running through davids video again last night and the reason its spurred me to trade here(or at least have a little punt) is that it concurs unaccannily with my own propsective read of the situation.AS Ive said variously,the reciprocal signs of a dollar bottom aren't there.some big names calling it but I'm not.Meaning we could squeeze higher here with some sector rotatiomn.particualrly in the commodity space.

I liquidated some winning PM positions last week,goign to reinvest the originial stake in a few-what i hope to be late runners eg BVN/EGO/NCM/RIO2-then the rest is profit for some long shots.I believe this is a market for some long shots.instead of buying 100 shares,I'll jsut buy a few out of the moeny options and preserve a little cpaital.

I was checking XOM 45/50,X 10 (my alcoa and FCX are up too much already for me to chase further).

IN a wya I'm looking for one or two slightly edgy bets with a resaonable chance of coming in.XOM $60.???I looked at OXY a while back but the sheer cost of the options (clearly pricing in some volatility) makes the trade unfeasible.

MY background is these sorts of trades with winnings,if you make 50% on a trade then why not take a run at somehting.

Maybe the indices is the trade here,but I jsut orefer the single stocks

any ideas welcomed.

jsut to add my current 4 XOM punts are down 70%.........

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15 hours ago, sancho panza said:

Yeah thats my view M.Nice result from last night.Taking some calls/puts is way more efficient than traidng spread bets imho

I was running through davids video again last night and the reason its spurred me to trade here(or at least have a little punt) is that it concurs unaccannily with my own propsective read of the situation.AS Ive said variously,the reciprocal signs of a dollar bottom aren't there.some big names calling it but I'm not.Meaning we could squeeze higher here with some sector rotatiomn.particualrly in the commodity space.

I liquidated some winning PM positions last week,goign to reinvest the originial stake in a few-what i hope to be late runners eg BVN/EGO/NCM/RIO2-then the rest is profit for some long shots.I believe this is a market for some long shots.instead of buying 100 shares,I'll jsut buy a few out of the moeny options and preserve a little cpaital.

I was checking XOM 45/50,X 10 (my alcoa and FCX are up too much already for me to chase further).

IN a wya I'm looking for one or two slightly edgy bets with a resaonable chance of coming in.XOM $60.???I looked at OXY a while back but the sheer cost of the options (clearly pricing in some volatility) makes the trade unfeasible.

MY background is these sorts of trades with winnings,if you make 50% on a trade then why not take a run at somehting.

Maybe the indices is the trade here,but I jsut orefer the single stocks

any ideas welcomed.

jsut to add my current 4 XOM punts are down 70%.........

The option punts I have done are mainly on index Oct and Nov calls I thought this seemed the best way. I also have done  some XOM/FCX  and a little Chevron. 

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Just been sizing up some options for comparative purposes to recycle some profits into some directional bets.

FRES Mar 21 @1840=41p

RDSB Mar 21 @1200=41p

BP Mar 21@300=10.5

So Fres currently 1345,effectively 37% out of the moeny asking 3%

BP 15% out of the money(ootm) costs 4%

RDSB 16% ootm@1200 costs 4%......

Total 11% ootm @3600 costs 93 aka 2.8%

Checked Saxo but couldn't buy Repsol.Only Eni you can get is for the ADR.

 

Interesting times.OXY at $10 draws me in but last time I checked the prices they were a pricey punt.

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3 hours ago, sancho panza said:

Just been sizing up some options for comparative purposes to recycle some profits into some directional bets.

FRES Mar 21 @1840=41p

RDSB Mar 21 @1200=41p

BP Mar 21@300=10.5

So Fres currently 1345,effectively 37% out of the moeny asking 3%

BP 15% out of the money(ootm) costs 4%

RDSB 16% ootm@1200 costs 4%......

Total 11% ootm @3600 costs 93 aka 2.8%

Checked Saxo but couldn't buy Repsol.Only Eni you can get is for the ADR.

Interesting times.OXY at $10 draws me in but last time I checked the prices they were a pricey punt.

 

I guess apart from OXY those are UK or European traded options?  I only do US ones as you know.  I suppose liquidity is much less of an issue with longer term options ( also known as LEAPS - Long-term Equity AnticiPation Securities.. there's a tenuous acronym if ever there was one!  )

I like the liquidity on the shorter term OXY options though, so it would be easy to fund some long term OXY calls with shorter term Big or Jade Lizards, or even straddles or strangles. I'll have a closer look. 

Edit: Not all in one go, but rolling the short term short options over every week/month or whatever timescale I go for.

 

Edited by MvR
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1 hour ago, MvR said:

I like the liquidity on the shorter term OXY options though, so it would be easy to fund some long term OXY calls with shorter term Big or Jade Lizards, or even straddles or strangles. I'll have a closer look. 

OK. just a small play, the way I like them.  I may add more. 

1 x Jan 2022 $10 call at 3.10, and a -10p/-10c/+11c Big Lizard 28 days out for 1.12.  

1942795643_Screenshot2020-09-11at19_26_09.thumb.png.7185cb5d1415d3398c2d14da5de82494.png

Current total delta of 89.27 ( i.e. equivalent to 89 shares ), and a theta of 1.054, so just over a dollar a day time decay in my favour.

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1 hour ago, MvR said:

 

I guess apart from OXY those are UK or European traded options?  I only do US ones as you know.  I suppose liquidity is much less of an issue with longer term options ( also known as LEAPS - Long-term Equity AnticiPation Securities.. there's a tenuous acronym if ever there was one!  )

I like the liquidity on the shorter term OXY options though, so it would be easy to fund some long term OXY calls with shorter term Big or Jade Lizards, or even straddles or strangles. I'll have a closer look. 

Edit: Not all in one go, but rolling the short term short options over every week/month or whatever timescale I go for.

 

to be fair M,I'm struggling to balance all my daily obligations with the tehcnical stuff I need to learn for options trading but im trying here:)

I do now what a straddle is  but for the straddle to work then you need the underlying to move more than the premium?

ergo oxy at $10,$1 for the call and put at $10.OXY moves to $12 you make money.OXY stays range bound between 9-11 and then you lose.AM I right there.?

worth noting the bid offer on BP and RDSB is pretty good for uk markets.COuld be a safer trade here than jsut buying the calls.

 

OXY currently showing $10.22,......129 the oct 30 call@10,put 109.

STarddle would see you buy both and hope it goes beneath $9.13 or above $11.49.

 

big lizard would see you sell the straddle above then add a further out of the moeny call say $0.21 call @$14

in this scenario we basically get paid out if it goes up.

 

the jade lizard would see us sell the strangle say call @0.52 @11 and the put $0.58 @9 adding an ootm call???

doesn't seem like there's much to go for untill you go past six weeks.

 

if I was looking to trade tsla..........dont know what it's going to do but move violently.then buying the straddle would make sense non?

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1 hour ago, sancho panza said:

to be fair M,I'm struggling to balance all my daily obligations with the tehcnical stuff I need to learn for options trading but im trying here:)

I do now what a straddle is  but for the straddle to work then you need the underlying to move more than the premium?

ergo oxy at $10,$1 for the call and put at $10.OXY moves to $12 you make money.OXY stays range bound between 9-11 and then you lose.AM I right there.?

worth noting the bid offer on BP and RDSB is pretty good for uk markets.COuld be a safer trade here than jsut buying the calls.

 

OXY currently showing $10.22,......129 the oct 30 call@10,put 109.

STarddle would see you buy both and hope it goes beneath $9.13 or above $11.49.

 

big lizard would see you sell the straddle above then add a further out of the moeny call say $0.21 call @$14

in this scenario we basically get paid out if it goes up.

 

the jade lizard would see us sell the strangle say call @0.52 @11 and the put $0.58 @9 adding an ootm call???

doesn't seem like there's much to go for untill you go past six weeks.

 

if I was looking to trade tsla..........dont know what it's going to do but move violently.then buying the straddle would make sense non?

I'd sell the straddle, not buy it,  just as I sell the straddle in the Big Lizard, so I'd be hoping the stock doesn't move much whilst I have the straddle on.  Using your numbers, I'd want the stock to stay between $9.13 and $11.49.  

This does leave me with some risk to the upside if the stock moves up too much, but the long dated long call compensates for this to an extent.

I could also adjust the straddle by rolling the short put up a few strikes, increasing my breakeven to the upside, or roll the whole straddle out into future.

You're right that there's not much profit to be had unless you go a few weeks out.. this is the downside with selling options on lower priced stocks.  

For this reason, it may be better just to sell a put instead, so you keep the entire premium as long as the stock closes above the strike price. Saves a lot of commission this way too.

If the stock looks likely to close below the strike price, just buy it back and sell one at the same strike a week or so further out. 

Or you could treat you long dated long option (LEAP) as if it were 100 shares of stock, and sell a call against it. This is called a "poor man's covered call".. similar P&L curve to a covered call ( long stock and short call), but requires less capital.

As for TSLA.. you might get lucky, but as a rule, never buy straddles or strangles. The odds just don't favour you, since any expected volatility is already priced in to the options. ( and usually over-priced, which is where my edge comes from ).  The are for selling, not buying.

If you're not sure about direction, and implied volatility is high, it's better to sell a straddle or strangle. If that means exposure to too much risk, you can buy a protective call and put further out, forming an iron fly ( if you buy these around a short straddle), or an iron condor ( if you buy them around a short strangle ).

I put something similar on in GLD today.. in this case a "broken-wing iron fly".. essentially a Big Lizard ( so no upside risk ) with an extra protective put below.  This doesn't protect me entirely to the downside, but I'm not as exposed as much as if I had no downside protection. It also reduces the capital requirement for the trade. 

I'll take the position off if it reaches 25% of it's max profit of 5.40 or $540.

1401637067_Screenshot2020-09-11at21_28_07.thumb.png.9f26fcc0400c42d3d4a4756b5c680dab.png

741896049_Screenshot2020-09-11at21_26_45.thumb.png.9c80b0c7ae99f5c9c09eac889aa6e985.png

681514227_Screenshot2020-09-11at21_28_32.thumb.png.8481e86903e38c324d987b53036fe89b.png

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26 minutes ago, MvR said:

I'd sell the straddle, not buy it,  just as I sell the straddle in the Big Lizard, so I'd be hoping the stock doesn't move much whilst I have the straddle on.  Using your numbers, I'd want the stock to stay between $9.13 and $11.49.  

This does leave me with some risk to the upside if the stock moves up too much, but the long dated long call compensates for this to an extent.

I could also adjust the straddle by rolling the short put up a few strikes, increasing my breakeven to the upside, or roll the whole straddle out into future.

You're right that there's not much profit to be had unless you go a few weeks out.. this is the downside with selling options on lower priced stocks.  

For this reason, it may be better just to sell a put instead, so you keep the entire premium as long as the stock closes above the strike price. Saves a lot of commission this way too.

If the stock looks likely to close below the strike price, just buy it back and sell one at the same strike a week or so further out. 

Or you could treat you long dated long option (LEAP) as if it were 100 shares of stock, and sell a call against it. This is called a "poor man's covered call".. similar P&L curve to a covered call ( long stock and short call), but requires less capital.

As for TSLA.. you might get lucky, but as a rule, never buy straddles or strangles. The odds just don't favour you, since any expected volatility is already priced in to the options. ( and usually over-priced, which is where my edge comes from ).  The are for selling, not buying.

If you're not sure about direction, and implied volatility is high, it's better to sell a straddle or strangle. If that means exposure to too much risk, you can buy a protective call and put further out, forming an iron fly ( if you buy these around a short straddle), or an iron condor ( if you buy them around a short strangle ).

I put something similar on in GLD today.. in this case a "broken-wing iron fly".. essentially a Big Lizard ( so no upside risk ) with an extra protective put below.  This doesn't protect me entirely to the downside, but I'm not as exposed as much as if I had no downside protection. It also reduces the capital requirement for the trade. 

I'll take the position off if it reaches 25% of it's max profit of 5.40 or $540.

1401637067_Screenshot2020-09-11at21_28_07.thumb.png.9f26fcc0400c42d3d4a4756b5c680dab.png

741896049_Screenshot2020-09-11at21_26_45.thumb.png.9c80b0c7ae99f5c9c09eac889aa6e985.png

681514227_Screenshot2020-09-11at21_28_32.thumb.png.8481e86903e38c324d987b53036fe89b.png

You can see why I've stuck to covered call and puts in the past,with the odd 'punt'. here and there.I really need to find some time to get my head around the strategies you tlak about M.

I realsie it's not complicaed but it is when you say it fast:)

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10 minutes ago, sancho panza said:

I realsie it's not complicaed but it is when you say it fast:)

LOL.. I know exactly where you're coming from.. I probably try to fit far too much into a written explanation!

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Just a quick shout out to you guys as I expressed an interest in options trade couple weeks back and just wanted to say I'm still 'lurking'! I now have a OptionsAlpha account as MvR helpfully recommended them for the education videos so will slowly work way through some of that. I realise I will need to open an actual trading account at some stage to 'test the waters', but at present am having to mainly sort my main portfolio, but will do so after that. Anyway I will definitely continue visiting here, and I'm sure I shall soon have some painfully rudimentary questions to ask!!

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15 hours ago, JMD said:

Just a quick shout out to you guys as I expressed an interest in options trade couple weeks back and just wanted to say I'm still 'lurking'! I now have a OptionsAlpha account as MvR helpfully recommended them for the education videos so will slowly work way through some of that. I realise I will need to open an actual trading account at some stage to 'test the waters', but at present am having to mainly sort my main portfolio, but will do so after that. Anyway I will definitely continue visiting here, and I'm sure I shall soon have some painfully rudimentary questions to ask!!

It's good to familiarise yourself with it first.

I'm strictly playing long calls at the minute ie buying the call not writing.I have some up 600% some down 80%.You need to get sued to thsoe swings first.

What M does is bring an element of risk manamgement in so that it allows for a much more conservative strategy than I run.Hence I only play with some profits at the mo.

 

@MvR I'm opened up on IB,can't find the trading screen tho :ph34r:B|,where is everything?I'll do some you tubing on it.

 

@Cattle Prod couldn't resist a few BP mar 21 calls at 290/300 jsut now.Save myself the capital.

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15 minutes ago, sancho panza said:

@MvR I'm opened up on IB,can't find the trading screen tho :ph34r:B|,where is everything?I'll do some you tubing on it.

lol.. I wondered when you'd get to that stage.. damn confusing when you start out isn't it?  Don't worry, it's all about setting up the Trader Workstation software so it's optimised for what you're planning to do, and hide the 95% of features you won't need.

This definitely calls for a video, which I'll make and upload tonight. Depending whether you're on Mac or PC, there are two different setups I'd describe as optimal for options trading. One using the "Classic" style, and one based on the "Mosaic" style.

I prefer the Mosaic style, with everything on one "page", but it runs painfully slowly on my old Mac laptop, so I tend to use the Classic layout myself.  I'll try to demonstrate both, but I'll start with the Classic version. 

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3 hours ago, MvR said:

lol.. I wondered when you'd get to that stage.. damn confusing when you start out isn't it?  Don't worry, it's all about setting up the Trader Workstation software so it's optimised for what you're planning to do, and hide the 95% of features you won't need.

This definitely calls for a video, which I'll make and upload tonight. Depending whether you're on Mac or PC, there are two different setups I'd describe as optimal for options trading. One using the "Classic" style, and one based on the "Mosaic" style.

I prefer the Mosaic style, with everything on one "page", but it runs painfully slowly on my old Mac laptop, so I tend to use the Classic layout myself.  I'll try to demonstrate both, but I'll start with the Classic version. 

anything gratefully received.

I run wondows.Have a dual screen set up.

Saxobank/Interactive brokers all easy to use.....IB is obviously a bit more of a pro's site as there's a test to see if you can get to the front door.

4 hours ago, sancho panza said:

It's good to familiarise yourself with it first.

I'm strictly playing long calls at the minute ie buying the call not writing.I have some up 600% some down 80%.You need to get sued to thsoe swings first.

What M does is bring an element of risk manamgement in so that it allows for a much more conservative strategy than I run.Hence I only play with some profits at the mo.

 

@MvR I'm opened up on IB,can't find the trading screen tho :ph34r:B|,where is everything?I'll do some you tubing on it.

 

@Cattle Prod couldn't resist a few BP mar 21 calls at 290/300 jsut now.Save myself the capital.

added some XOM Apr 21 40/45

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8 hours ago, sancho panza said:

anything gratefully received.

I run wondows.Have a dual screen set up.

Saxobank/Interactive brokers all easy to use.....IB is obviously a bit more of a pro's site as there's a test to see if you can get to the front door.

Ok SP...I've just made a few attempts to record a video, and aborted them all as I realised I was rambling on about possibly insignificant details, whilst missing key points you may need.... a bit like my written options explanations...xD

Basically, I need live feedback when I'm explaining something.  This needs to be a conversation, not a lecture. :) 

Let's arrange a time when we can do zoom call / screen share, and I can show you how to set things up based on your questions.

I can then either post a suitably edited recording here ( with password DM'ed to interested parties to protect our privacy ), or, and this would be my preference, arrange another time for a larger group session for anyone here who's interested.

For now though, here's a quick glimpse of my layout. I use 3 tabs.  

1. One showing the Classic TWS view, where I look at my portfolio, watch lists etc. I don't normally open trades from this page, unless it's a pure stock position, but I often close out positions here.. just right click on the instrument name and select "close"

640531944_Screenshot2020-09-17at05_19_05.thumb.png.6dfe655d415f92d83c2632ff99b8e64d.png

2. One showing just the Options Trader page, where I enter all my opening orders. If you're opening a combo like the Big Lizard, you select Strategy Builder in this page, then click on the bid or ask of a given option in the option chain to add that to the combo order.

114764262_Screenshot2020-09-17at05_20_27.thumb.png.f8ff04b34096335f011f375e1bee72e3.png

3. One showing the Portfolio Risk page, which I don't use for much, but look at occasionally.

1176172843_Screenshot2020-09-17at05_22_21.thumb.png.e9573ec0311b9abf7b4677d00f1310e8.png

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