optionsjunky

Economic Armageddon

2011-07-11T23:31:00.001-07:00

UNG Calendars

2010-02-06T07:56:00.000-08:00

BUY +10 CALENDAR UNG 100 JUL 10/APR 10 10 PUT @.42 LMT

Since this piece of junk has not moved and the skew seems favorable. Will try this calendar spread just to make it move!!! Ha ha hhahahahha.

Do note the perceived range is bewteen 9 and 11
for many months, as shown on the chart. $500 max risk to find out if there's any more in the pot. Profit target 20% after commish. Shorts are in apr so it will be slow going. Alerts set for just below 11 and above 9. If this thing moves toward those two points quickly. Some actions will be required.

1929 thru 1932 crash

2009-03-08T13:02:00.001-07:00

click on image to enlarge

Big 3 Bailout

2008-12-18T18:20:00.000-08:00

Someone sent me this, click on image to enlarge.

The Great Crash

2008-11-30T10:26:00.000-08:00

Here is a comparison (for entertainment only) between the crash of 1929 and 2008. Note how the first leg down so far in 08 bear similarity to 29' in that both crashed about 50% from its high at this point in the calendar year.

In 29' the weekly chart shown climbed back up to the 50% fib level b4 failing again in Apr. of 1930.

The 50% retrace level for modern day dow chart to the right would be about 10800, right at one of the weekly resistant points.

I am also recommending The Great Crash, by John Kenneth Galbraith.
If you are lazy like me, look for the audio version of the book.

A tale of a S**tibank employee

2008-11-26T07:25:00.000-08:00

Saw this posted in a chat room
--------------------------------------

The youthful and enthusiastic Chuck moved to Texas and bought a donkey from a farmer for $100. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, Sorry son, but I have some bad news: "the donkey died".

Chuck replied, Well, then just give me my money back. The farmer then said, Can't do that; I have spent it already. Chuck added, Ok, then just bring me the dead donkey. The farmer then asked, What ya gonna do with him? Chuck replied, I'm going to raffle him off. The farmer said, You can't raffle off a dead donkey! Chuck countered, Sure I can. Watch me. I just won't tell anybody he's dead.

A month later, the farmer met up with Chuck and asked, What happened with that dead donkey? Chuck said - I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $998 while recovering my initial investment of $100.

The farmer asked, Didn't anyone complain? Chuck replied, Just the guy who won. So I gave him his two dollars back.

Chuck went on to work for S**tibank's investment banking unit where he designed and sold packaged product investments including S&P triple-A rated collateralized mortgage obligations, CDOs and CMBSs. They were easy to sell to Morgan Stanley and especially easy to dump at Wachovia and Lehman Brothers. It was all a huge success while it lasted.

IV behavior observation

2008-07-05T09:20:00.000-07:00

Text book implied volatility behavior states:

Stock down, IV up.
Stock up, IV down.

From personal experience, this behavior is more fitting for broad mkt indices
and does not necessarily apply to individual stock options.

Here is an example, RIMM post earnings (earnings out 6/25).
News out, stock gapped down and continued down, yet IV going down.

I see this behavior quite often after any kind of news out on stock options. Even tho stock is down or tanking, the uncertainty and interest in them options fade quickly. Astute traders may be able to pickup some back month vol if this fade is overdone towards buy levels, for a quick vega play.

Is this happening at your workplace?

2008-06-30T23:02:00.000-07:00

The Giant Pool of Money

2008-06-04T22:10:00.000-07:00

This from one of my favorite radio shows. This is THE BEST show describing what the hell the current Credit Crisis is about. (1 hour audio podcast) Enjoy!!

http://www.thislife.org/Radio_Episode.aspx?sched=1242

Don't freak out over assignment

2008-05-18T19:54:00.000-07:00

18:54 chatter: I have a dumb question when do you have to sell options? Is the second to last thursday of the month?
18:54 junky: you can sell options at any time.
18:55 chatter: I meant by when do you have to?
18:55 junky: u mean by expiration,
18:56 chatter: Yes
18:56 junky: even at expiration there are no requirements that you HAVE TO sell an option.
18:56 chatter: wont it expire if I dont?
18:56 junky: if its in the money at expiration and you do nothing you will just receive long or short stock come monday morning.
18:57 junky: if its out of the money, they will expire worthless. and no further action required.
18:57 chatter: ok but for this month experation I have till this thursday?
18:58 junky: what stock?
18:58 chatter: pot
18:59 junky: you had till Friday close.
18:59 junky: how much in the money (ITM) was it.
18:59 chatter: so since it was in the money then I jusr recieved the money so to speak?
19:00 junky: was it calls?
19:00 chatter: yes
19:00 junky: and did it finish ITM?
19:00 junky: what strike was it.
19:01 junky: holder of calls, have the right to buy stock at the strike price.
19:01 chatter: 190 or 195
19:01 junky: so at expiration, if the holder of itm calls do nothing, u are basically indicating that you would like to have stock delivered at the strike price.
19:02 junky: so come monday morning x number of long stock will appear in your account.
19:02 chatter: so now what do i do?
19:02 junky: how many calls
19:02 chatter: 5 contracts
19:02 junky: so 500 shares of pot.
19:03 chatter: yes
19:03 junky: you have 98k in acct to hold the stock?
19:03 chatter: no
19:03 junky: then just sell it after mkt opens.
19:03 junky: so you dont have to meet margin call.
19:04 chatter: ok so then everything is ok?
19:04 junky: you may want to contact the trade desk b4 the mkt opens, and I emphisize B4.
19:04 junky: bec. your acct will say something to the effect of insufficient funds come monday morning.
19:04 junky: dont freak out.
19:04 junky: just work with the desk.
19:05 chatter: ok it already does
19:05 junky: oh ok.
19:05 chatter: thats what freaked me out
19:07 chatter: I wont lose any money on this will I?
19:07 junky: depends.
19:07 junky: your stock cost basis is the strike price + whatever u paid for the calls.
19:07 junky: so it depends on where the stock opens monday morning.
19:08 chatter: got it. So I may loose a little depending on where it opens
19:08 junky: right.
19:08 chatter: got it thanks for the help.

The jokes are on us

2008-02-03T08:29:00.000-08:00

I frequently see folks talk about TV personalities mention that they are long xyz stock or own ABC options, as part of a fair disclosure.

Lets take a deeper look at the so called fair disclosure.

If the screen caption flashes that he owns ABC options, what does that mean?
Does it mean he is long calls? (bullish)
Does it mean he is long puts? (bearish)
Does it mean he is long both? (neutual, expeting big move either way or long IV)
Does it mean he is short options naked? (calls or puts, cant tell the sentiment)
Does it mean he owns options of some kind, can be long or short, against the underlying? (could be any kind of sentiment)
Do you see the endless possibilities of that singular disclosure now?

Alright, lets pick on the caption flashing he owns xyz stock presumably long:
Does it mean he owns no options against the stock? Bec. if he is also long puts then he synthetically have long calls on xyz, not long stock. Alright, maybe he has collared the stock with long puts and short calls against the stock, now he is not as bullish as the caption says, is it.
Or,
Maybe the long xyz is part of a pairs trade against another correlated stock, or another basket of stocks. Or do they short a sector ETF hedging against the long stock? Do they also have index futures hedging against the pairs basket? Is the long stock simply a tiny position of a larger agenda, with a complete different goal than relying on xyz to go "up" to profit?

We don't know do we.......

The jokes are on us retail viewers, try not to get sucked into it.

Do you love trading?

2007-12-02T10:47:00.001-08:00

We all know the type.

The super analytical economist/political commentator that can explain ANYTHING with the happenings of the market.
The ones that have tried multitudes of advisories/gurus/seminars.
The ones that have used most data packages that you can name in one sitting. The ones that you see in your local meetings year in and year out.

But when you get down to the nitty gritty……Da guy hasn’t made a trade on his own for years……

How about this type:

The same type that frequents the political rooms, the one that can reason economic policy and geopolitics with perfection. The same guys that shorted the mkt all the way up, and finally went long near the top, and holds all the way down. The need to be right far outweigh the need to make money for these types. They are too smart to admit they are wrong. In their mind, they are bigger than the market.

WTF!!!!

How can such talented individuals, with all that “experience” not be
“banking it”? Surely, anyone can figure out the marketplace in 2-5yrs time, or can they……

Trading is a tough business!!!!!!!! If all it took was talent and access to readily available tools, your much smarter neighbor/co-workers/relatives would be rich by now. But such is not the case. Ask yourself why that is?

To the type 1 guys I named above: look dude, I know you have “invested” a lot of dough and time into this thing, and you know just about anything and everything there is to know with options strategies/psychology/$mgmt bla bla. But you dread losing, you dread stepping up to the plate, you dread making independent decisions, you hate even more when u do have a winning trade bec. u know u will painfully give it back next week. You even cringe when other people make winning trades. Have you ever considered maybe trading is not for you after all? Or perhaps u just need to be a bit more organized and focus on 1 thing and not spread out too thin? I know at times I fail to see the forest from the trees until a fellow trader points out the obvious. Or finally, get off your high horse and try something else (strategy wise), bec. what you have been dwelling on surely hadn’t been workin’!!!! If this is not what you love doing, whether winning or losing, it will be painful and costly sticking it out in the long haul. Remember what your high school counselor preached? Find a field that you may be interested in for a career. Why did the counselor say that? BECAUSE ITS EASIER IF YOU LOVE WHAT YOU DO IN THE LONGGGGGG HAULLLLLL!!!

To the 2^nd type of geniuses I named above: man you are doing a great job fueling the trend by providing liquidity on the way up and holding the bag on the way down. Please keep doing what you are doing because u obviously are not here to take dough from the mkt, and you have an endless supply of money to contribute. Bravo.

Subprime

2007-10-24T10:24:00.000-07:00

Its My Turn Now

2007-09-29T23:15:00.000-07:00

From the hit Disney movie Jumpin comes the hit song performed
by Keke Palmer. You may know Keke from Akeelah and the Bee (2006).

Check out the lyrics on this youtube clip. Every bit as inspiring for the traders
that are ready to take on the adventure.

The original non-lyric video can be viewed here

The fever will break

2007-09-18T22:18:00.000-07:00

This excerpt clip from CBS 60 Minutes on Alan Greenspan aired on 9-16-07 , on economic future. More clips from that show are out there on CBS.com or by clicking on the MENU button on the bottom right of the video.

Perfect conditions

2007-08-30T23:38:00.000-07:00

I live about 30 min from the coast. Being here in Northern California the beaches are not exactly inviting at all times. During summer months the water temp persists in the 50s with frequent fog lingering along the coast. That means 50s-60s at the beach not counting any wind chill.

So to ensure pleasant experience for my family, we head to the beach with the little ones only when:

Its scorching where I am, in the 90s.

and

Its at least 70s at the coast, overcast ok.

and

Wind less than 10mph at the coast

and

At least 2 hours of day light to accommodate for possible traffic

Optional filters

Weekday a plus, no crowds (best visits turn out to be weekday visits)
Low tide a bonus
Small to calm wave action a bonus

If the conditions don’t pan out but it’s scorching, plan B is always head for one of the inland lakes. Its about an hour out but it’s an alternative.

Today was such a day for the beach. Had a great time at the beach with family, no crowds, no wind, low tide, calm waters. There were plenty of mole crabs (a.k.a. flea crabs) as you dig thru the sand. They don’t bite and kids loved them.

I wait for the perfect condition b4 making a trek to the beach.

Another way to think about this is I wait for the conditions to COME TO ME or I do something else.

Do you have your criteria for the perfect trade setup?

Do you absolutely DEMAND for the right conditions b4 entering a trade?

Do you wait for the market to come to YOU or you don’t trade?

Among other trades, I have been stalking a particular ONXX ratio back spread for a few days.
I am firm on my limit entry price or I am willing to let it go. Its getting too close to options expiration for the sept spreads.

Amazing AMZN

2007-05-28T08:01:00.000-07:00

AMZN daily chart.

What are the chances for AMZN to stay in-between 65.24 to 70.73 by June expiration, in 18 days?

How about this one........

What are the chances for AMZN to close below 65.24 or above 70.73 in 18 days?

I pondered on the 2nd question and executed the following trade on 5/25 just moments b4 the close. (click on image to enlarge)

As long as AMZN is outside of 65.24 to 70.73 I can't lose.

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Trading options may involve significant risk of capital. Trades posted here should be considered for informational or entertainment purposes only and not actual trading advise. Please consult your licensed broker or advisor before placing any trades.
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6-11 trade update

At 10:11 am EST today I bot back 5x of the jun 72.5p for 1.35 each (originally sold for 4.75 each). Taking some $$ off the table and most importantly, reduced my max risk considerably.
Cumulated P/L shown below.

6/12

Towards the close sell to close 5x jun 67.5p for .25 a piece to reduce decay against me.

6/13
exited 2x 72.5/67.5p spread for 1.94 ea at around 10:15am EST. Upper wing is done all with profit. Entering a limit sell order for .15 10x 67.5/65p to exit the lower wing. Any recoup from the lower wing at this point I consider a bonus.

Exited 10x 67.5/65p spread for .15 a piece on that dip intraday. Limit order executed at 1:09 EST. I am all out with +$460 for 20% return (max margin was $2250).

Candlestick chart?

2007-05-28T07:52:00.000-07:00

Online brokerage scam

2007-05-12T22:02:00.000-07:00

Unidentified thieves hacked into dozens of accounts at seven leading online brokerage firms, sold the customers' assets and used the money to buy penny stocks the thieves had previously purchased in an attempt to run up their prices, the Securities and Exchange Commission alleges in a.... Read More

Additional links for related story.

Official word from the SEC on how you may protect yourself from scam.

Totally off topic: The Landlord

2007-04-30T23:02:00.000-07:00

But hey, at least its money related......

Movie recommendation for traders

2007-04-13T23:10:00.000-07:00

Go get this movie!!!!!!!!!!!

I just saw for the first time the 1998 movie Rounders , Starring Matt Damon and Edward Norton.

I looked up the term "rounder" from Wikipedia:

A rounder is a card shark who makes his/her living entirely at playing cards.

The term rounder carries a certain respect amongst card players, as they know anyone with that title knows their way around a table and is a person to be taken seriously. The term sometimes also implies a player making a living by "hustling" less experienced players.

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I enjoyed the movie immensely. Without giving too much of the story away for those of you that have not had the pleasure, there were two things that stood out for me in the movie:

1. In the beginning of the movie Mike (Matt Damon) described working a "grind" playing poker.

2. When Mike accused Joey Knish (played by John Turturro) for not having the stones to play
the big bets.

I highly, highly recommend this movie for all traders. I imagine the newer traders will see one side of the card playing, where as the more experienced trader will pick up on #1 and #2 mentioned above as being the absolute parallel in consistent trading. I will comment more on #1 and #2 at a later post.

Oh here is another website related to the movie.

TOS platform secret doors

2007-03-20T21:19:00.000-07:00

In your TOS desktop platform, within any of the tabs:

Find the TOS logo with those 8 red splashes
Click on the long ones-from the top and counter clockwise to open secret door # 1.
Click on the second longest ones, again counter clockwise, to open secrete door # 2.

Smart $ bet on sure things

2007-03-18T21:47:00.000-07:00

When Shanghai and Hong Kong nose-dived a few weeks ago, they pulled American markets down with them. Instantly the media and press turned away from Britney's bizarre behavior and began blabbering breathlessly about the hot new topic du jour, "risk." Here's one of the best metaphors:

"We view financial risk much like popcorn popping in a microwave.
Until the first....... Read More

I need to be right

2007-03-17T21:50:00.000-07:00

This was an actual conversation.
----------------------------------------------------------------------------
Jody says: hi
optionsjunky says: hey
Jody says: how are you?
optionsjunky says: good and yourself?
Jody says: ok
optionsjunky says: setup trades for apr?
Jody says: I'm in puts on ANN now. It's going bad on me.
optionsjunky says: as long as u didn’t bet the farm, and u have your stop loss planned out, its not a problem, right?
Jody says: well, I lost most of what I put into it. I got 10 contracts of the 40 put. (ANN now at 38.60).
Jody says: I don’t have a stop loss.
optionsjunky says: the apr 40 put is still worth 2.1
Jody says: yeah it is. but I paid about 3 times that.
optionsjunky says: if the original reason for entering the trade is no longer valid, salvage what u can and move on to better looking trades.
optionsjunky says: you are a trader, no need to go into the ground with anything, u are smart and agile.
Jody says: I can't get out now. It will be a big loss for me.
optionsjunky says: so u would be willing to lose another 2.1 then ?
Jody says: I don't want to lose any more.
Jody says: I want the stock to go down. I'm hoping it will.
optionsjunky says: the chart looks like news related, did you play the news?
Jody says: no, I got in last week when it was going down.
optionsjunky says: well, anything can happen I suppose, u got 32 days to find out.
Jody says: I'm sick of losing money in the stock market!
optionsjunky says: if you are still bearish, u should load up on the 35puts, they are on fire sale right now!!!!
Jody says: 35 is OTM. We're not supposed to buy those.
optionsjunky says: whopping 35 cents a piece!!!
optionsjunky says: u are not supposed to let a losing position go this far against you either.
optionsjunky says: u are only down 4 grand right now , what’s another $350 for the otm puts? besides, u are fully willing to lose another 2100.
optionsjunky says: double down with $350, I say.
Jody says: ok
Jody says: do you think the stock will go down?
optionsjunky says: what does your guru say about stock gapping up like that?
Jody says: I don’t know
optionsjunky says: what I think about the stock direction, has no relevance in this case, what’s important here, is u are willing to lose another 2.1, yet unwilling to spend another .35 to swing for the fence. Now, u tell me if that makes any sense???
Jody says: I'm not willing to lose another 2.1
optionsjunky says: the stock will do what it will do in the coming days, no amount of mulling over, prediction, or crystal ball will change that fact, it is what it is.
optionsjunky says: a trader that is not willing to take ANY losses.
Jody says: yeah
optionsjunky says: u should stay in bank CDs
optionsjunky says: here is what I will predict for you, the rest of the weekend, you will
Jody says: I’ll never make money on those.
optionsjunky says: seek out an opinion that is bearish to make you feel better, until u find that opinion, u will think everyone else is crazy.
optionsjunky says: don’t forget to stop by ANN yahoo message board
Jody says: What's on there?
optionsjunky says: bulls and bears for ANN
optionsjunky says: u will find bulls hi fiving each other there on the gap up, and the bitter bears touting all the reasons why the stock should go down.
xxxx says: just a beginner here, but what if Jody change and buy calls now ?
optionsjunky says: any adjustment here will take on some degrees of additional risk.
optionsjunky says: if she wanted to turn bullish she can spread it by selling the apr 45 put.
xxxx says: yes but stock is bullish now, look at the chart is bullish
optionsjunky says: that’s not Jody's problem, Jody's core problem, is she is not going to lose no matter what, and may end up losing the whole thing.
optionsjunky says: Jody is always right.
Jody says: I hate being wrong.
optionsjunky says: I don’t believe I have mis-spoke.
optionsjunky says: your problem is you, not the trading system, or your picks.
optionsjunky says: the need to be right, is your downfall.
optionsjunky says: the moment u choose to ignore the stop loss rule that you bot with the $2000 seminar, You are basically saying u are bigger than the market, no matter what.
Jody says: OK, I'll get rid of the put on Monday.
optionsjunky says: the more educated the person, the more they have to be right.
optionsjunky says: bec. they have been successful with that method in society, and think the market can be worked the same way.
optionsjunky says: if I have mis-spoke in anyway, Jody, feel free to call me on it.
Jody says: I think you're right.
Jody says: you've talked me into getting rid of the put.
optionsjunky says: NO I didn’t. u just want me to go away.
optionsjunky says: its not about right or wrong and who is what. Its pure trader psychology.
optionsjunky says: I don’t care if I am right, I am not the one 4 grand in the hole.
optionsjunky says: even if this stock end s up tanking next week, and u end up making $$ on it, deep down in your heart, u know this is not the way to last long, how long can u stay this lucky?
Jody says: not very long
optionsjunky says: Casinos build their hotels resorts on these kind of gamblers.
optionsjunky says: The gamblers that love the action, yet are unwilling to cut their losses. The perfect target demographic.
optionsjunky says: I have to run will be back later.
Jody says: ok
Jody says: thanks

Priorities

2007-03-15T22:28:00.000-07:00

I went to drop off my kid at school today. One of the regular Dad's there, dressed in basketball shorts and T-shirt (obviously not going to work today) said to me smiling, saying "so, what do you say to the next 2 most important days of the year?"

The first thing that came to my mind was "yep, its options expiration, I got my spx positions to roll, RUT looking good, SET tomorrow morning, yep, the most important 2 days of the year indeed!!!".

Then it dawned on me he was talking about NCAA Championships.
He was taking the day off just to watch all the games.

The Good, the Bad, & the Ugly

2007-03-15T21:27:00.000-07:00

This from Michael Catolico from TheOptionClub Yahoo group.

--------------------------------------------------------------------------
The assumption is that any strategy followed over and over
again will end up with zero profit. and yes, I believe that adjustments
are the key to profitability - or rather, skillful adjustments are what
separate the winners from the losers.

if I can digress for an indulgent bit, let me suggest that there are
really only three types of folks that actually win at options trading
(sort of my version of the "good, bad & ugly"):
1 - the lucky
2 - the fortune tellers
3 - the skilled

Every new trader should test to see if she or he is actually lucky
before ever wasting a moment trying to learn about the market. The way
to do this is simply to take say $5,000 buy some short term options
randomly or "on a hunch". Then, whatever happens to that trade, take the
proceeds and plow the entire amount back into a similar guess-type trade
the next month. Do this until you either lose the whole $5k or turn it
into $4-$5M. at which point remove your money and never make another
trade again. I would put the odds of actually being this "good" are
really about 100 million to one but oddly I have personally known two
people that fit this category. The first mistakenly took his success as
a sign of skill and proceed to give it all back and then some. The
second was smart enough to know it was a fluke and took the proceeds and
started another business (which he is actually good at) and turned that
nest egg into a lot more golden geese.

The "bad" in my little metaphor is the catch-all category of "fortune
tellers". Most people know these types by the more familiar terms as
technical analysts and fundamental analysts. As you probably know I am a
believer in "weak" efficiency for the market. This is mainly because I
have never been able to predict either price or volatility direction
with anything better than 50/50 success. Not that I haven't spent a lot
of years trying both sides including a decade or more of immersion in TA
and spending time and money to get an mba in finance/accounting and a
cpa to boot.

Just because I could never figure out how to predict the future doesn't
mean that there aren't some who do. But here's why I call this category
of winners "bad": almost every guru and market "expert" is out there
peddling a system or method essentially premised on "finding winning
trades," and following this line of thinking ultimately busts out most
traders. Most novices and in fact most retail traders believe that
predicting the future is the key to winning the market and sometimes
cautiously, often gullibly, latch on to the system sellers and
prognosticators. They spend very little time learning much about how
options work and, in truth, if they are actually very good at picking
winners, don't need to know much more than that options help them
leverage those predictions. I’d say that no more than 1 in 100 actually
have the ability to consistently pick winners at better than even odds.

The way to find out if you are a fortune teller is fairly complex but
testable. Get yourself reams of historical price and fundamental data.
divide the data sample in half. on the first half, find 30-40 assets
that beat or failed to match the market by +/-20% or more in a three
month period. Use all your perception, reasoning and intuitive powers to
find some common denominator in that group of anomalies. then take that
finding and screen the other half of your sample. if you find that you
can spot similar outlier/big movers in the test sample with your method,
you may have struck the mother lode and are probably a bona fide fortune
teller. [needless to say, but obviously anyone touting a system or
method publicly has either tapped out on a formerly successful system or
is just a scam artist - the only way to discover a winning method of
this sort is to create your own.] trade this discovery/knowledge
carefully and as you build up a continual track record grow your wealth
to the millions or more mark. again i would caution that if you ever
reach the "richer than you need to be" stage, bow out and never trade
again. but in this instance you can then sell your secret method for
additional untold millions.

the final type of winner is what i would term an "ugly" trader. this is
the kind of person that somehow manages to always and consistently find
a way to make money. regardless of market direction, regardless of
volatility, regardless of liquidity, etc. they are usually huge students
of this game, can erect and dissect a position as though it were second
nature, are obsessed with risk (both in protecting against disaster and
embracing certain types of extremes) and can trade instinctively. this
category is the one that i believe most folks should either aspire to or
eventually wind up pursuing after failing at the first two categories.
unfortunately i would say only 1 in 20 or so ever achieve any kind of
success as skilled/ugly traders.

if you'll notice, when you add up the odds, i'm suggesting only around
6% or so of traders ever wind up being big or long term winners. but
that is the grim reality of trading. and when you realize that options
hold negative odds similar to casino games like blackjack, you'll know
why i tend to preach cautiously when i respond to discussion threads on
these boards.

Michael

Trade the price action, not the stories.

2007-03-12T22:24:00.000-07:00

If you are a trader, trade the price action.

AGIX interesting trade for April

2007-03-10T09:48:00.000-08:00

AGIX news pending, currently trading around $9 a share.

Here is the risk profile of this interesting trade translated into plain English:

This trade has the potential of making at least $1550 if AGIX stays anywhere above $3.5 a share by April expiration. That's roughly a 25% return relative to the amount of money tied up ($6000 required). I estimate around $70 in entry commissions, and potentially no exit commissions.

This trade also has the max potential of making $4000 if AGIX landed around $5.0 a share by Apr expiration. The probability of this happening is obviously lower than the $1550.

No trade would be complete without discussing the risks. Losses will occur if stock plunged below $2.25. The max risk is around $3500 IF the stock went to $0 (and u did nothing whatsoever).

The implied volatility (uncertainty premium, due to news pending) for the options are absolutely fat. Here are the exact details for the trade:

Sell to open qty 25 of the April 5 strike put options
Buy to open qty 10 of the April 7.5 strike put options

Not too bad is it? Lets break down the above two transactions another way:

step 1. Sell to open qty 10 of the April 5 strike puts
step 2. Buy to open qty 10 of the April 7.5 strike puts
(step 1 and 2 basically make up plain jane vertical spreads)
step 3. Sell to open an additional 15 of the April 5 strike puts.

Now, what I just described with all the above, can be summarized with the risk graph below.

Would you do this trade? (click picture to see larger version)

Here is another variation. Here we have a potential of 170% return.
Total capital required to do this trade is only a whopping $450 (to make $800!!!)
The only difference here is to add qty 15 of the April 2.5 strike puts to cap the max risk on the downside.

Would you do this trade?

Trading options may involve significant risk of capital. Trades posted here should be considered for informational or entertainment purposes only and not actual trading advise. Please consult your licensed broker or advisor b4 placing any trades.

Emergency Room service for newbies

2007-02-27T22:09:00.000-08:00

Fast market condition today. Needless to say I get a steady flow of emails and chats today from folks with panicked positions seeking opinions on how to "remedy" the losses incurred.

Here is a very typical example, this was the main theme for no less than 5-7 emails today:

"I have -10 spreads of the ICE 145/140p spread for .55 credit each.
The stock closed at 144.58 today. I am concerned as I am down about $1500
at the moment. I don't want to take the loss, yet I can't afford to
take the max $4450 loss either. What's the best thing for me to do?"

Helloooo??? As if I have the magic wand to wave the losses away???????

First and foremost, if you can't afford to take the max loss, don't trade so big.
Ok, so you are new, and have no regard for position sizing. Alright, thats fine.
Then trade what u can afford to lose per trade. Trade 2x instead of 10x, for example.

Second, choose an online broker that allows you to trade
smaller. Switch from the ones that favor trading 10 contracts or more at a time.
You are not really saving much dough by trading big.
You are still learning. Trade 1-5 contracts and learn to average them in. Many good traders trade on probabilities and steady averages, not all in and all out.

Third, flat (no position) IS a position.
The normally tame indices are basically behaving like the GOOG/CME/RIMM and moving like monsters. You don't need to be trading in this condition if you are new. Paper trade and observe the the ebb and flow of the implied volatilities at play. If you ABSOLUTELY MUST participate in the excitement, trade small.

I played emergency room staff today, but sadly, was not able to stop the bleeding for many.

Where is the beef?

2007-02-22T10:04:00.000-08:00

This from Stall Horn from AdvancedOptionsStragtegies group. I am posting it partly
because I am being plugged in the post ;-) :

----------------------------------------------------------------------------
Isn't it interesting the total number of members we have and how many new
members this group attracts a week, but how few members submit posts?

Wasn't it the old Wendy's commercial that queried: "Where's the beef?"

Well, the "beef" in this case is our willingness to share.

So why is it that we members are not asking questions and gorging ourselves
on the talent that exists in this group?

For those newbies to options my first guess goes back to our high school
mentality: We are afraid of sounding stupid in front of our peers. And it
sure is easy to sound stupid when it comes to options and the stock market.
I know this because I have been there, just like you.....

For the "oldies" to options my first guess is that your hard earned
knowledge has become, in your mind, proprietary, not unlike real estate,
which tends to appreciate in value as you build on it. I know this too
because the more I learn the fewer specifics I want to share.

Think about it, if I teach you all of my "secret ingredients" then I just
may lose my "edge." After all, the money I take from the market and put in
my pocket has to come from somewhere. So the more "stupid" traders there are
throwing their money at the market the better for me, right....? -
Absolutely.

So as far as a discussion group is concerned, we all are trapped in a Catch
22. People want to learn but those who can teach purport Theta, and Vega,
and the Flatulence theory...(?)

But these folks are not completely bad. They are simply indicating
indirectly to those asking question what I stated in the PS section of my
email to Sky. IT IS ALL UP TO YOU! You have to learn interpretation for
yourself.

Nobody is coming to your aid. The options world, just like the stock market
world, is the survival of the fittest. And by golly, my personal goal is to
be more fit than you so that I can out-run that "bear" before you do. My
concern is not with YOUR brokerage account, but with my own.

And this is not to diminish Sanjay. He comes in with his prognosis of things
and tells what he is doing. That is very respectable. But as a trader, you
are second a follower and first a leader. Do your indicators tell you the
same thing that Sanjay's are telling him? If so, then you have a
confirmation of sorts if you believe in Sanjay. If not, then best to let
Sanjay forage alone. I can assure you that Sanjay will not be offended.

And this is not to diminish Junky. He provides instruction on how tow to
read the TOS risk graph and whatever, which is a huge stepping stone
admittedly. But Junky is not your God. He is only a "tool" that you take
advantage of so that you can further your personal option trading intuition.
Nothing more. And he is happy to be as such.

Ironically the whole climax of this blather is that it doesn't matter how
much knowledge is shared. Statistics state that only 20% of the market
players actually make "real" money. This would seem to indicate that 80% of
you are not able to be inspired enough to follow through and make the $$$$$.

Again, this is not my problem. My goal is to be in the upper 20%.

If I don't see you there then, I guess I'll see you when I see you.... if
ever....

FSL

How much money can you make?

2007-02-16T23:38:00.000-08:00

Saw this post on TheOptionClub absolute gem posted by Zia.

--------------------------------------------------------------------------------------------------------------------------------
It is very a fair and common question that novice traders asking all the time how much money you can generate in the market. My simple answer is if you can get to the point that you do not lose money then profit will be taken care of your account by itself. Always think about the market structure rather than $ amount; and more than important thing is your own degree of emotions in terms of stress, hope, greed, and fear. At last but not the least, remember the market doesn't beat a player; it merely gives a player opportunities to beat himself.

Happy Trading,

Zia Mostatbi

Learning to paint master piece(s)

2007-02-04T10:58:00.000-08:00

Jessica : Hello Danny

Jessica : How nice to be called 'young lady'....I'm probably older than you

Danny : so how are you today

Jessica : Great....Just deep dusted my whole room.

Danny : well that by be so,,,,

Danny : but i'm not spring chicken anymore

Jessica : So much to learn. so much to sift through, so many decisions to make. I just decided to take a break and dust.......

Jessica : Now, back to 'what to do next', which info to read.

Danny : i understand,

Jessica : which DVD to watch.

Danny : yes forever learning

Jessica : I need direction, which step to take next, etc.

Danny : well that might be a good thing

Jessica : I know SO MUCH about options, and strategies, etc, just don't know when and where to apply it.

Junky: unfortunately it takes........click here for the rest of the chat transcript.

Professional trading chat session archive

2007-01-26T22:55:00.000-08:00

Don Bright from Bright Trading LLC and John (maverick74) from Vtrader Group again hosted a 90 min. live audio chat and is archived Here. Its an 83 meg zip file to download and unzips into one mp3 file and one txt file with chat log. The session gives no hype insights into the arena of professional trading. New info on:

portfolio margin in Apr.

penny wide spreads on select options.

Is trading easy?

What is the most profitable options strategy?

Is selling time premium a good or bad strategy?

dull market humor

2007-01-14T17:07:00.000-08:00

During the summer of 2006, 2 young men from the top of their class went to work at 2 separate hedge funds, one for a long fund and the other...... read more

Swimming boot camp

2007-01-10T23:15:00.000-08:00

Having never really learned how to swim up till recently, I attended a $1950 swimming seminar over a 3 day weekend. (bring a friend or spouse for free) I initially went to their free intro session at a local hotel and they were very convincing on how easy I should be able to handle myself in the open ocean once I go thru the weekend boot camp. Over the weekend we were even taught steps to take to rescue ourselves in unforeseeable events, i.e., shark, tsunami, storms etc. I came away from the weekend seminar with mind boggling amounts of techniques and info. While I feel confident if I just follow the steps taught and “land” swim for several months I should be able to feel good enough to dip my toes in the kiddy pool. Its been 3 months and I heard there is a sequel to the boot camp class with secrets to more exotic swim techniques. That’s a $10000 one week course with the head trader from xxxx guru firm…….
---------------------------------------------------------------------------------------------
The reality is, I did take one of those boot camp seminars in late 2001 and paid $3495 for the experience. I don’t quite remember what was all taught that weekend (and I sold the class manual to some guy for $500 a year later). I did remember how difficult it was for my buddy and I to conceptualize calendar spreads as newbies. $3495 was well spent in that it was “commitment” money that kept us plowing forward to this day.

Today, with the amount of free options info and tools available to anyone, the same problem exists for new comers to the game - too much information all at once. For that problem, I offer this bit of advise:

• Have access to a risk graphing tool like the one built into Thinkorswim.
• Your very first goal would be able to (on the fly) give examples of strike selection and reasons for trading single long/short options, explain pros and cons of each position in relation to simple delta and time concepts.
• Once the above is mastered, venture onto simple vertical spreads, then combinations of verticals.
• Once the above is mastered venture onto vega sensitive spreads such as calendar spreads.
• Any other exotics should be last to consider.

Just as swimming takes time in bite size chunks of learning, learning options is best to start from the ground up, one stage at a time, with each new stage building on the prior stage. I see too many people asking about spreads when they have no clue even how time and delta work on single options!!! Take the time and be patient. We are here to help but you have to meet us half way by doing your part.

OT - DDR: Amazing five year old kid

2007-01-03T22:33:00.000-08:00

DDR, for those of whom do not know, its a video game Dance Dance Revolution.

AAPL opinion from my buddy CMATT

2006-12-29T10:59:00.000-08:00

from CMATT
-------------------------------------------
OK now for my opinion on AAPL
there are many reasons i'm so bullish on AAPL, but I will just mention the main 2
#1 is valuation,and this what affects my opinion in the short term I feel the valuation on AAPL is way off at this time, I felt that way before the recent devalue in the PPS, which IMO was due to some funds who were short Read More...

Tom Preston: Trading resolutions for 2007

2006-12-29T06:38:00.000-08:00

This is a transcript from a session Tom Preston at Thinkorswim did a few days ago. When TOS posts this transcript on Chat Archive I will remove this post. Mean while I felt this was soooo good that I post here in advance for anyone that misssed the session.

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

Tom Preston: Trading resolutions for 2007

Tom Preston: 1) Don’t try to make back all your losses in one trade

Everyone makes losing trades. Sometimes you get the losers in a row, one after the other, and your account is smaller than when you started. You get frustrated and angry. You decide to take revenge on the market and make all your losses back and then some. So, the next trade you make, you increase the number of contracts or shares because your rage is overpowering your discipline and you’re sure that this trade will be “the one”.

And…you’re probably wrong. The trade turns out to be loser as well and your account is even deeper in the hole. Sure, it might be a winner, but it’s not worth the risk. Don’t let your anger control your trading. Just because you’ve had a string of losers doesn’t necessarily mean your due for a winner.

If you’re in the situation of having nothing but losing trades, a better idea would be to review your trading plan and see if there might be fundamentally wrong with it. Then you can correct it and see if that improves the results.

Tom Preston: 2) Don’t take stupid risk

This goes along with the first resolution. The bottom line is, don’t put your hard-earned money at risk unless you have a good reason to do so. To spin the old trading adage a little differently, if you have a hunch, DON’T bet a bunch. Keep your risk under control.

We suggest that you keep the max risk of any one trade to less than 5% of your trading capital. And keep the total risk of all your open positions to less than 25% or so of your trading capital. That means, if everything goes wrong, you won’t lose everything, and you’ll still have some money left to continue trading.

Also, having some kind of trading plan in place that gives you some consistent criteria for entering and exiting positions will help you put the trades you make based on “gut” feelings or something outside of those criteria in perspective. You can put those trades on, just don’t risk any more on them than you would your “criteria-based” trades, and maybe even less.

Tom Preston: 3) If it looks too good to be true, it is

I can’t stress this enough. I have been saying this since I started thinkorswim, and I find myself saying it again today. Option prices are not wrong. Now, I’m not talking about errors in the quote database. That’s a technical problem. What I mean is that if you see a box spread trading over the difference between the strikes, or a calendar spread trading for a credit, or an adjusted option trading for more than an unadjusted option on the same stock, with the same expiration and strike price, money is NOT lying on the floor just waiting to be picked up. Rather, it means that there is something else impacting those option prices like a dividend or something that you don’t see, but the pros do. The pros are right. It is a fact of the state of option trading that there are no arbitrage opportunities sitting there waiting for the retail traders (you) to take advantage of them.

Tom Preston: 4) Use spreads whenever possible

If you are trading directionally, that is, you are betting on a stock or index going up or down and you want to use options, please consider using verticals. Lately, I’ve been seeing a lot of customers betting on the direction of stocks or indices using simple long calls or puts. Now, I don’t have a problem with directional trading in and of itself. But long single options have sensitivities to time decay and volatility that can make a losing trade out of one that is right on direction. And if you’re buying in the money options, they usually have wide bid/ask spreads and can be less liquid than at the money or out of the money options, so that if you want to/have to exit the trade, you get lousy execution prices.

Verticals are great for when you are less than 100% confident that the stock or index will go in the direction you think it will. If you’re bullish, consider selling an out of the money put vertical. You make money if the index goes up, stays the same, or maybe even drops a little. If you’re bearish, consider selling an out of the money call vertical. Short verticals have positive time decay and less vega sensitivity than outright long options. Yes, their profit potential is less, but so too can be their max loss. If you don’t do too many of them (remember our suggestion of not risking more than 5% on any one trade?) they’re a good way of keeping risk under control.

Tom Preston: 5) Keep learning

Don’t stop trying to learn new things about trading, either by doing research, reading books and articles, coming to classes (try www.optionplanet.com), joining us here on Wednesday afternoons, calling the TOS trade desk with questions, etc, etc.

Everyone is getting smarter and more capable. The tools that we give you for free are more powerful than what I was using when I was trading professionally. You can learn things here no retail trader would have known certainly 20 and maybe even 5 years ago. The difference between the educated retail trader and the professional trader is getting smaller and smaller. That’s both good and bad for you. It’s good that bid/ask spreads are tighter now than they have ever been. You can see live quotes for free. But it also means that the industry is more competitive. Knowing what an iron condor is or how to calculate a roll value isn’t enough. There are hundreds of TOS customers who already know that stuff already. Making money trading is very hard work. You have to be willing to devote the time and energy to try to find an approach to trading that might actually make you money. A successful trading career isn’t built out of luck.

Sell your vested employee stock options!!!!!

2006-12-27T22:44:00.000-08:00

Imagine u worked for a firm that granted you a s*** load of options that have become fully vested. Unfortunately for the time being they are under water. A pile of worthless paper? Maybe not for long!!!!!

Jadedbear from #options once related an attempt to low ball purchase employee stock options for cheap. Theoretically these non transferable options have ample time value left, even the under water ones. His attempt was unsuccessful but was an interesting idea. Soon, however, this may all change, starting with Google. Check out the skinny originally from The Wall Street Journal.

ICE position comparison

2006-12-21T22:46:00.000-08:00

This post will demonstrate how a synthetic collar can be substituted with a simple diagonal spread, with less transaction costs. I saw this collar talked about in Woodiescciclub.com
------------------------------------------------------------------------------------------------
Synthetic collar.
+Mar 110c
- Mar 110p
+Mar 105p
- Jan 115c
The 110c and 110p form synthetic long stock.
The synthetic long stock and the 105p form synthetic long call(with deductible). So essentially the position was deduced roughly down to:
+ March call
- Jan call

A long diagonal spread.

------------------------------------------------------------------------------------------------
Here is the equivalent long diagonal spread:
+Mar 105c
- Jan 115c
debit 10.25
Only 2 legs to worry about, comparable greek risks, less commissions, less bid/ask spread to overcome, better breakeven point.

Debit is kinda high you said?

Compare its cousin using puts in the next position.

The ONLY difference in this position here compared to its "call" cousin above, its using puts, but essentially the same thing. Calls are puts, and puts are calls.

+ Mar 105p
- Jan 115p
credit .50

Which one of the three positions would you choose? ;-)

TELK position comparison

2006-12-21T20:13:00.000-08:00

TELK - 17.11 (long) x 300
jan 25c - 2.05 (short) x 3
jan 15p - 3.30 (long) x 2

Total debit (at 50% margin) $2800 tied up(in a retirement acct it will be $5k+)
If stock went to 10 by expiration lose $1175
If stock went to 5 by expiration lose $1650
Max absolue risk $2000+
Max gain above 25 = $2322
slightly short vega -1.79
ROI against max risk 116%
ROI against dough tied up 82%
ROI against risk at stock going to 10 = 197%
ROI against risk at stock going to 5 = 140%
ROI against risk at stock going to 0 = 116%

+jan 15c 3x -$510 ea.
-jan 25c 3x +$205 ea.

Total debit $915 amt of dough tied up
Max absolute risk $915
Max gain above 25 = $2085
flat vega risk
Max ROI against absolute risk 227%
ROI against dough tied up 227%
ROI against risk at stock going to 10 = 227%
ROI against risk at stock going to 5 = 227%

ROI against risk at stock going to 0 = 227%

Proprietary Trading audio archive posted

2006-12-20T22:20:00.000-08:00

This post has expired, and the content removed at the request of the original producers of the archive, sorry. Expiration date 1/31/07.

RIMM earnings implied volatility case study

2006-12-20T18:56:00.000-08:00

posted in the forum area. Click here.

How does delta and IV effect AGIX iron condor?

2006-12-19T22:08:00.000-08:00

Just cut a video explaining how I see the effects are,
posted in the video section, named Delta+IV on iron condor.

Retail margin vs. Risk margin seminar archive now posted

2006-12-16T10:42:00.000-08:00

It is now posted in the Learning video
area, hot off the press session I did a
few hours ago. Please check it out.

Titanium Collar??

2006-12-13T00:00:00.000-08:00

I posted the details in my new message board for discussion. It appears to be a way to protect long stock position thru news by turning it into a long straddle with very little additional cost.....

TELK FDA play covered call vs bull put spread

2006-12-11T22:05:00.000-08:00

Andy from InvestorVillage proposes the following covered call table for consideration, on TELK. You can read the reasoning behind the numbers from Andy's post at InvestorVillage .

---------------------------------------------------------
Here is one of many alternative ways to skin the same cat. Click on pic to enlarge.
Comments welcome.

Sample order entry screen on Thinkorswim

Married put vs call video clip posted

2006-12-09T18:33:00.000-08:00

This 6 minute video is now posted in the video section to the left.

It attempts to explain why long stock + put is really the same as long call of the same strike.

Your scrutiny is welcome.

Dan Sheridan CBOE webcast, a must see!!!

2006-12-09T10:51:00.000-08:00

I have been watching Dan's free webcast series at the CBOE Learning Center and am plugging the series here.

The two topics that stand out the most in my mind (I am about 75% thru the series) are:

How to pick good calendar spared candidates and why large skews may be a bad thing?

How to creatively adjust your vanilla iron condors or butterflies? (in ways that I have never thought of before)

To pick up the rest of the golden nuggets......u will have to view the series yourself. Even if u are a seasoned trader, the guy is a riot to watch, he is a natural in front of the camera.

Registration is all free at the CBOE Learning Center.

Oh, if u see Dan ask him if I can get a free mentoring course for myself ;-)

DIA Reverse Calendar example

2006-12-07T12:02:00.000-08:00

Q:
my broker (www.thinkorswim.com) offers the possibility to view what
trades other customers enter and today (December 6th) someone entered
sell Jan 121 DIA put
buy Dec 121 DIA put
for a credit of 70 cents when DIA is at 123. Apart from the fact that
he might want to exit a position, let's assume he is opening this
position. Now I wonder, what is his rationale here?

In 10 days the December option is expired and he will be short the
January position. Anybody having an idea what this person is up to?
I guess if the market goes up, then he can buy back the short put
cheaper, but is that it?

thanks, gis

P.S. Many thanks to Ricky and options junky for answering my question
about the back ratio spread and the charts junky!!!

-------------------------------------------------------------
A:
Its quite possible, as others have pointed out, this could be a part of a larger order or a rolling order. But suppose its an order to open a lone position, this is the risk profile, note how much margin is required, why is that?

A seemingly low risk looking risk graph above with large margin requirement is partly due to its vega risk. When the position is short volatility, an increase in IV hurts the overall position. In theory there is no ceiling on how high IV can go, thus the large margin. The other risk to the clearing firm is when the front month expires and the retail trader does nothing to terminate or cover the short jan leg.

The graph below simulates a 5% increase in IV overall, note the max risk and breakeven now.

The Boston Strangle - from SFO mag

2006-12-06T19:19:00.000-08:00

There is an interesting article in the Dec 06 edition of the SFO Mag on something called The Boston Strangle. Subscription is free.

I read the article initially and was graphing out the strangle playing with the numbers.
short 10x XEO 560 calls debit 15.6 each
short 10x XEO 580 puts debit 11.9 each

For more details and reasonings behind The Boston Strangle, you will have to subscribe and read the article ;-)

What I discovered was a discrepancy of the P/L if XEO expired at 558.8. The published P/L, $5380, and what's shown on my graph did not jive (I used thinkorswim). Not satisfied at such seemingly simple math, I graphed using Hoadley. TOS and Hoadley both showed $6300 profit.

A much more alert reader, Tom Opiela (photoman), pointed out where the problem is. A picture beats a thousand words. Click on pic to see full version.

20x INFY DEC 55 ATM puts, 10 days to expiration

2006-12-05T18:38:00.000-08:00

Q:

I have 20x DEC 55 PUT bought at $1.25.. have only 10 days or so... need
some advice in terms of how to reduce the risk..bec. the stock is
already about $55.. should I close it.. or get some call to cover the
risk. Stock is up and down it was 52 three days back and now
55... stock pattern looks strong its going to swing based on the market..
but if u look at the PE its more than 46 times and doubled in last 4 month
after the split.

My thought when I bought the unit is to use the volatility to make some
money.. went to 55 from 53 in two days on average volume...
Would really appreciate any thoughts.
-------------------------------------------------------------------
A:

Time decay is against you in these last few days of the expiration cycle. At 20x u are losing roughly $90 per day just on time decay.
If stock stays above 55 by expiration u will lose the whole thing.
If you are long term bearish and must pick tops in rallies like this, at least buy longer term options where the time decay is dramatically slower. Look to jan or apr perhaps.
Here is the risk profile of your position, click on pic to see larger. See my video, how to read a risk graph if having trouble.

Here are some additional thoughts:
If the weather forecast is sunny, yet its actually starting to drizzle outside, which do you believe?
If the drizzle turns into light rain, what do you do?
If light rain persists for several hours, do you stick with the original sunny forecast or prepare accordingly when heading outside?

RKH ratio back spread

2006-12-04T22:38:00.000-08:00

This question was originally posted on optionstradingcoach yahoo group.
------------------------------------------------------------------
Hello,

about 2 or 3 weeks ago I put on a ratio back spread on RKH. At that
time RKH was at around 158.50

So I sold 2 January 165 puts and bought 3 January 160 puts for a
credit of 2.10

A few days ago, with RKH at around 156, this position still had a
loss, if I had bought it back. Don't understand why, seeing that the
underlying had gone in the right direction more than 2 bucks.

Yesterday I got exercised on my short puts, so I then exited the
whole position, but the question remains.

Many thanks, gis
P.S. There is a chance that when I checked my position that I
actually made a mistake and I already had a profit, but am not sure.
P.P.S Sorry for not being able to provide more accurate numbers. I
need to improve my trading diary.
P.P.S The difference in IV when entering the spread was about 36 for
the long puts and 35 for the short puts, so don't think that was the
reason.
-------------------------------------------------------------------------
Hi gis, (click on pic to enlarge)

Here is your original risk profile, I estimated the entry date a few weeks back when u first put on the position. This is very much a long vega position with a large or quick move being the index sentiment.
See my video "how to read a risk graph" if the pictures are gibberish to you.

Here is your risk profile today (assuming no assignment). Note the stock has not moved and decay is eating away at the white line.

Graphs created using Thinkorswim.

Frankly with the vol and price characteristics I would be inclined to do neutral calendars on this since it does not look like a mover to me.

Calendar spread pow wow tonite 12/4 at 8pm pacific

2006-12-03T10:24:00.000-08:00

I am going to do a short, basic session on calendar spreads (15 to 20 min) then open up to questions.

The conference software will be www.yugma.com. Conference ID 83170611 or click here. No registration is necessary. There is a small java plug-in that gets installed automatically for the first time.

I am seeing that it works with IE better than Firefox. Two monitors are best, as u can maximize the shared desktop on one screen, and move the chat blocks onto another screen. Voice is done via conf call number shown on the top of the chat box. Long distance charge may apply. Not sure how skype would work in this case.

junky

lyn.express@gmail.com
skype: optionsjunky
Yahoo IM: optionsjunky

2006-12-01T07:09:00.000-08:00

Q:
+ mar 75c -5.25 debit
- dec 75c +.75 credit
+ jan 80c -.85 debit
- mar 75c +5.0 credit

My bias is the stock (WLP goes back to 74 by expiration) What should I do?

A: this is not a great position to be in even if you are convinced the stock goes back to 74. The credit received for the dec 75c was small, offering the trader little buffer against an upside move. The upside jan 80c (protection) is a whopping 5 pts away. This position is also taking on hard delta, meaning the short is ITM and the delta growing more than 2x as fast as the long leg if this trend persists.
For 10 spreads if stock goes back towards 75 u have a chance to breakeven on the whole thing. But, if we expire at 80, $3k loss.

Not a great risk reward trade.

I would say if one is absolutely convinced at the 74 bias, at least reduce the position by 1/2 immediately. Ask yourself this question, If I had no position in WLP right now, would I short 340 shares of stock? (delta exposure of current position sized at 10 spreads).

Leap Calendar

2006-11-30T22:03:00.000-08:00

A leap.

Covering front month short.

Bond options

2006-11-27T20:41:00.000-08:00

This was originally posted in the advancedoptionstrategies group, by Stall Horn.

------------------------------------------------------------------------------------
James Bond, that is...!

Greetings friends,

Did you know that the hugely successful James Bond cinematic franchise, as
we know it today, all started with a call option? Read More....

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

Additional info can be found Here and Here.

Here is yet another example of a bond film with options mixed in.

Quick tip on options pricing estimation

2006-11-25T08:00:00.000-08:00

Q: I bot some GOOG March 600/620 bull call spreads debit 2.6 each, anticipating the stock moving higher. Goog is currently at 505. How do I know what that spread will be worth if the stock moved quickly to 530 within a week's time?

A: There are several ways to do this. I'll use a single option as an example as its easier to visualize for newer folks. Same steps for spreads pricing. (please also see the valuable comment posted by Ben Evans, at the bottom of this post)

If I bot the jan07 550c for 7.7 and I wanted to know roughly what that option is worth (not counting effect of IV) if GOOG moved up by 20 pts quickly (say within a day or two) there are several ways to do this:

1. Use an options calculator found at many websites and tools. Here is the one I use http://www.ivolatility.com/calc/ or
2. use a risk graphing tool such as the one built in on thinkorswim or hoadley.net or 888options.com. The graphing method is nothing but a giant, sophisticated options calculator, plotting all the results.
or
(click on pic to see larger version)
3. look at the strike thats 20pts lower on the jan 07 chain, specifically in this case the jan07 530c (12.9ish as of this writing).
That is what the 550c will be worth if goog moved up 20pts quickly.

The same is true if u wanted to know if goog moved down 20pts, just look at the strike 20pts higher, in this case the 570c and that will give u a rough guesstimate.

check out Options Trader mag

2006-11-23T09:42:00.000-08:00

Absolutely free monthly online publication if u have not checked it out already.

In the current Nov issue I particularly enjoyed:

Trading Tips from an options market maker
CME, CBOT join forces
Nasdaq enters croweded options field

Registration is free HERE.

Where its also free, is my new Forum along with my stock buddy cmatt. Please come by with your questions and comments.

IWM choices

2006-11-21T17:51:00.000-08:00

Q:
I entered 3 Mar IWM 78 puts today at a cost of 2.85 per option. I have a stop at 2.45 which correlates with a new high for IWM based on OX
option pricer. I have contemplated selling OTM puts (either Dec or Mar - maybe 74s) on IWM and making a spread out of the trade. What action would be recommended on this trade? Leave it and move the stop down if gains are made or convert to a spread trade?

Here is the risk profile if selling 3 dec quarterly 74p for merely .30 each.
Click on image to enlarge.

Risk profile if turning it into march vertical spreads by selling Mar 74puts. The problem with this long dated vertical spread is the delta implications.

See my video on ANF vertical spread answered for explaination.

All risk graphs created with thinkorswim.

How to protect my stock with long put?

2006-11-19T22:17:00.000-08:00

Q: I have SBUX stock that has appreciated significantly since I bought it three years ago. I read McMillan book and it recommends that buying very long term (like two-yrs LEAPS) put option is the best strategy to protect a long stock position from loss, but it didn't go into much details about how out-of-money should such a put be. Do you guys have any experience of doing this? Thanks!

A: leap put in your situation would be like buying insurance for say your car. How much value do you want to protect against loss and for how long, and what kind of deductible are u willing to take on, those are the 3 main deciding elements (not considering implied volatility).

For example, if u bot 1 jan09 35 strike put (800 days) u have the right to sell 100 shares of sbux at 35, no matter how low sbux went. So u are saying u have protection from 35 on down, with a $2.33 per share deductible (current closing price minus 35, assume stock at 37.33) , for 800 days.

But wait, that insurance contract will cost you $400, so 35 less 4pts is 31. Your real protection at jan 09 expiration is really 31 on down. So refer to the options chain and pick the choice that best suit your needs, based on the simple rules I have outlined above.

Click on image to see original size and details. Risk Graph created with Thinkorswim.

OT: not the same o same o breakfast

2006-11-19T20:41:00.000-08:00

Tired of the same o same o breakfast? Try the following:

Shrimp Sandwich (right) - Served open faced on rye bread topped with hard boiled egg, cold water shrimp and mayonnaise.

Complete breakfast, includes coffee (top).

Fresh cinnamon roll (left).

Holiday cold plate (bottom) - A sampling of Swedish items. Featuring meatballs, ham, gravad lax (salmon), egg and shrimp. As always, click on picture to enlarge.

All for 10 bucks at my local IKEA cafe, easily fed 2 adults and 2 youngsters, right inside the IKEA store. I cant find any info on their website at all regarding their onsite cafe but I would highly recommend a visit if u are kinda tired of the same o same o.....

Click here for a store near you.

Nymex IPO

2006-11-17T05:56:00.000-08:00

My own dear brother wants to play the NMX IPO and we had the following actual discussion. I will make and post a short video clip illustrating the ideas this weekend.

--------------------------------------------------------------------------------------
----- Original Message ----
From: junky
To: bro
Sent: Tuesday, November 14, 2006 7:50:21 PM
Subject: Re: Can we buy some Nymex?

whats the press release say they expect to open at?

---- Original Message ----
From: bro
To: junky
Sent: Wednesday, November 15, 2006 12:06:43 AM
Subject: Re: Can we buy some Nymex?

Question:

Is there a way to put a buy order in to accomplish the following logic? I want to buy 150 shares, but I don't want to pay more than $72/share. If I put in a limit order at $72, then it won't buy until it hits that point. But if I put in a market order, then who knows, it might finally execute at $102/share with some trader screwing me because market order = blank check?

These choices seem clumsy and very limited. Is there a better way?

---- Original Message ----
From: junky
To: bro
Sent: Wednesday, November 15, 2006 12:34:01 PM
Subject: Re: Can we buy some Nymex?

ok depends on what NMX opens at on Friday, limit orders guarantee min. buy price but not execution.
Market order guarantee execution but not price.

For your 72$ example, if there are options for NMX, which I doubt for an IPO, what u can do is sell puts. Say u are bullish on the stock and u dont mind owning shares at a lower price, u can sell a 30 day 70 strike put and collect $200 per contract (pulled number out of the hat).

What u are saying is u are willing to buy 100 shares of stock at 70 less the $200 u collected. so in the end of the contract period if stock was anywhere below 70, u agree to buy 100 shares at 70, subtract the 200 u got for the put, effectively buy it at 68. If stock was anywhere above 70, no stock is to be purchased and u keep the $200.

The other thing good about this put contract (selling cash secured put, or selling naked put) is that time decay is on your side. U don’t need to wait 30 days to profit from this. Time is ticking away in your favor on that put that u sold. Even if stock say at 72, didn’t move for 2 weeks, that put would have decayed some, and maybe u can terminate that contract by buying that put back for say 150, ending your obligation to buy stock, and pocketing $50.

We can even discuss selling put spreads, which IMO is much more risk averse than selling puts alone, and ties up alot less cash.

three choice comparisons

2006-11-15T21:43:00.000-08:00

MO covered call +100 shares at 85.15 and
sell 1 Dec 85c credit 1.85

See video in the learning section on how to read a risk graph, if u are not familiar with the tool.
Click on graph to enlarge.

sell 1 MO dec 85 put credit 1.5. Notice this is the synthetic equivalent of the covered call above.

Long 1 MO jan09 85call debit 9.0
Sell 1 MO dec06 85call credit 1.85
This is a calendar spread. Note the difference in risk profile compared to the above two choices.

Risk graphs generated within Thinkorswim.

KOSP Tender Offer by Abbott

2006-11-15T06:58:00.000-08:00

CBOE research circular dated 11/22/06. This explains the best I think.
KQW is the current options series

All current SEC filings for KOSP

Yet another way to trade!!!!

2006-11-13T22:59:00.000-08:00

My trades by Michael Catolico - excerpts from a message response to
others in compoundstockearnings yahoo groups.
The thread is titled "bunch of stuff" posted on 11/12/2006.
-------------------------------------------------------------------------
i don't approach the markets the way i've been challenged here. i don't
enter a position by finding "a good stock" then tossing on a few options
to enhance that investment. i trade reactively to the markets in a
dynamic, provisional way. i do everything i can to NOT have an opinion
on what a stock or the market will do. with every trade i essentially
enter it randomly, completely neutral and assuming the trade will fail.
then i try to extricate myself from the mess i've gotten myself into and
somehow make money with it. i've been an active participant in many
discussion groups and have worked through and discussed many actual
trades - winners and losers - i've made. but mostly the point has been
to illustrate some principle or other that i've learned and not to show
someone "how to trade like me." i'm not going to toss a trade out there
just to show how good or bad i am. what's the point of that when i
consider that success lies with the individual trader and has nothing at
all to do with the strategy or advice behind it. if i say buy abcde
stock someone could follow that or take the opposite position. either
way, it's not the original opinion that makes the money. it's what's
done with the trade that counts. both traders could win or both could
lose following or going contrary to my "advice." unless they follow in
lockstep with each of my moves, the winnings or losses experienced would
have nothing to do with me.

folks on this list give a lot of their research and work effort. some
might find some poster's theory about a stock's technical momentum or
fundamental value of some use. what i offer is a sober look at risk. if
people don't find that perspective of any value it's easy enough to
simply hit the DEL key on any of my messages.

AAPL example

2006-11-13T18:42:00.000-08:00

Trader buys ITM AAPL 75c debit 9.45.

Stock moves up to 85, sell 81 shares of aapl to make it delta neutral and limit risk at expiration.

Does this really benefit online options trading??

2006-11-12T08:42:00.000-08:00

This is a follow up to Major options announcement from a few days ago.

More details on the SEC margin ease proposal

and

what it really means to the small retail traders.
Its buried in section 3. SEC Moves to Abolish Margin Calls.
Also read the Broker-Dealer "Friendly Reminder Call" transcript, just below it.

Official NYSE memo.

No man is an island

2006-11-11T09:39:00.000-08:00

Frequently this type of question comes up from the newer folks:

When I trade the QQQQ the bid/ask spread is typically .05, but when I look at SPX/NDX/RUT the bid/ask spread is quoted in whole dollar, why would anyone trade the larger indices?

"A 3pt move in the NDX or MNX is quite a different story as a 3pt move in the QQQQ" an experienced trader once related to me. "You have to compare apples to apples, in relative terms". Lets see how.

The table values were constructed using after hour quotes as of the close on Friday 11/10/06. Basically comparing apples to apples in % terms.

Also consider transaction costs. If u had a set amount of say $5000 blocks to deploy in the Nasdaq index, how many commissions would you have to pay using the Qs? How many commissions would you have to pay using the MNX or NDX?

Amen for ISE challenging CBOE for their proprietary products to be multi-listed. See full article here.

I remember the week NDX went from trading on CBOE only to trading on multiple exchanges and the spread dropped by 2/3.

When is someone gonna sue PHLX for XAU to be opened up ;-)

Just as No man is an island, entire of itself; every man is a piece of the continent, a part of the main, no options exchange can be on its own for every long ;-)

Scratch pad

2006-11-09T23:42:00.000-08:00

How to enable Theo feature in Thinkorswim.
Click on the image to enlarge.

OT: Chained to the ......

2006-11-08T22:08:00.000-08:00

I was out sick today from work so I watched a bit of day time TV. I channel surfed and ran into The Rachel Ray Show . I turned around and typed in one of the chat rooms that Rachel Ray is on CBS and she is cute. One of the chatters inquired if I was still married. "I am married but not dead", I typed. My buddy jp promptly announced to the room:

Just because you are chained to the dog house does not mean you cant bark at the cars going by!!

Priceless jp, priceless.

Major options announcement (from Sept)

2006-11-08T21:56:00.000-08:00

no affiliation with options university, informational only:

Click to view short video.

Additional info on Nasdaq options market.

EXPE skew case study

2006-11-05T08:20:00.000-08:00

EXPE low historical vol vs. high front month IV. 17% skew between nov/dec.

EXPE will do their numbers 11/9.

Sample nov/dec itm 15call calendar debit .25.
The expectations is that the front month will revert back to the mean (-17%) while the back month contracts a mere 3% vol.

Here is the spread after the -17% and -3% simulated.

Risk graphs created with Thinkorswim.

This is what happens after a vol crush post news. This risk profile is taken 1 hour b4 Friday's (11/10) close. Quite different than the hypothetical posted a few days ago eh?

Front month vol 39.53
Dec vol 29.76 both on the itm 15calls

NVDA collar

2006-11-04T21:55:00.000-08:00

Someone from InvestorVillage posted a NVDA collar trade:

long 100 shares of stock - $33.95

Sold Nov 32.5 Call - $ 2.65

Bought Dec 30 Put - $ 1.05

Margin required: $3000+

The covered call portion (long stock-nov call) is a synthetic equivalent to a short naked put. Thus the whole collar is the same as a nov/dec diagonal spread:

-nov 32.5p
+dec 30p

Margin required: $225

NVDA will announce their numbers, Nov 9th.

Love is grand, but divorce is.......

2006-11-03T11:57:00.000-08:00

Guy across the street, moved in about a year ago with wife and 2 little ones. Recently we don’t see the wife and 2 little ones anymore. My girl found out from neighborhood gossip they are in divorce proceedings. We then deduced to the following scenario (complete speculation):

Just b4 they moved in, the guy's Dad died of old age in that house and son inherits the place. Wife prolly served the paper at that opportune time shortly there after.

Love is grand, but divorce is 100 grand (depending on what part of country u live).

Along that line of thought, this is one of the most entertaining Radio Show, IMO.

RUT Iron Condor

2006-10-31T22:35:00.000-08:00

Here is a RUT IC posted by a fellow trader from
Advanced Options Strategies. Hi probability trade given the limited credit. I have asked for his exit/adj plans and will post details as I get them.

11/3/06
The trader added the nov 780/790c spared for .65 credit, citing multiple resistance zones between the current price and 780, with 780 being the last resistance point.

Note how the profit zone narrowed with this maneuver and risk is increased on the extreme upside.

AVNR news out

2006-10-31T08:27:00.000-08:00

This thing was crazy as expected. I got up all groggy pre-market only to watch it gap open in the 12s and tank like a lead balloon. I had intended to short stock at 8 ish but had to chase it down to 7s b4 I got filled 300 short shares avg 7.0. Vol crushed as expected. Resulting position shown. Covered all short stock at 4.23 avg. Unwind the original diagonal for 2.1 debit. Total loss including costs -.35

Pismo Beach weekend

2006-10-29T21:18:00.000-08:00

Spent the weekend south of me visiting a long time friend and her family. At Pismo Beach we went to Mo's Smokehouse BBQ and saw these pigs on surf board displays in the eatery ;- ) Pretty good stuff. The folks at work will definitely feel the power of garlic fries come Monday.
Mo's Smokehouse BBQ

OIH case study for OCT

2006-10-28T18:44:00.000-07:00

This case study was posted elsewhere in OCT, I am moving here to my own blog. A trader came to me with the initial position, after a substantial move. Click on each picture to see larger view. If the pictures seem fuzzy, try zooming it in your browser window by single clicking on the larger pic. See my newly available "How to read a Risk Graph" video in the video section.
-----------------------------------------------------
8/23 initiated 10x OCT OIH SS (iron butterfly) 130/140/150 credit 7.6 then went to sleep.

Woke up on 9/25 and OMG OIH is all of a sudden the low 120s!!!
Panic/paranoia/anger/hope/fear/greed all
set in at the same time. Not to mention the continued
pressure to make $$ regardless of timing.
Luckily the trader immediately took off 50% of the position
to cool his head so as to be able to plan out further action
in a more calm mental state of mind.

2nd action, buy to close the short 5x 140c debit filled for .45 each.
The 140c strike was originally sold for 6.8 each. The reason for
the buy back is that the 140calls have depleted 93% of its max
available value, and OIH is deemed capable of bouncing around
quite a bit. Placed limit orders to re-sell the 140c strike if it
reached 1.2 (roughly a 5pt bounce) seemed fairly possible.

Max risk $1425, breakeven at expiration, 133, 9 pts away from
the current 124 closing.

The resulting risk profile is shown below.

9/26 Proposed action, buy back the 140/130p spread to close and
sell the 130/125p spread to open as an unbalance butterfly order
125/130/140p, current market is around 5.1 debit. (the debit will be
cheaper as OIH rallies up) Several reasons for this proposed
adjustment. OIH has moved quite a bit
away from the short 140p and no decay is being enjoyed by the trader.
By rolling down the short put spread closer to the money:
1. dampens the effect of time decay against the trader
Also, by reducing the put spread width from 10 to 5
2. frees up margin
3. moves OE(options expiration) breakeven point 5 points lower
4. this manuver does not add to max risk to the down side.

If the unbalnaced fly is filled for 5.0 debit, Max risk is still $1425, but the
breakeven at expiration is moved down to 128. With OIH moving up 2
points today, the position would be only 2 points away from OE BE.

Please note how the upside profitability is morphed into extending the
lower breakeven point further.

Proposed risk graph is shown.

9/28 The trader filled the unbalanced fly adj for 5.0 debit. OIH closed at 128.6.

10/20 final trade for the OIH case study posted 8/23, buy back
5x oct 130p at .25 each, locking in about a grand profit.
OIH, with 75 min to go for OCT expiration, its trading right at 130.
No need to take chances, and am 25cents away from max profit anyhow.

No way in hell

2006-10-26T22:07:00.000-07:00

No way in hell they fill me on either the nov/dec 2.5p calendars for .05 debit or even .10 debit.
I also sat on the dec/jan 2.5p calendars for several days, no dice. Its getting down to the wire on the FDA announcement. Stock down to 7.6 as of close today.

AVNR case study

2006-10-22T22:11:00.000-07:00

AVNR FDA news pending 10/30. The vol and skew are large on all expirations and strikes. I did the attached diags on 10/30 for 1.0 credit. So far I have seen that same spread go as high as 1.4 a few days ago. Vega is pretty small. Risk Graphs generated using ThinkorSwim, of course.

Here is a simulation of -200% vol on all strikes, based on 10/22 higher vol. As long as stock does not tank below 6 I am golden by nov OE. Note the IVs for each leg has increased quite a bit since 10/13. Vega is still pretty small.

Here is what the skews on the 2.5p between dec/jan has gotten to.
I dont know if I can get a fill on this but it would be an awesome hedge for the downside if FDA gives the finger to AVNR on 10/30.