Author Topic: Anyone playing option chains?  (Read 4863 times)

DumpTruck

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Anyone playing option chains?
« on: February 19, 2014, 03:04:53 PM »
Anyone out there playing any call/put options? What are you playing?

I'm just getting into it. My last play was a $6 Feb Put on ARNA. Looks like I should keep the premium and not get put the stock at this point. Others...

CALL
ZNGA
FRF

I'm looking for slightly volatile stocks in the $5-$15 range that tend to roll.

KingCoin

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Re: Anyone playing option chains?
« Reply #1 on: February 19, 2014, 03:12:35 PM »
You trading delta or just gambling?

Mister Fancypants

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Re: Anyone playing option chains?
« Reply #2 on: February 20, 2014, 04:06:13 AM »
I got hammered big time in Weekly Iron Condors on SPY during the government shutdown.

Too much Gamma/Delta and not enough Theta.

My wife says I have to stay away from options for a while.

DaKini

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Re: Anyone playing option chains?
« Reply #3 on: February 20, 2014, 05:48:54 AM »
For some time now i play the option in my mind to put a flame onto a bank note in front of others just to watch their faces.
Prior doing that, i will have an answer for anyona asking if im mad.

For smokers i already have the right answer as they effectiviely doing the same thing however i will stay more healthy.

Vjklander

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Re: Anyone playing option chains?
« Reply #4 on: February 20, 2014, 06:11:52 AM »
Nope, I don't engage in any of that funny business. Strictly buy and hold. None of my accounts are margin accounts.
Vjk

KingCoin

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Re: Anyone playing option chains?
« Reply #5 on: February 20, 2014, 09:14:04 AM »
This article makes a modestly interesting case for selling AAPL puts around the $480-500 strike:
http://seekingalpha.com/article/2023421-the-500-apple-put-backing-up-the-truck-on-buy-backs

Of course, a lousy quarter could temper both Icahn and Cook's enthusiasm for buying stock at $500. These things tend to work until they don't.

DumpTruck

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Re: Anyone playing option chains?
« Reply #6 on: February 20, 2014, 04:29:16 PM »
Hmm well $500 would tie up far too much capital to make any plays on.

To me, if I want to sell a stock within a certain price range, it makes a whole lot more sense to keep selling puts and reap the premiums until I get put the stock. Then, keeping cost basis in mind, sell calls on the stock until it's time to actually sell the stock.

Most things are a bit of a gamble at times. I consider these calculated risks, with ways out of a loss more than just plain buying and holding and sitting in for the ride.

beltim

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Re: Anyone playing option chains?
« Reply #7 on: February 20, 2014, 04:34:29 PM »
Hmm well $500 would tie up far too much capital to make any plays on.

To me, if I want to sell a stock within a certain price range, it makes a whole lot more sense to keep selling puts and reap the premiums until I get put the stock. Then, keeping cost basis in mind, sell calls on the stock until it's time to actually sell the stock.

Most things are a bit of a gamble at times. I consider these calculated risks, with ways out of a loss more than just plain buying and holding and sitting in for the ride.

Apple has mini options contracts that are for just 10 shares.

Alternatively, you could sell put spreads, which would let you reduce the capital at risk.  Of course, that increases the risk to your capital!

Nords

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Re: Anyone playing option chains?
« Reply #8 on: February 20, 2014, 09:16:30 PM »
Hmm well $500 would tie up far too much capital to make any plays on.
To me, if I want to sell a stock within a certain price range, it makes a whole lot more sense to keep selling puts and reap the premiums until I get put the stock. Then, keeping cost basis in mind, sell calls on the stock until it's time to actually sell the stock.
Most things are a bit of a gamble at times. I consider these calculated risks, with ways out of a loss more than just plain buying and holding and sitting in for the ride.
I've read McMillan's options textbook and sold covered calls for several years.  I've also sold some naked puts, although those have never been exercised.

The best reason we've found for selling options is to end the perpetual debate about rebalancing.  In the past, whenever our rebalancing tripwire was triggered then we'd still kvetch about letting values rise higher (or sink lower) before rebalancing.  Now when we reach that tripwire I just sell the appropriate call or put option, pocket the premium, and go surfing.  No more debates, no more agonizing, and somehow that little bit of premium encourages us to do what we needed to do anyway.  My Berkshire Hathaway puts expired last month and I haven't bothered doing the research to sell any more of them-- we seem to have enough money and no need to load up on more shares of BRK.

Before you go all Iron Condor on yourself, you might want to read Dixonge's experience on Early-Retirement.org:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682.html

He lasted for about 18 months before the volatility killed him:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682-8.html#post939013

Along the way he had a lot of good explanations for the way things were working, but at the end the markets managed to be irrational for far longer than he could maintain solvency.  To his credit, he disclosed everything and admitted the problems when they cropped up.  He and his spouse are now vagabonding throughout the southern U.S. and Latin America, so they still managed to make their ER plan work after a fashion.

If you can't make the time to read McMillan's options textbook, then you're just running blindfolded back & forth across a six-lane highway.  Even after you read it, you may still be wearing an eyepatch or cheap sunglasses.  "So far so good!"

beltim

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Re: Anyone playing option chains?
« Reply #9 on: February 20, 2014, 09:38:15 PM »
I've read McMillan's options textbook and sold covered calls for several years.  I've also sold some naked puts, although those have never been exercised.

If you can't make the time to read McMillan's options textbook, then you're just running blindfolded back & forth across a six-lane highway.  Even after you read it, you may still be wearing an eyepatch or cheap sunglasses.  "So far so good!"

Are you talking about Options as a Strategic Investment, 5th Edition?  I've been looking for a good book on options.

Mister Fancypants

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Re: Anyone playing option chains?
« Reply #10 on: February 20, 2014, 10:18:10 PM »
Hmm well $500 would tie up far too much capital to make any plays on.
To me, if I want to sell a stock within a certain price range, it makes a whole lot more sense to keep selling puts and reap the premiums until I get put the stock. Then, keeping cost basis in mind, sell calls on the stock until it's time to actually sell the stock.
Most things are a bit of a gamble at times. I consider these calculated risks, with ways out of a loss more than just plain buying and holding and sitting in for the ride.
I've read McMillan's options textbook and sold covered calls for several years.  I've also sold some naked puts, although those have never been exercised.

The best reason we've found for selling options is to end the perpetual debate about rebalancing.  In the past, whenever our rebalancing tripwire was triggered then we'd still kvetch about letting values rise higher (or sink lower) before rebalancing.  Now when we reach that tripwire I just sell the appropriate call or put option, pocket the premium, and go surfing.  No more debates, no more agonizing, and somehow that little bit of premium encourages us to do what we needed to do anyway.  My Berkshire Hathaway puts expired last month and I haven't bothered doing the research to sell any more of them-- we seem to have enough money and no need to load up on more shares of BRK.

Before you go all Iron Condor on yourself, you might want to read Dixonge's experience on Early-Retirement.org:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682.html

He lasted for about 18 months before the volatility killed him:
http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682-8.html#post939013

Along the way he had a lot of good explanations for the way things were working, but at the end the markets managed to be irrational for far longer than he could maintain solvency.  To his credit, he disclosed everything and admitted the problems when they cropped up...

I got hammered big time in Weekly Iron Condors on SPY during the government shutdown.

Too much Gamma/Delta and not enough Theta.

My wife says I have to stay away from options for a while.

Glad I'm not alone, as I mentioned earlier I got hammered with Iron Condors. 

I set up an entity mid last year to do some trading that was my first mistake. Next I figured I would fund the account with 0% balance transfers from credit cards, I figured I would do much better than the old ING Direct Balance transfer arbitrages. That was mistake number 2.

My first trading strategy I tried was scalping Bid/Ask spreads on SPY, I didn't think the FX markets offered enough leverage that was my next mistake, I was doing ok, but got greedy instead of sticking to my trading plan and stopping out when I was ahead I let too many trades ride and wound up losing my small but steady profits to large losses.

I now decided that this was way too risky and needed another strategy, along comes the credit spread, wow what a home run I can pick which way the market is going to move then sell a spread collect premiums and ride the gravy train all the way home, then for no extra margin you can make it an Iron Condor by selling the credit spread on the opposite side of the market. I only traded SPY Iron Condors, you can earn about 10% to 12% a month so the gurus say if you play them right. But why just go for the 10% a month, they are weeklies, I can earn 12% a week, letís sell an IC every week and just rake in the premiums. Oops, weeklies have a boatload of Gamma which can change your Delta much faster than your change in Theta. Crap letís get in trouble because the government is going to shut down and the market is going to explode instead implode... oops the tea leaves were wrong.... or maybe I was holding the chart backwards, or maybe I didn't even look at one... Maybe it didn't even matter because instead of cutting losses I would roll my weeklies into the following week or a monthly IC and hope I can salvage the position, hey a dollar and dream itís like a lotto ticket.... you never know...

Long story short I lost $32k between scalping and weekly and monthly Iron Condors between April and December of 2013, kicker is I only have about 112 trades probably not enough to get trader status and claim mark to market and claim it as a business loss so it is just a capital loss.

I have paid the credit cards back (this probably only set our FI goals back by maybe 2 to 3 months) and learned my lesson (you need a solid game plan and exit strategy, no more haphazard bullshit), now if that doesn't scare you just a little or some of those terms are foreign to you stay away from options trading or at least the more complex strategies.

Oh and by the way I'm not a rookie either, for the last decade I have been writing financial software on Wall Street, so if I can get wiped out doing this and you have less of a financial background there is a pretty good shot you can lose too.

Happy Trading :)
-Mister FancyPants


Nords

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Re: Anyone playing option chains?
« Reply #11 on: February 22, 2014, 08:48:07 PM »
I've read McMillan's options textbook and sold covered calls for several years.  I've also sold some naked puts, although those have never been exercised.

If you can't make the time to read McMillan's options textbook, then you're just running blindfolded back & forth across a six-lane highway.  Even after you read it, you may still be wearing an eyepatch or cheap sunglasses.  "So far so good!"

Are you talking about Options as a Strategic Investment, 5th Edition?  I've been looking for a good book on options.
Yep, that's the one-- recommended to me years ago by Brewer12345. 

If you're ready to trade options then this book will give you the tools.  For those merely attracted to the temptations of outrageous profits then this book will deglamorize the whole idea and cause them to move on to some other investment fad.  Either way the book works very well.

I'll point out once again that the reason we sell call/put options is not because we're getting filthy rich from it.  (Although we cackle with glee like Montgomery Burns every time the premiums are credited to our brokerage account.)  The reason for the trades is because we're supposed to be selling/buying shares in the first place, and selling options is the little nudge that we need to give ourselves to make the rebalancing happen.

Jacob Lund Fisker used to sell call options (maybe he still does) but he mentioned that the tax paperwork was a drag.  I don't enjoy it either but at least it can be downloaded from Fidelity instead of entered by hand. 

arebelspy

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Re: Anyone playing option chains?
« Reply #12 on: February 22, 2014, 10:34:32 PM »
The reason for the trades is because we're supposed to be selling/buying shares in the first place, and selling options is the little nudge that we need to give ourselves to make the rebalancing happen.

This is a great reason.

Good summary of the topic here, for those who are a bit lost: http://www.joshuakennon.com/people-will-pay-promise-buy-stocks-wanted-buy-anyway/

If you're considering actually doing it though, Nord's book recommendation is the way to go before you start using real monies to do so.
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