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PaceAdvantage
03-26-2013, 09:14 PM
Specifically, a seller of credit spreads...iron condors, etc.?

What do you think about the following two videos? Pretty incredible stuff...almost a little hard to believe....

cXy9HoWX0es
BquDGE9KxZQ

RaceBookJoe
03-26-2013, 09:52 PM
I actually watched those videos a week or 2 ago. She sells a lot of premium. I am just getting back into options, did more option trading back a few years ago and just got away from it. Options trading gets easier once you get the stock part of it correct :)

PaceAdvantage
03-27-2013, 12:03 AM
I actually watched those videos a week or 2 ago. She sells a lot of premium. She does sell lots of premium and takes on tons of risk. In the beginning at least, it seems she was trading 5 delta condors...which is like a 90% probability...and you have to trade lots of contracts and take on lots of risk to make any money at that level...

You're talking maybe making $1000 for every $10000 in risk...

Magister Ludi
03-27-2013, 12:18 AM
She does sell lots of premium and takes on tons of risk. In the beginning at least, it seems she was trading 5 delta condors...which is like a 90% probability...and you have to trade lots of contracts and take on lots of risk to make any money at that level...

You're talking maybe making $1000 for every $10000 in risk...

She said that net liq is more important than net risk. There's no alpha there.

Dave Schwartz
03-27-2013, 01:04 AM
Options? Me? Naw, that would be too much like gambling.

:lol:

lamboguy
03-27-2013, 05:37 AM
you can compare what she did to a horse player that is a bridge jumper, which is technically the only way to beat horse racing, and what she did is probably the only way to beat the option's game.

my experience with options comes from 2 different people. i knew Fisher Black who wrote the option's theory of volatility called Black Scholes Model. with that model, Black left The Sloan School of Business @MIT to work for Goldman Sachs. they used that model to beat the game for billions. Myron Sholes formed a company called Long Term Capital that eventually almost sent this whole country into bankruptcy.

i knew another guy that was a backgammon player, and he was the smartest person i have ever seen in my entire life. his name was Chris Peterson. he became a market maker of the Major Market Exchange traded options. he told me that if it was up to him he would let people trade those options without commission's. bottom line is that on a tuesday morning on a rainy day in October of 1987, Chris went up the elevator at the Philadelphia Exchange worth $25 million, when he took the ride down that afternoon he owed $30 million. a half hour later he sevened out with suicide.

what i have learned in life is that there is no such thing as 1 person being bigger than the market's. the markets are the final arbitrator to everything.

badcompany
03-27-2013, 08:50 AM
you can compare what she did to a horse player that is a bridge jumper, which is technically the only way to beat horse racing, and what she did is probably the only way to beat the option's game.


The most often used metaphor is "picking up nickels in front of a steamroller."

barn32
03-27-2013, 09:18 AM
She does sell lots of premium and takes on tons of risk. In the beginning at least, it seems she was trading 5 delta condors...which is like a 90% probability...and you have to trade lots of contracts and take on lots of risk to make any money at that level...

You're talking maybe making $1000 for every $10000 in risk...Could you briefly explain a delta (or iron) condor. I assume it is some sort of spread.

Tape Reader
03-27-2013, 10:56 AM
The Alligator spread: You buy the stock, write the Call, short the Put, hedge with a Straddle, and get eaten alive by commissions.

PaceAdvantage
03-27-2013, 11:01 AM
The most often used metaphor is "picking up nickels in front of a steamroller."Perhaps, but it's not that extreme in the case of trading these things like iron condors. While the risk can be numerically high, it's a controlled risk in my opinion...the only REAL danger is some huge overnight gap move that completely blows out one of your short strikes...but even then, you should not be trading that kind of risk where one big move against you blows out your entire account...thus steamrolled....

Is that what she was doing? It wouldn't appear so...

PaceAdvantage
03-27-2013, 11:02 AM
Could you briefly explain a delta (or iron) condor. I assume it is some sort of spread.I suggest googling them...probably a better explanation available there then I could give...

Valuist
03-27-2013, 11:06 AM
you can compare what she did to a horse player that is a bridge jumper, which is technically the only way to beat horse racing, and what she did is probably the only way to beat the option's game.



Inside information would certainly be another way. We hear guys like the Najarian brothers come on CNBC and talk about unusual put buying or call buying in certain stocks. It likely is a company insider, or someone who's a friend of the insider, and knows the company will blow away earnings, or suffer a major shortfall. They can mask the play a bit more, but of course, nowadays its not completely hidden. And it eventually works its way into the regular price.

Magister Ludi
03-27-2013, 11:12 AM
Could you briefly explain a delta (or iron) condor. I assume it is some sort of spread.

Bull put spread + bear call spread = iron condor.

The iron condor “investor” [read: gambler] trades a relatively low probability of a large loss for a relatively high probability of a small gain. When greed > fear, “investors” will leg into/out of the trade and not put on/take off both legs at the same time. When a 3+ sigma-event occurs, it's all over but the crying.

barn32
03-27-2013, 11:40 AM
Bull put spread + bear call spread = iron condor.

The iron condor “investor” [read: gambler] trades a relatively low probability of a large loss for a relatively high probability of a small gain. When greed > fear, “investors” will leg into/out of the trade and not put on/take off both legs at the same time. When a 3+ sigma-event occurs, it's all over but the crying.Thanks. These kinds of positions make my head hurt. I've traded naked options in the past, and it was one of the most frightening things I've ever done. I would usually just sell the long or short premium and take my chances. The last time I did this I was long Nvidia, and the day before expatriation I had a nice profit locked up when some bad news came out to kill me. That's when I gave them up.

However, a good friend of mine, who was extremely bright and also one of the most risk averse and tightest individuals on the planet (when he went to France on vacation he just stayed in his room and ate soda crackers, because he didn't want to spend the money for a meal) would trade naked options in a completely different way.

He'd sell an out of the money call. Then, if it started moving against him, he would sell an out of the money put--you know, to collect more premium. In fact, he might just keep doing this back and forth selling right down to expiration. Sometimes his profit range would be so narrow that I couldn't believe he would put on these trades. And, he always came out smelling like a rose--until that one fateful day he lost 40K.

For someone as tight as he was I couldn't believe how he would continually risk losing his home trading these naked options the way he did.

He just kept insisting it was the smartest play.

Magister Ludi
03-27-2013, 06:08 PM
...He'd sell an out of the money call. Then, if it started moving against him, he would sell an out of the money put--you know, to collect more premium. In fact, he might just keep doing this back and forth selling right down to expiration. Sometimes his profit range would be so narrow that I couldn't believe he would put on these trades. And, he always came out smelling like a rose--until that one fateful day he lost 40K.

For someone as tight as he was I couldn't believe how he would continually risk losing his home trading these naked options the way he did.

He just kept insisting it was the smartest play.

That strategy is know as "selling teenies". Some floor traders on the kabooey (CBOE) would sell far out of the money options for 1/16. They were called "teenth sellers" or "teenie sellers". After kurtotic events, such as October 19, 1987, you could buy diamond pinkie rings and Rolls Royces for a song from all of the teenie sellers. Some of them even had to sell their exchange seats.

thaskalos
03-27-2013, 06:24 PM
Interesting videos...

I wonder how many horseplayers would dish out $22,000 up-front to "further their education"...:)

badcompany
03-27-2013, 06:54 PM
Interesting videos...

I wonder how many horseplayers would dish out $22,000 up-front to "further their education"...:)

Most have, and more :lol:

thaskalos
03-27-2013, 06:55 PM
Most have, and more :lol:

I know...that's why I added the "up-front" part. :)

RaceBookJoe
03-27-2013, 07:10 PM
The biggest mistake that traders make when doing spreads is that they look at the spread first, when they really should look at the stock first. If you get the stock part correct, your odds are better of a winning spread. My issue with spreads is for example a $5 spread on 10 contracts is $5000 risk, and you usually wont get much more than 50cent premium..if things expire. I know a few people who do a ton of spreads, they just love selling theta and collecting that premium..its just not my thing. Also have a friend who sells naked options, sometimes as a daytrade, but other times he does it on the weeklys.

tbwinner
03-27-2013, 08:00 PM
I made a boatload doing opinionated, directional butterfly spreads......and also lost a boatload. As with every financial tool, leverage is dangerous in many ways. I made good income scalping and churning for 6 months fulltime but it was much too much stress and I gave it up and just became an observer. Mainly from being stuck short in a few contracts of wheat futures a few years back when it was going limit up days upon days in a row.

barn32
03-27-2013, 08:32 PM
That strategy is know as "selling teenies". Some floor traders on the kabooey (CBOE) would sell far out of the money options for 1/16. They were called "teenth sellers" or "teenie sellers". After kurtotic events, such as October 19, 1987, you could buy diamond pinkie rings and Rolls Royces for a song from all of the teenie sellers. Some of them even had to sell their exchange seats.I'm familiar with this strategy, but my friend wasn't into nickels and dimes. He was selling premium that wasn't very far out of the money.

For example, let's say MSFT was trading at 27. He would sell the 30 call. Now if MSFT rose to 29 he would sell the 25 put. Then if MSFT fell back to 27 he would sell more 30 calls. If it continued to fall to 25, he would sell the 27.5 calls and start to get very nervous. If it rose to 27, he then might sell more 25 puts. MSFT had to expire within a very narrow range on expiration for him to achieve maximum profit (if any profit at all). In this case somewhere between 25 & 27.5.

He was praying it would get pinned to the strike (or as close as possible) and he was right a high percentage of the time. But there were many, many occasions when he would be sweating gorilla bullets. And then, when the stock closed at 26.5, he would just say, "See, I told you it was a good trade."

Jesus God in heaven is this any way to live your life?

RaceBookJoe
03-27-2013, 09:21 PM
I'm familiar with this strategy, but my friend wasn't into nickels and dimes. He was selling premium that wasn't very far out of the money.

For example, let's say MSFT was trading at 27. He would sell the 30 call. Now if MSFT rose to 29 he would sell the 25 put. Then if MSFT fell back to 27 he would sell more 30 calls. If it continued to fall to 25, he would sell the 27.5 calls and start to get very nervous. If it rose to 27, he then might sell more 25 puts. MSFT had to expire within a very narrow range on expiration for him to achieve maximum profit (if any profit at all). In this case somewhere between 25 & 27.5.

He was praying it would get pinned to the strike (or as close as possible) and he was right a high percentage of the time. But there were many, many occasions when he would be sweating gorilla bullets. And then, when the stock closed at 26.5, he would just say, "See, I told you it was a good trade."

Jesus God in heaven is this any way to live your life?

Using weeklys in to sell premium around a strike pin is a very popular strategy now, especially if you can put the play on weds/thurs..or tues/weds for this week since the market is closed on friday. Im still much happier and sleep better being flat at the end of the day, i dont mind leaving money on the table.

delayjf
03-27-2013, 11:38 PM
I wish I understood what the hell you guys are talking about.

PaceAdvantage
03-28-2013, 02:12 AM
you can compare what she did to a horse player that is a bridge jumper, which is technically the only way to beat horse racing, and what she did is probably the only way to beat the option's game.No, it's not really like bridge jumping.

Because although her risk/reward ratio is (at least in the beginning, and probably close to it even now) on the order of an ungodly 1/10, much like it is in bridge jumping, the outcome of an options trade isn't a binary event like it is in horse racing. In horse racing, you either win or you lose your entire wager.

In options trading, you don't HAVE TO lose your entire amount at risk. You have options (pun intended). You can adjust the trade if it starts to go against you, or you can exit the trade BEFORE you lose your entire amount at risk.

The only time it's like bridge jumping is if some rare, catastrophic market event occurs over which you have little or no control. And that's where position sizing comes in. Your account must be large enough to endure the type of risk you're putting into play. This goes for bridge jumpers as well.

But options traders like Karen in the video have a much better game to play than do bridge jumpers, who have only two possible outcomes. They either win their bet, or lose it all.

JustRalph
03-28-2013, 02:44 AM
I wish I understood what the hell you guys are talking about.

Me too.....

PaceAdvantage
03-28-2013, 02:55 AM
I was always mystified by options...never thought I'd get into them...but I educated myself a bit and am now fascinated by them....a very dangerous move... :lol: :lol: :eek:

lamboguy
03-28-2013, 03:30 AM
No, it's not really like bridge jumping.

Because although her risk/reward ratio is (at least in the beginning, and probably close to it even now) on the order of an ungodly 1/10, much like it is in bridge jumping, the outcome of an options trade isn't a binary event like it is in horse racing. In horse racing, you either win or you lose your entire wager.

In options trading, you don't HAVE TO lose your entire amount at risk. You have options (pun intended). You can adjust the trade if it starts to go against you, or you can exit the trade BEFORE you lose your entire amount at risk.

The only time it's like bridge jumping is if some rare, catastrophic market event occurs over which you have little or no control. And that's where position sizing comes in. Your account must be large enough to endure the type of risk you're putting into play. This goes for bridge jumpers as well.

But options traders like Karen in the video have a much better game to play than do bridge jumpers, who have only two possible outcomes. They either win their bet, or lose it all.there is a new product on the market called NADEX, it is a binary option. you can bet them with very short time frames like a few hours, or bigger ones. you have a predetermined risk no matter how far your position goes against you.

a good bridge jumper in horse racing finds opportunities where the true probabilities are less priced than the minimum payoff. most places have mandatory payoffs of $2.10, some of the propositions are in the $2.05 range.
you are only supposed to lose if there is a catastrophic occurence---horse breakdown, jockey falloff, or disqualification. bridge jumping in horse racing also allows the jumper to hedge the bet inside the pool that will create a lower return but a positive one. this is precisely what the super-trader Karen is doing with option's. it is almost the very same thing as bridge jumping. i can even make an argument that one will be more successfull in horse racing pools than in options trading.

PaceAdvantage
03-28-2013, 03:38 AM
you are only supposed to lose if there is a catastrophic occurence---horse breakdown, jockey falloff, or disqualification.Nah...come on, we see bridge-jumped horses finish off the board often enough with nothing catastrophic to blame their poor showing on...they simply get beat...

Unless the market gaps up or down tremendously overnight, those who are trading spreads like iron condors have time to make adjustments or get out of the trade before they lose all of the money they have put at risk.

So a trader like Karen will win about 80% of her trades outright, and most of the time when she DOES lose, she isn't going to be losing the max amount at risk.

That's a whole lot different than bridge jumping...

badcompany
03-28-2013, 04:04 AM
Nah...come on, we see bridge-jumped horses finish off the board often enough with nothing catastrophic to blame their poor showing on...they simply get beat...

Unless the market gaps up or down tremendously overnight, those who are trading spreads like iron condors have time to make adjustments or get out of the trade before they lose all of the money they have put at risk.

So a trader like Karen will win about 80% of her trades outright, and most of the time when she DOES lose, she isn't going to be losing the max amount at risk.

That's a whole lot different than bridge jumping...

The put/call selling game is akin to booking bets on long shots. It's all well and good until the longshot wins.

What you're saying is that when the longshot looks like he's gonna win, you can fob off the bet. That sounds good in theory but in reality no one is gonna accept the responsibility of paying off a longshot which is now a favorite unless they are compensated accordingly.

PaceAdvantage
03-28-2013, 04:14 AM
The put/call selling game is akin to booking bets on long shots. It's all well and good until the longshot wins.I have an iron condor going in Amazon (with about a 1/6 reward/risk ratio)...it's a weekly option I opened last Friday and will expire this coming Friday (last trading day is tomorrow due to holiday). As of this very moment, the price is pressed firmly up against my short strike on the call side.

I could have easily gotten out of the trade today with a minor loss (about 14% of my total at risk amount). But I decided to hold on until tomorrow to see if the price comes back down a bit after today's move up. Is that a smart move? We shall see...however, don't let it be said I didn't have an easy out...and that's the difference in a nutshell.

Robert Goren
03-28-2013, 10:35 AM
The put/call selling game is akin to booking bets on long shots. It's all well and good until the longshot wins.

What you're saying is that when the longshot looks like he's gonna win, you can fob off the bet. That sounds good in theory but in reality no one is gonna accept the responsibility of paying off a longshot which is now a favorite unless they are compensated accordingly.It is more like selling hurricane insurance in Florida. It is not of if, but a matter of when. I don't remember who said or the exact quote but it went something like this. " Option trading is the the most efficient way ever come with to seperate a man from his money. It is three card monte played on a large scale. The sucker has no chance"

RaceBookJoe
03-28-2013, 12:34 PM
There are a bunch of different strategies you can use with options. Most have a defined risk, its selling naked ones that can crush you. Lots of great possibilities with daytrading the weeklys also especially for those with smaller accounts.

edit: as an example, the AAPL Mar28 465P i got on monday has gone from $3.65 to $19.50 . Thats great money and fairly affordable for most anyones account.

badcompany
03-28-2013, 12:57 PM
It is more like selling hurricane insurance in Florida. It is not of if, but a matter of when. I don't remember who said or the exact quote but it went something like this. " Option trading is the the most efficient way ever come with to seperate a man from his money. It is three card monte played on a large scale. The sucker has no chance"

It's basically a commissions scheme for the brokerage industry. The expiration of the option brings the trade to a close requiring the trader to pay more commissions if he wants to get back in the game.

These "complex" strategies are very popular with brokerages as they usually involve several trades/commissions paid.

barn32
03-28-2013, 01:03 PM
I wish I understood what the hell you guys are talking about.
Me too.....Forgive me this simplistic explanation, but one day a young nephew of mine wanted to know how options worked and this is how I explained it to him.

A writer has a movie script he wants to sell. He takes it to a producer. The producer thinks it has promise, but he doesn't know if he can raise the money to get it made, so he tells the writer he'll give him $25,000 (the writer wants $250,000 for the script) for a six month option.

The producer is paying $25,000 for six months of time to see if he can make this movie. This gives him exclusive rights to the property for six months. If he can find the backing to go into production, he pays the writer an additional $250,000 for the script. But if at the end of six months he has no luck the option expires worthless and the property falls back to the writer who is free to do with it what he likes plus he pockets the $25,000.

But now let's say three months into the six month option the script turns out to be a hot property, and another investor offers the producer $100,000 for his option. He can keep it, or sell it to the other guy and pocket $75,000 for himself. Instead of making the movie, he just sells the option for a profit. Now the other guy owns the option and has three months to do something with it.

Or this could happen: the script is suddenly worth $1,000,000. The producer sells it to someone else for a million bucks, pays the writer $250,000 and pockets the $725,000 difference. (Minus $25,000 for the option.) In this case his leverage was huge. He got 29 to one on his original $25,000 investment.

Whether the movie gets made or not the writer pockets the $25,000 (the premium).

That's how a call option works. The writer sold the option, and the producer bought the option. All options have a buyer and a seller.

If you like a stock selling for $30 a share and you think it might make a nice, quick upward move, you can purchase an option to buy this stock for $32.50. (The strike price.) You will pay a premium of say, $75 for the privilege and you get 30 days of time to make it happen. (One option gives you the right to buy 100 shares.) Someone, a trader is the one selling you that option. That trader pockets the $75. (The premium) If the stock closes at $32.50 or less you lose your premium. If it closes at $33.25, you break even. If it closes at 37, you make $375 (5 to 1 on your money), and the trader who sold you the option loses $300. ($375 minus the $75 premium he collected initially.)

Of course, at some point, the seller could opt to get out and sell for a smaller loss.

Look what happens if another company makes an offer to buy your company and the stock suddenly moves up to $53 a share. (Admittedly a rare event, but 1987, and 9/11 were rare events as well that played havoc with the markets.)

You can choose to be a buyer or seller of options. If you buy an option your risk is limited. In this case the most you can lose is $75. But if you choose to be the seller of an option, in theory, your risk is unlimited. (If the stock shoots up to $100 a share, and you haven't gotten out, then you have to fade all of that move.)

Most options expire worthless and the seller of the premium just pockets the money.

There are traders out there who do nothing but sell premium all day long.

Why not just buy the stock for $30 and sell it for $37? If you do that your initial outlay will be $3000, not $75. And again, in theory, the stock could go to zero and you would be out the entire three grand.

Options offer leverage and hedging opportunities, and they can get much more complicated from there.

RaceBookJoe
03-28-2013, 01:59 PM
Great explanation of options basics :ThmbUp:

Ocala Mike
03-28-2013, 02:35 PM
Selling covered calls on a stock you hold is a fairly risk-free income producing strategy. I'd compare it to having the winner in a race where there's a claim of foul against him, then betting someone he comes down to hedge a little.

RaceBookJoe
03-28-2013, 03:32 PM
There are a bunch of different strategies you can use with options. Most have a defined risk, its selling naked ones that can crush you. Lots of great possibilities with daytrading the weeklys also especially for those with smaller accounts.

edit: as an example, the AAPL Mar28 465P i got on monday has gone from $3.65 to $19.50 . Thats great money and fairly affordable for most anyones account.

Last check, those puts are $22.95...somewhere around 600%ish, not too bad for 4 days.

Tape Reader
03-28-2013, 08:00 PM
Last check, those puts are $22.95...somewhere around 600%ish, not too bad for 4 days.

I applaud your gain. Was it technical or fundamental? No need to explain "exactly" if it is technical.

RaceBookJoe
03-28-2013, 09:26 PM
I applaud your gain. Was it technical or fundamental? No need to explain "exactly" if it is technical.

Thanks, it was just one that worked nicely. I got out at $19.50 on my last half, just happened to check back and saw it moved more. I only use technical and rarely do I hold something that long. Only reason I held was because i took off half contracts off earlier in the week and was up. Still a nice trade. Only fundamental research i do is to check if a company has earnings coming out..no other fundamental analysis is worthwhile to me.

PaceAdvantage
03-28-2013, 09:33 PM
On the flip side to RaceBookJoe, my Amazon condor flopped, and I lost about 25% of my total at risk...I could have exited around 10-1030 am when the court ruling against Amazon came out and probably could have gotten close to max profit, but like an idiot, I wasn't in front of my computer at that time, and the move quickly reversed itself....

Lesson learned on multiple fronts.

Tape Reader
03-28-2013, 10:32 PM
Thanks, it was just one that worked nicely. I got out at $19.50 on my last half, just happened to check back and saw it moved more. I only use technical and rarely do I hold something that long. Only reason I held was because i took off half contracts off earlier in the week and was up. Still a nice trade. Only fundamental research i do is to check if a company has earnings coming out..no other fundamental analysis is worthwhile to me.

Thank you. I agree. I very much enjoy your contributions.

newtothegame
03-29-2013, 12:38 AM
I have to say Thanks to Mike for bringing this thread into his forum.
Recently, I joined another forum for just this thing.
Admittedly, I am a novice and havent started actual trading. But, I am greatly intrigued by the prospects of contributors here furthering this thread as a possible educational thing......
Thanks again Race, Mike, and all those who have contributed so far.....

RaceBookJoe
03-29-2013, 12:50 PM
Thank you. I agree. I very much enjoy your contributions.

Thanks, i assume you are into the markets by your forum name. Anytime you want to talk stocks either start a thread or message me. Im not an investor though..barely know what i am having for lunch today, much less what some stock will do 3 months from now haha. I am fairly new to the options daytrading game, but in the past have done covered calls, bull put/bear call spreads in addition to just going long puts/calls for directional moves. Options can be tricky, knowing which delta to use, having a trade timeframe for the move etc. As long as you dont try the naked plays, at least your max risk is defined, and thats only if you hold to the last day. I have had losers where i took the full loss because it would have cost me more in commissions to close out the option than it would be for it to expire worthless.

For newcomers, i would suggest not using a bunch of strategies and start just buying either a call or a put, depending on if you think the stock will go up or down. For moves lasting maybe 2-4 months, I like to look at a 70-80 delta ( which will help with risk ), when daytrading i usually take a lower delta because i will be out of the position maybe in a few minutes.

FiveWide
03-29-2013, 09:07 PM
Great thread! I've always wanted to get interested in the stock market a little but didn't feel like risking alot of money. After reading this thread it sounds like options fit the bill a little better.

I think I understand the basics but I do have a few questions.

1. One of the posters mentioned the ability to resell your option you purchased. How is this done?

2. Who makes the parameters for the options such as strike price, time frame etc.


thx,
-Five

MightBeSosa
03-29-2013, 09:59 PM
There are a bunch of different strategies you can use with options. Most have a defined risk, its selling naked ones that can crush you. Lots of great possibilities with daytrading the weeklys also especially for those with smaller accounts.

edit: as an example, the AAPL Mar28 465P i got on monday has gone from $3.65 to $19.50 . Thats great money and fairly affordable for most anyones account.

That's great, and if you could tell us about some of those before they rip, and not have to mix in 10 losers , we'll all contribute to a fund and let you manage it.

For true action junkies, trading options the day before and especially the day of expiration is where it's at. You can make 5x in minutes, doubles, triples, all day long. And for big $ if you so desire. Not parimutuel, so no matter what you bet, within reason, the price doesn't change, you might even help it move your way.

RaceBookJoe
03-30-2013, 02:20 PM
Great thread! I've always wanted to get interested in the stock market a little but didn't feel like risking alot of money. After reading this thread it sounds like options fit the bill a little better.

I think I understand the basics but I do have a few questions.

1. One of the posters mentioned the ability to resell your option you purchased. How is this done?

2. Who makes the parameters for the options such as strike price, time frame etc.


thx,
-Five

Not sure i have the best answers to your questions. You buy an option through your broker, and you can sell it the same way..just has to be sold before it expires. Question #2, the CBOE is the main authority on options. Strike prices have a relationship the stock prices. Lower priced stocks will usually have options at $1 strike prices, some have them at $2.50. Higher priced stocks usually have $5 strike price differences. So a $20 stock ( not every stock has options ) , might have strikes at $18,$19,$20 etc where a stock like GOOG will have them at $800, $805 etc.
There are a few types of options, weeklys which expire each week, Monthlys ( not just the current or following month) which expire 3rd friday of each month, and LEAPS which can be a year out. There actually is a 4th "type" of option called mini-options ( equal to 10 shares as opposed to 100 shares like normal options). The minis are only available on a few symbols..AAPL,AMZN,GOOG,SPY,GLD.
Strike price premiums are a whole other convoluted explanation haha. If you go to the CBOE website, you can find a ton of info, plus they list the current stocks that have weekly options.

RaceBookJoe
03-30-2013, 02:24 PM
That's great, and if you could tell us about some of those before they rip, and not have to mix in 10 losers , we'll all contribute to a fund and let you manage it.

For true action junkies, trading options the day before and especially the day of expiration is where it's at. You can make 5x in minutes, doubles, triples, all day long. And for big $ if you so desire. Not parimutuel, so no matter what you bet, within reason, the price doesn't change, you might even help it move your way.

No interest in managing money, and unfortunately most of my plays come up too quick to even send an email.

About playing options on expiration day, you have to realized that while you CAN get those moves ( you can get them any day actually ), premium gets sucked out much quicker, so you might get a stock move a bit but your option still loses its value. I will say though, options is the one area where you can get 500%, 1000% moves in an hour.

MightBeSosa
03-30-2013, 06:50 PM
Gee, that amazing aapl play took 3 days to play out.

You must have slow email

FiveWide
03-30-2013, 09:45 PM
Thanks RBJ! Your answers helped a lot. :ThmbUp:


-Five

barn32
04-02-2013, 01:43 PM
Covered Calls

A covered call is one of the simplest (and safest) option strategies. You can even sell covered calls in an IRA account.

What you are doing is selling an option on something that you already own. (In post #34 I gave a crude example of a covered call. (A screenwriter sells an option to a producer on a script that he wrote and owns.)

If you own 100 shares of MSFT and it's trading at 27, you might decide to sell a covered call at the 30 strike price. Your primary reason for doing this would be because you felt MSFT would not close above 30 in 30 days time.

Covered calls are a way of generating income on stock that you own. This is especially true if you think the stock is going to stay in a very narrow range and not make much of a move.

If the option, is selling for $1, then you would collect a $100 premium ($1 x 100 shares) for selling that 30 strike call. This $100 is considered income and will be immediately added to your account. You can even use that money to make another trade.

For every 100 shares that you own, you can sell one covered call. (You should be aware that selling a put (naked) is the basically the exact same thing as putting on a covered call--but with one less commission. The downside is that it requires a larger account balance, and there are also a few other considerations--see the book reference below. Warren Buffett sells a lot of naked puts.)

The downside to writing covered calls (and yes, there is one) is if the stock should shoot up to $40 a share. The option you sold would be worth $1 for every $1 that it closed above $30. In this case $10. The option is said to be in the money. You would lose out on most of that upside appreciation.

If the stock goes from $27 to $40 you have a profit of $1300 from the stock. Add to that the $100 premium you took in from selling the option, and you now have a profit of $1400. However, the option will now be worth $10 (or $1000). This makes your net profit $400, which is also the maximum profit you can make on this trade. You make this $400 profit whether the stock closes at $30 or $100.

The upside gain on the stock covers any upside gain on the option above $30.

If the stock closes anywhere between $27 and $30 you profit $100 (plus any stock appreciation.)

If the stock closes at $26 you break even. In this case doing a covered call gave you $100 of downside protection. (Yet another benefit.) If it closes at $20, you have a paper loss on your stock of $600.

This book by McMillan (http://www.amazon.com/McMillan-Options-Second-Wiley-Trading/dp/0471678759) is considered the Bible of options trading, and now I see there is a revised second edition. It's very well written and easy to read. He covers every kind of option trade imaginable--even the elusive Butterfly Spread, which I read about and understood (at the time), but would never even dream of making.

He explains things much better than I possibly could, and you should be able to pick it up at any library.

Dave Schwartz
04-02-2013, 04:43 PM
Barn and others.
(but especially Barn as his explanations seem easy enough for even me).

I watched "Karen, Supertrader" videos but could use some help with explanation.

1. "Do I understand that she buys a whole bunch of different options in the same direction on the same stock?"

2. "If so, when does she close her position(s)?"

3. "What if the stock goes south?"

barn32
04-02-2013, 08:48 PM
Barn and others.
(but especially Barn as his explanations seem easy enough for even me).

I watched "Karen, Supertrader" videos but could use some help with explanation.

1. "Do I understand that she buys a whole bunch of different options in the same direction on the same stock?"

2. "If so, when does she close her position(s)?"

3. "What if the stock goes south?"I'm watching the videos now for the first time. (My Internet has been horrible for several weeks.) After I view them I'll try and answer your questions.

RaceBookJoe
04-02-2013, 09:47 PM
Barn and others.
(but especially Barn as his explanations seem easy enough for even me).

I watched "Karen, Supertrader" videos but could use some help with explanation.

1. "Do I understand that she buys a whole bunch of different options in the same direction on the same stock?"

2. "If so, when does she close her position(s)?"

3. "What if the stock goes south?"

Before I try to give answers to your questions, i just want to say something about Barn's covered call post. Once they started with the weeklys, you can now do covered calls for a much shorter hold time, and keep repeating each week. Before weeklys, you had to do the play using monthlys, which upped the risk a bit. Pros and cons to using both.

1. I got the feeling that when positions start moving, she just reacts/adjusts accordingly..so yes, she would be buying/selling as deemed necessary.
2. My take is that since she is selling options and mentioned that she hates stops ( question 3 ) , that he main goal is to survive so that they all expire worthless, which is a great thing for an option seller.
3. Kind of answered in 2, sounded like she only plays indices for the most part also. When position moves against her, she sells different strikes to bring in premium..maybe like a hedge. I may have this a bit wrong but my attention was starting to slip a bit as the play isnt my cup of tea. She mentioned at one point that he hold time is 56 days...90% of my trades are over in 56 minutes, sometimes 56 seconds haha.

In Barn's cc example, you own stock, then sell option and hope stock holds flat to slightly up, but not above the strike price sold hoping the options expires worthless. Turn around and do it again next month. You need a minimum of 100 shares of stock since each option is worth 100 shares. There are a few wrinkles you can do with covered calls, especially if you dont care about getting the max profit on a runner. Nice play for Roth IRA's etc. Hopefully Barn picked up on things i missed in the video.

lamboguy
04-02-2013, 09:55 PM
Karen must be using algorythm's that work now and she is beating the game. from my experience, good things don't last forever. at all times you must be aware that there will be a time to walk through the door, close the door and never re-open it.

PaceAdvantage
04-03-2013, 12:04 AM
Karen must be using algorythm's that work now and she is beating the game. from my experience, good things don't last forever. at all times you must be aware that there will be a time to walk through the door, close the door and never re-open it.What algorithms? When she was trading spreads (sounds like she is selling naked these days), she was only trading the indices, and selling spreads with tiny deltas (in other words, the spread had a theoretical probability of expiring worthless about 90% of the time, which is of course the goal when you are selling premium). No algorithm needed for that...just a set of balls and some very good risk management skills.

The credit she would receive upon initiating the spread would be tiny, but she would trade big-time size, thus taking on all that risk the host talked about admiring...at one or two points in the video, the host (either he works or did work for whatever broker she uses) implied that they "knew" about her account because of the risk she was taking on...he also said how he is no stranger to risk, but that she essentially had much bigger balls than he does in terms of risk (my words, not his).

So yes, a crude descriptor of what she is/was doing would be "picking up nickles in front of a steamroller," however, I don't necessarily agree with the steamroller part...

barn32
04-03-2013, 11:50 AM
I watched "Karen, Supertrader" videos but could use some help with explanation.

1. "Do I understand that she buys a whole bunch of different options in the same direction on the same stock?"Buying, no. She is doing some buying, but primarily she is selling options and collecting premium.

Same direction? Well, perhaps partially, but basically no--at least not in the beginning. She might be doing a lot of that now, but she is/was primarily doing spreads, which I'll explain below.

Stocks, no. She started out trading stocks, but because earnings announcements were playing havoc with the volatility she switched to indexes--primarily the S&P 500 index. Trading this index also offered her the best possible liquidity, as well as increased safety due to the fact she could put on wider spreads. (An index is a basket of stocks. In the case of the S&P 500, 500 stocks. I don't remember the exact date, perhaps sometime in the 80s, they let you start trading on how the overall market was doing by trading on the indexes. There were indexes on the Dow, the S&P, the Russell and others, but the S&P 500 has proved to be the most popular--especially for futures, as well as the most liquid.)2. "If so, when does she close her position(s)?"She either lets the positions expire worthless (best case scenario) or she hedges the positions buy taking in more premium or going out in time. Then, her goal is to let as many of the options as possible expire worthless. (Not always achievable, but that's the idea.)3. "What if the stock goes south?"That's where the hedging comes in. She is trying to reduce her loss exposure as much as possible by hedging (taking in more premium) when the index does indeed go south (or north as the case may be.)

She was also doing something else, which I found quite interesting. She assumed the market was trading below what it actually was, and then lowered that number by 12% more. So if the S&P actually closed at 1450, she would assume it was trading at 1370 and then knock another 12% off of that for 1205. She would then put on her trades assuming the index was trading at 1205. In other words she would sell the 1205, 1210, 1215 puts, which gave her 245 points of downside protection, and now the market would have to fall 245 points before they were in the money. Apparently the odds of this happening were around 5% (2 standard deviations.) She was doing this because her belief (and mine too) is that markets break more harshly to the downside than they do to the upside. (At least this is my take from watching the video.)

It appears to me that Karen started out trading long iron condors, and she legged into them. This is probably because it offered a smaller risk factor. She then branched out into short strangles, which although are much riskier, offered more profit potential. And because she had a group of six traders watching the positions very carefully, trading the short strangles became a more viable profit opportunity.

Long Iron Condors and Short Strangles

So let's start with an example of a long iron condor. If MSFT is selling for $30 a share and you sell a $35 call you might take in $100. If you then simultaneously buy a 40 call for say $50 what have you done?

You've created a bear call spread. You're hoping MSFT stays where it's at or goes down. You've created this spread by simultaneously selling and purchasing two calls--both out of the money. Doing it this way limits your risk.

If MSFT closes at 35, then your maximum gain is $50. In fact, you gain $50 as long as MSFT closes at 35 or less.

Both calls will expire worthless and you will collect the difference in premiums. (You sold one premium for $100 and purchased another for $50.)

If MSFT rises to $40 a share the 35 call that you sold is now worth $500. The call that you bought at 40 is worthless, and your loss is $450. ($500 minus the $50 premium that you took in.)

If MSFT rises to $100, the call that you sold is worth $65, and the call that you bought is worth $60. You took in a net credit of $50, so you still lose a maximum of $450.

Because you both simultaneously sold and purchased call options (albeit at different strike prices) you're covered your downside loss to a maximum point, which is essentially the difference between the two strikes--in this case $5. (Minus of course the net premium you took in.)

Now, if you simultaneously do the same thing on the other end with puts you've created a bull put spread. You sell the 25 put and buy the 20 put (and remember a put is just the opposite of a call. You are simply betting that the stock will go down.) You will now collect two premiums, and your maximum profit will be achieved if the stock closes anywhere between 25 and 35, and your maximum loss will be $400 (not $450) If the stock closes at 40 or above on the upside or 20 or below on the downside.

This is a long iron condor. (I hope.)

[All of these examples are ignoring commissions for simplicity.]

You want the stock to stay in this trading range and for all options to expire worthless. If this happens, you will pocket all of the premiums that you sold minus the cost of the options that you purchased.

The math works out. If your probability of success is 95%, then 95 times you make $50, and 5 times you lose $450, for a net profit after 100 trades of $2500, or $25 a trade. Plus don't forget you can close the trades out early or hedge to increase the bottom line. (And my numbers are just estimates. I'm sure there were times when she was able to take in more premium than I used in my examples.)

If I understood the videos correctly, she would put on these trades with around a 90-99% probability of success. She determined these numbers using her analytical tools. But if because of market conditions the probability of failure started to rise, possibly approaching 30%, she then would "hedge" by legging out, rolling over, buy more puts or calls, etc. (More on this below)

Now, at some point she realized that she could do basically the same thing by doing short strangles as long as she was able to effectively hedge her positions.

A short strangle is selling one put (out of the money) and also selling a corresponding call (out of the money). Again, just like the iron condor you achieve maximum profit if the stock stays within a certain range (anywhere between the two strikes), but unlike the iron condor your loss is not limited. (In the case of the strangle you do not buy any calls to offset your loss, and therefore you have a higher net premium.

The math works out even better on the strangles. With a 95% probability your net profit after 100 trades would be $7500 instead of $2500, which is probably why she switched strategies.

Hedging (Legging In and out)

Let's say you create an iron condor with MSFT at 30. What have you done? You've sold a 35 call and purchased a 40 call. You've sold a 25 put and purchased a 20 put. You've collected two premiums. One on the put and another on the call that you sold. Those premiums were more than the cost of the calls that you purchased--hence a net credit--which is also your maximum profit potential.

Karen probably started out this way, but after a while she started legging into the trades. This means that instead of doing two simultaneous spreads she started out only doing one. She would then wait to see what happened to the stock before putting on the other half.

If the stock moved in a favorable direction, my guess is that she didn't bother putting on the other half. If it moved against her, she then completes the trade--taking in more premium while at the same time limiting her risk.

Now let's say she did purchase an iron condor and MSFT starts to rise. In fact it might rise to, say, 35. You can now do another iron condor, thereby taking in more premium. Or, instead of doing a full iron condor you could just sell more puts. Your trade is unbalanced, but you've cut down your loss. (And this legging in and out becomes even more viable as expiration approaches, hence reducing volatility.) If MSFT rises to 37, you can put on another iron condor, and take in even more premium. Or, you could just sell some more puts. If MSFT starts to fall back down, you could sell some more calls.

This is on the order of what my buddy was doing, but he was taking on a lot more risk. He was profitable, on average, eleven months out of the year. The difference between him and Karen is that he was always naked. He never did any spreads. After a while Karen was also only trading naked options. My friend only traded stocks. Karen trades indexes.

Tricky business, and stressful, but profitable if you're very careful and have a thorough understanding of what you are doing.

But just remember that if you are trading naked options and a couple of planes fly into skyscrapers your world can turn upside down if you are on the wrong side of the trade.

Which brings me to one thing she did say in the video that I found very interesting, and I've been saying the same thing for years only in a slightly different way.

[i]"Markets don't crash up--they crash down."

You have to be much more careful on the downside.

Dave Schwartz
04-03-2013, 12:01 PM
Barn, that was awesome.

I think if I read it another 3-4 times with Wiki open to make sure I understand each term, I may actually get this.

Thanks.

Dave

Magister Ludi
04-03-2013, 05:08 PM
options trading is a negative-sum game. There are commissions, SEC taxes, and bid-ask spreads. And then there’s the guy on the other side of your brilliant trade.

Who’s taking the other side of the trade? What does he know that you don’t know? Probably a lot. Is he an ATQ (algorithmic trading quantitative analyst)? Probably. I have firsthand knowledge of one hedge fund, which I’ll call the ABC fund and secondhand knowledge of many others. ABC’s ATQ’s average about $250,000/year in salary and earn a bonus of about 10% of the net profit that they earn through prop trading. Total compensation is almost always in seven figures every year. They each have at least one PhD plus at least one other secondary degree.

ABC spent over $20 million to build and program (in-house) a computer for the HFT (high frequency trading) division of the Fund. They have also built and programmed in-house multimillion dollar ULLDMA (ultra low latency direct market access) massively parallel computers for their stat arb (statistical arbitrage) division. Their monthly overhead for signal is in six figures per month. They have colocated offices in major exchanges to shave milliseconds off of transaction time.

ABC makes thousands of transactions and trades millions of shares every day in countless markets throughout the world. They specialize in exotic derivatives transactions. ABC’s beta is just over .1 – in other words, almost market-neutral. ABC’s average net return is almost always between 30 and 40 percent per year. A so-called “whale” in the racetrack betting market is a rounding error compared to other financial funds.

Well, do you still feel lucky? Well do ya, punk?

Dave Schwartz
04-03-2013, 05:41 PM
Magistar,

Excuse me... but isn't EVERYTHING a negative-sum game?

Is there anything (besides Faro Bank) that isn't?

The assumption here would be that she is starting with a good "selection/value" process.

In the video she spoke of "doing her time," "learning her trade," and perfecting her craft. I do not believe anyone said that a person could succeed at what she has done without being able to make good picks.

Do I have this right? Please educate me.


My interest is as it always is: the application to horse racing. I would welcome any commentary from people who can help me link the two processes together.

Before you say, "Forget it..." I am assuming that this woman:

1) Has a positive expectancy game. I am of the belief that you cannot win at anything without it.

2) Has (effectively) developed a "money management approach" that has her grinding that BR way up beyond what the real positive expectations would normally indicate (as probable or even possible).

IOW, she has been hugely successful with (as everyone here has alluded to) a very small expectation of profit. How she did this is worthy of figuring.

And you don't get to say, "Well, this can't work." Not after she is $81m ahead.

Neither can you say, "She got lucky." That kind of growth is way beyond "getting lucky."


Please - one and all - continue this thread. Personally, I am learning a lot and I am sure others are as well.


Regards,
Dave Schwartz

Magister Ludi
04-03-2013, 08:00 PM
Karen doesn’t fully disclose the mechanics of her bull-market fueled greenback printing press except for the following:

1…She’s trading the front end of the term structure by writing options <50 days to expiration.
2…She only sells out of the money puts and calls, generally call spreads and put spreads.

She’s an insurance saleswoman. She’s trading a high probability of a low return for a low probability of a high return. I predict that she’ll look like the best trader in the world right up until the time that the hurricane hits, when she’ll be the worst.

Her epitaph: "I never use a stop loss. I hate stop losses." RIP.

She did not make $40 million in profit on AUM (assets under management) of $100,000. Details are sketchy but seem to be as follows:

2002…Opens account with $10,000.
2007…Sartori! Opens account with $100,000.
2008…50% ROI. At $150,000 AUM, investors give her approximately $650,000 for total of $800,000 AUM.

It gets murky here. She concurrently raises more money and trades options and ends up with $80 million, $41 million of which is profit. She does mention that she is up 30% this year on $95 million. She didn’t make 1000% returns. Much of the money came from investors. Pure chance will create success stories like that.

A couple of interesting exchanges on the video:

“Trader”: "Basically, people are throwing money at you, right?"
“Karen the Superpromoter”: “Yes...”

Later:

“Karen the Superpromoter”: "Everybody knows how hard it is raising money. It's really hard for me to raise money."

Well, which is it?

I wish that those two “traders” would have played a little dodgeball with her instead of softball:

…“How does your system perform in a five-sigma event?”
…“What will your drawdown be when the SPX falls 30% in a week?”
…“What is your Sharpe Ratio?”
…“What is your alpha?”

Don’t believe anything that I say. Karen the Superpromoter states, "you don't have to be a rocket scientist to execute this strategy". That must be correct because you want it to be so.

Magister Ludi
04-03-2013, 08:26 PM
She’s an insurance saleswoman. She’s trading a high probability of a low return for a low probability of a high return.

I meant to say that she's trading a high probability of a small gain for a low probability of a large loss.

badcompany
04-03-2013, 08:33 PM
I meant to say that she's trading a high probability of a small gain for a low probability of a large loss.

It was understood what you meant, at least to me.

Great posting, btw, although it might be a bit too much reality for some, here. ;)

thaskalos
04-03-2013, 08:36 PM
We all look like geniuses when things are going our way...

Anybody remember Victor Niederhoffer?

Tape Reader
04-03-2013, 08:46 PM
options trading is a negative-sum game. There are commissions, SEC taxes, and bid-ask spreads. And then there’s the guy on the other side of your brilliant trade.

Magister Ludi.

Before I came to this thread, I read a quote of yours at another thread. I said to myself: man, this Guy knows his onions. IMO, it would apply on this thread as well. Hope that's OK with you. (Quote below)

Patience, Grasshopper!
It’s been said that war is long periods of boredom interrupted by short periods of abject terror. The greatest and most successful traders in any financial market, including the racetrack betting markets, are the ones who are most afraid of the markets. You need to trade like a cheetah. Even though it's the fastest land animal, it waits to attack until it is absolutely sure that it can catch its prey.

badcompany
04-03-2013, 08:56 PM
IMO, the best chance a retail trader has is to take long term positions of at least 18 months, the longer the better. In this type of trading, you're up against mutual & pension fund managers, and the little guy actually has a few advantages. First, he can take a more concentrated position; whereas the fund manager has to spread the money around among 100s of stocks. Second, the little guy has true liquidity, as he can get out of a bad position without taking a big price hit. The fund manager often has to sit there and take the beating.

Another advantage is that you don't have to quit your day job, allowing you to save money which you can add to your bankroll.

Unfortunately, many horseplayers are action junkies and don't have the patience for this type of game.

PaceAdvantage
04-03-2013, 08:56 PM
Did she or did she not trade through the financial crisis and the flash crash?

Wouldn't you gauge that as a pretty decent test of her mettle? That prior post that basically painted her as a "bull market genius" has no merit if that is the case...

Tape Reader
04-03-2013, 09:46 PM
IMO, the best chance a retail trader has is to take long term positions of at least 18 months, the longer the better.

IMO, no way, no how. Buying options is a game of musical chairs. Writing options one could use a shotgun approach. Buying options you need a rifle.

I go for the shortest expiration that fits my analysts. Time decay is the killer.

badcompany
04-03-2013, 09:52 PM
IMO, no way, no how. Buying options is a game of musical chairs. Writing options one could use a shotgun approach. Buying options you need a rifle.

I go for the shortest expiration that fits my analysts. Time decay is the killer.

I guess I wasn't clear. I'm talking about equity positions, not options.

barn32
04-04-2013, 08:05 PM
I think if I read it another 3-4 times with Wiki open to make sure I understand each term, I may actually get this.

Thanks.

DaveInvestopedia (http://www.investopedia.com/terms/b/bearspread.asp) Good search function at the top

RaceBookJoe
04-04-2013, 08:29 PM
Also cool on some trading platforms ( usually the more professional ones ) is the ability to pull up a chart of a specific option. For example, tomorrow might be good to keep eye on both the calls and puts at $425 and $430. You can add indicators to these also just like you would for a stock chart for momentum or overbought/oversold areas etc.

Dave Schwartz
04-04-2013, 08:39 PM
Great link, Mr. Barn.

:ThmbUp:

RaceBookJoe
04-04-2013, 09:57 PM
Here is a current ( today basically ) example of the power of options. Before the open, think it might have been right before weds close.. 1000 FFIV Apr05 PUT90 were bought ( avg $0.39 ) . FFIV got hammered after the close today, that will be one nice payday for somebody. Options can be great especially on earnings announcements..defined risk with huge profit potential.

Dave Schwartz
04-05-2013, 09:20 PM
I have a question about Karen.

As I understand it she opens a position. If that position was going well at the end of 7 days, would she open a second contract? I am thinking not but not sure I am getting this part.

I think she would sell premium at that point to extract profit from the single open contract. Then she would continue the process as long as possible.

Experts, please start your comments.

FiveWide
04-05-2013, 09:47 PM
I'm trying to learn more about Options and found this video tutorial.

http://www.buycommodityoptions.com/options-trading-tutorial.htm


I thought it did a really good job of explaining things easy enough for beginners like myself to understand. It's about an hour long. It's starts basic and ends with describing a couple different strategies.

One note. From the webpage I got the impression you have to submit email info etc. just to watch the video but I didn't. I just clicked on the watch video button.

Also thanks to all the experts in this thread explaining things as well. :ThmbUp:


-Five

RaceBookJoe
04-05-2013, 09:56 PM
That's great, and if you could tell us about some of those before they rip, and not have to mix in 10 losers , we'll all contribute to a fund and let you manage it.

For true action junkies, trading options the day before and especially the day of expiration is where it's at. You can make 5x in minutes, doubles, triples, all day long. And for big $ if you so desire. Not parimutuel, so no matter what you bet, within reason, the price doesn't change, you might even help it move your way.

There was a great example today of what you wrote about. From approx 11:30pdt to 12:30pdt, the Apr05 $325 Calls on CMG exploded from $0.30 to $4.00, great trade well over 1000% .

thaskalos
04-05-2013, 11:27 PM
What are the legal ramifications for us setting up a paceadvantage mutual fund made up of member contributions...so we could do some serious options trading ourselves?

Why should Karen have all the fun?

johnhannibalsmith
04-05-2013, 11:42 PM
What are the legal ramifications for us setting up a paceadvantage mutual fund made up of member contributions...so we could do some serious options trading ourselves?

...

Can we get Mack back to manage it?

PaceAdvantage
04-06-2013, 01:35 PM
There was a great example today of what you wrote about. From approx 11:30pdt to 12:30pdt, the Apr05 $325 Calls on CMG exploded from $0.30 to $4.00, great trade well over 1000% .The whole market basically exploded from that time until the close... :lol:

TJDave
04-06-2013, 06:27 PM
What are the legal ramifications for us setting up a paceadvantage mutual fund made up of member contributions...so we could do some serious options trading ourselves?

Why should Karen have all the fun?

If jockeys are involved in making investment decisions, I'm in.

I need to have someone to blame.

Dave Schwartz
04-06-2013, 06:34 PM
I have a question about Karen.

As I understand it she opens a position. If that position was going well at the end of 7 days, would she open a second contract? I am thinking not but not sure I am getting this part.

I think she would sell premium at that point to extract profit from the single open contract. Then she would continue the process as long as possible.

Anybody have a clue about this question?

PaceAdvantage
04-06-2013, 07:33 PM
I think what you are trying to figure out there is that when Karen was trading Iron Condors, she would leg into each side of the spread separately...perhaps even days apart, instead of opening a complete Iron Condor all at once...

Then again, I could be reading your question wrong...

barn32
04-06-2013, 07:36 PM
Anybody have a clue about this question?I don't think she opened another contract in 7 days, but she might have opened another contract in 30 days. She was going out 56 days (8 weeks) in time for most of her trades.

So, let's say she opened a contract on January 1 going out two months (She gets more premium on a two month contract than a one.) Then on February first she opens another position going out 8 weeks from there. And then again in March, April, etc. (This doesn't include any hedging that's going on.)

Also, I think she was allowing 10% probability of ending in the money on the calls and 5% for the puts, which gave her more room for error on the downside.

But anyway she's always got overlapping positions going on.

...but then again I could have misunderstood.

barn32
04-06-2013, 07:42 PM
I think what you are trying to figure out there is that when Karen was trading Iron Condors, she would leg into each side of the spread separately...perhaps even days apart, instead of opening a complete Iron Condor all at once...

Good point. If this is what you meant, then it is possible she put on a trade in the other leg at some point in time (not necessarily 7 days) after she opened the first leg....if she put on the other leg at all.

I just don't remember the 7 day time period being mentioned in the videos.

Dave Schwartz
04-06-2013, 08:42 PM
I am getting closer to enlightenment here, I think.

What I am trying to determine is whether the new position(s) are the result of positive or negative experience to date or simply on a schedule.

Tape Reader
04-06-2013, 11:19 PM
What worked for me in buying options.

Never buy options as a poor man's way of investing. Buy fewer shares and sleep like a baby.

Never trade options until you are good at trading stocks. The premium will be an added burden.

Never think that an extended time period is going to improve a poor selection. The time decay will kill you.

Never think that a good selection will overcome poor timing. You will be wishing and hoping thinking that you are right and the market is wrong. Being half right in options makes you a loser. It also creates a sinister outlook mentally. Bad.

Never trade options with light volume. You will pay higher entry and higher exit.

Never, ever, buy on "news" unless you are fading the news (betting against it). The premium will swell on the news killing your profit potential.

Always enter and exit "at the market." I don't give a shoot if they beat me for an eight. It is a luxury that I can afford. It also eliminates anxiety, bad stuff in trading.

Always trade the shortest time period that fits your analysis. The market rewards one for what others can't do.

Always fade the trade. By betting against a rising/falling market you will be doing the opposite of what others are doing. Therefore, the premium will be expanding/contracting in your favor. This is perhaps the coolest feeling that a trader can experience. When the trend turns you are sitting sooo pretty.

When overnight news is against your opinion, load up on the opening. This is like an "open book" test. The specialist is fighting for survival and will open the stock at a price which is favorable to him. Hitch a ride.

These are just a few. I think that other Gals/Guys here could add more.

RaceBookJoe
04-08-2013, 08:05 PM
The whole market basically exploded from that time until the close... :lol:

Yes it did, I just used CMG as an example for a remark ( concerning expiration day ) from a poster because I happened to be following CMG at the time.

iceknight
04-09-2013, 01:52 AM
I was always mystified by options...never thought I'd get into them...but I educated myself a bit and am now fascinated by them....a very dangerous move... :lol: :lol: :eek: That IS funny. I used to do options regularly, but moved into horseracing because it is easier to make money here on smaller capital + it is fun.

Of course, I was a conservative options player and I recommend (no connection to me or any of my blogs and I gain nothing from pitching his blog) 1option.com if you want to get some good general knowledge AFTER you know all the terms from investopedia or some other solid site.

Also this book by Jeff Augen on Volatility Edge in Options Trading (http://goo.gl/c0RUX) -is a really good tool after you become comfortable basic options and pricing, but that is for intermediate level.

I should add that I notice now that Mr. Barn mentioned investopedia (good call) before and MightySosa mentioned trading the day before expiration. Jeff Augen's Book specifically deals with those situations and the volatility (collapse). The only thing is, there are no "$2" bets or "0.10" bets in options. Everything gets multiplied by a 100 at least and then there are some commission charges (for small time traders at least).

FiveWide
04-09-2013, 09:23 AM
Just curious as I've never done any trading. What kind of commissions are there?

Thx
-Five

barn32
04-09-2013, 11:02 AM
Just curious as I've never done any trading. What kind of commissions are there?

Thx
-FiveMost trades are around $1.

This is who I was using back when I was trading actively, and I was very happy with them. Click on costs.

Interactive Brokers (http://www.interactivebrokers.com/en/main.php)

RaceBookJoe
04-09-2013, 12:37 PM
Just curious as I've never done any trading. What kind of commissions are there?

Thx
-Five

All depends on your broker. Some charge a minimum charge also, meaning even if you only buy 1 contract you will still be charge a certain amount. Best price I have is 60cents/contract. Next best i have is $1/contract .

iceknight
04-09-2013, 03:41 PM
Most trades are around $1.

This is who I was using back when I was trading actively, and I was very happy with them. Click on costs.

Interactive Brokers (http://www.interactivebrokers.com/en/main.php) Sigh, that is a good one. But after I ran through the 2008 crash and grew older (than 26 lol) then I could afford their minimums ($ 10k balance) lol. Of course, I had to use my account for regular income for several months so I would take out most of the profits on regular basis; it never built up to over 10k.

http://www.interactivebrokers.com/en/index.php?f=4969

But, the general thumb rule is that you look around for brokers and then use one where you commissions/trading costs do not account for a large percent of your profits/turnover. Avoid ones that charge $9.99/$7+0.75/contract type commissions. There are tons and tons of brokers so try to do some online research (Epinions has reviews as well as many other online reviewers) and then pick one. I have used Sogotrade/Scottrade and Zecco and Sharebuilder. By far, I was most satisfied with Sogotrade and their commissions were in the $3- $4 range.

RaceBookJoe
04-09-2013, 04:15 PM
Sigh, that is a good one. But after I ran through the 2008 crash and grew older (than 26 lol) then I could afford their minimums ($ 10k balance) lol. Of course, I had to use my account for regular income for several months so I would take out most of the profits on regular basis; it never built up to over 10k.

http://www.interactivebrokers.com/en/index.php?f=4969

But, the general thumb rule is that you look around for brokers and then use one where you commissions/trading costs do not account for a large percent of your profits/turnover. Avoid ones that charge $9.99/$7+0.75/contract type commissions. There are tons and tons of brokers so try to do some online research (Epinions has reviews as well as many other online reviewers) and then pick one. I have used Sogotrade/Scottrade and Zecco and Sharebuilder. By far, I was most satisfied with Sogotrade and their commissions were in the $3- $4 range.

Tradestation is $1 , Lightspeed is 60cents. Have heard good reviews of Think or Swim..a little higher cost and also TradeMonster.

PaceAdvantage
04-09-2013, 05:03 PM
TOS is now owned by TD Ameritrade which charges the unsightly $9.99 flat fee per trade + $.75/contract.

The platform (Thinkorswim) is awesome though...

RaceBookJoe
04-09-2013, 07:44 PM
TOS is now owned by TD Ameritrade which charges the unsightly $9.99 flat fee per trade + $.75/contract.

The platform (Thinkorswim) is awesome though...

Yep, great platform from what i hear just way too expensive especially for daytrading purposes. I use both Tradestation ( love the matrix ) , and Lightspeed..charts are avg at best but platform has some cool features. Still have OptionsXpress but rarely use it, thinking about closing it and opening account at TradeMonster mainly for a few scanning features not on my Madscan platform. Honestly for charting, eSignal is tops in my books. eSignal links with Lightspeed ( same with Madscan ) , but not Tradestation..so when i switched to Tradestation I just ended up closing eSig. eSignal made setting price alerts on the chart really easy, compared to Tradestation but it can be done there too. TradeStation also has chart trading, which Lightspeed doesnt. The Tradestation chart trading is very similar to Ninjatraders ( which i use for futures ) , for those who like that feature. Tradestation also allows for option charts for whatever strike price. Ps: last thing about having multiple platforms, mainly for stock traders is for shorting purposes. Sometimes Lightspeed will have shorts available but Tradestation wont..vice versa. Hope that helps, i can give some things i like about all 3 trading platforms and Madscan for anyone interested.