Option strategies

[osho67]

Spreads are so wide. e.g this morning 4675 aug bid is 5 and ask is 10

 

[osho67]

Anybody selling options on other indices/futures except ftse. FTSE options volume is very low. I noticed volume on ESTX50 is good. Any other products? Thanks

 

[A Dashing Blade]

Morning everyone....

Could we get back to the original basis of the thread and talk about the actual strategies being used?

A couple of people have talked about the naked writng of Puts which are well OTM. For example the selling of the 4625 Puts for a premium of 3.0 points (minus comissions). Is there not more 'value' to be had in selling Puts with a slightly higher strike (for say 8.0 - 9.0 points) which could be traded out of once they fell to say 3.0 - 3.5 (or indead left to expiry if the market rallies or maintains a higher range). The idea is based around the much faster decay of premium which occurs in the last month. The risk might be better also as I've seen some of the Puts selling at 9.0 or so decay to 4.0 in just a few days. Obviously this is a strategy to play in stronger markets and the reverse could be played in the weaker markets using Calls.

Views?

Steve.

Writing OTM puts (or calls) which either expire worthless of can be rolled back (ie buy to close the written puts, finace with the sale to open of a longer dated put) is a valid stratagy as long as you keep an eye on the assignment risk. It "should" realise in small but steady cash flow.

The only time I've sen it fail was when the exchange/broker margin rules were increased which tends to happen after sharp market moves

Read the small print of your contract, pound to a pinch of pigs**t this can be done with NO notice!.

This could quite easily blow you out of the water.

At the end of the day your taking in small amounts of money in return for taking on large amounts of risk. Lloyds of London operates on a similar principal.

 

[bulldozer]

Stev, Osho. and FRIENDS and lurkers too!
Some good questions there guys.
I will answer all ur questions plus more. Most of the answers will be sent to ur PM, so take a look now and then at the PM service. I prefer to do it this way as there is some traders who dont need help and for other obvious reasons too.
Firstly i want to tell you that my Dec's 4625 short puts were closed at 31.5 [scalped 6.5 pts] writen last monday for 38 pts. Order was placed at 9 am this morning, was called by broker on mobile phone at 2.25 pm and told positions filled.

Now, i will tell you some things that you may or may not agree with but these facts WILL become clearer as time goes by and you've done more trades and diffrt type of trades.
Firstly, youv'e got to understand that there are strategies that some brokers will NOT allow you to do, the brokers have GOOD reasons for this. Some brokers trading policies are geared toward begginers and novices in order to protect thier clients account and also to protect the firm [brokers].
The more "advanced" option trader wants MORE freedom to trade diffrt types of strats, so you need to find the broker that will ALLOW you the freedom to trade this way. Heres some important questions to ask them, [You need first get the RIGHT broker before you make your FIRST TRADE this is vitally important if you want to have the "EDGE" over other traders.]
1. Can i trade naked PUTS/Calls.
2. How much MARG will be used on OTM, ATM, ITM naked positions. and how SOON can you tell me how much FREE cash is left on my account.
2a. Whats the margin rate charged at.
3. If my FREE cash is near the bone [zero] will you tell me without ME ringing you first.
4. What happens to my positions if there is NO FREE cash in my account. Will i be closed out ON ALL or will some positions be closed out or will they buy back some written legs in order to bring IN FREE CASH into account or can my positions be tanpered with without being told and without my permision.
5. Can i adjust positions if I'm on MARGIN-CALL without first settling the marg issue.
6. What rate is the MARG on and does it reduce when ive become a good and better trader.
7. How much GRACE TIME do you offer me when account is on MARGIN-CALL and is this negotiable.
8. Can i ring a dealer for a chat on the mrkts without placing an order.

DO YOU UNDERSTAND No 4?

All of the above questions are very important to the advanced option trader. IF you dont have all those conditions in your favour? You are at a GREAT DISSADVANTAGE!!
You will notice that i did not put the question about the >> brokers fees, this is normally the first question asked by the novice traders! people join the brokers because the fees are the cheepiest! THIS IS NOT a good reason to join any broker!

Now to your questions and tips.
1. Yes, you can get bigger prems and scalp them any time you wish.
2. The far dated and near dated OTM options has no intrinsic ONLY time value.
3. Always try to write OTM with Delta of ZERO and use the THETA to ur advantage.
4. Dont write naked Calls until you have a healthy profit in ur account.
5. A near dated naked put some times carries a heavier marg than a far dated one at the same strike.

I hope the tips of this post will make you better traders;
I dont need any fees for this advice or future advice.
But if you feel you need to give some thing in the form of gratitude: Please donate to any of my favorite charities in ur area:> Help the aged, Children in need, Cancer research.

Bull
Its more of a blessing to give than to recieve.
Pls check out >> www.jc53.com <enjoy

 

[stevespray]

Looks like a big mark down on FTSE this morning. Anyone tempted to use the increase in volatility / weakness to write some OTM Puts?

Steve.

 

[bulldozer]

Stev,
Re: footsie
I'm looking for more weakness on footsie for monday & tuesday to write some OTM puts with gd prem's . Dow closed below 10,300 , oil still looking strong. This should knock off a few more pts :cheesy:

 

[Windlesham1]

dozer-just picked up your response about writing far month options,and while margin may be slightly smaller,your scope for adjustment is severely limited. I was away last year and on Aug 30th,the market went stupidly high-about 4 % in a few days,and didn't look back. Had I been in a far dated position I would have been crucified,but by rolling near month and maximising theta I got out of a 48K loss for a modest sum after 3 months(yes I have big margin). I'm not telling anyone else how to trade I hope,as if we all try and do the same thing,it won't work. I am looking forward to spreadbetting options as the use of stops will be available,allegedly. I know prices will be carp,but we are royally scr**ed anyway. Hope my rigging of the Iran election,and its knock-on effect on oil gets Fettered Chinos out of the hole.(just kidding)

 

[bulldozer]

dozer-just picked up your response about writing far month options,and while margin may be slightly smaller,your scope for adjustment is severely limited. I was away last year and on Aug 30th,the market went stupidly high-about 4 % in a few days,and didn't look back. Had I been in a far dated position I would have been crucified,but by rolling near month and maximising theta I got out of a 48K loss for a modest sum after 3 months(yes I have big margin). I'm not telling anyone else how to trade I hope,as if we all try and do the same thing,it won't work. I am looking forward to spreadbetting options as the use of stops will be available,allegedly. I know prices will be carp,but we are royally scr**ed anyway. Hope my rigging of the Iran election,and its knock-on effect on oil gets Fettered Chinos out of the hole.(just kidding)

=====================================================================

Wind,
How many yrs did u say u did Options for?

My far dated Short/ writen OTM puts dont give me any probs whats so ever if mrkts rise 1-1,000 %.
As for Adjustments:? If you can adjust the short dated, adjusting the long dated has the same number of choice adjustments PLUS more.
I can understand why some people see it in the way you do.
There was another guy who said i was mad for writing PUTS! I cant remenber who it was without reading the posts again, i think it was in the futures thread, it may have been Jafa from Perth.
Having full understanding of the greeks/hedge the advanced traders have the advantage on the rest.

 

[Windlesham1]

Dozer-I failed to mention that I was short CALLS- I have never been caught out with short puts-in 4 years. A smart trader would have realised what I was talking about, however! Also note that when I started doing this,options were only available 3 months ahead. As I am happy trading like I do-and knowing how many traders have been blown up because they couldn't adjust.I think we can trade at variance,and profitably.

 

[fahimh]

Anybody selling options on other indices/futures except ftse. FTSE options volume is very low. I noticed volume on ESTX50 is good. Any other products? Thanks

I am selling naked puts on qqqq dia spy bbh oih. premiuim are low as i sell 1 month and OTM

 

[bulldozer]

Dozer-I failed to mention that I was short CALLS- I have never been caught out with short puts-in 4 years. A smart trader would have realised what I was talking about, however! Also note that when I started doing this,options were only available 3 months ahead. As I am happy trading like I do-and knowing how many traders have been blown up because they couldn't adjust.I think we can trade at variance,and profitably.

Wind,
I'm beginning to see what ur on about! I thought u were refering to put writing. What really got me confused is when u said a rising mrkt was to ur disavantage. Thats when i thought he must b talking Short naked calls?

Well i did say in my past posts [not sure which thread] that its not sensible writing CALL's! Unless you have a healthy profit in ur account from past trades and that ur prepared to risk some of that profit. The reason i say this is because the mrkt generally moves in the direction or towards ur strike! But with the puts its the opposite effect! the mrkt generally moves away from ur strike price! This is the reason u had 4 good yrs without getting caught. Plus i think ur broker allows you u to trades naked puts cause you know how to get out of trouble when trouble is heading ur way.

Its good to hear that u never got caught out in 4 yrs, I believe you totally! but im not sure others will? but then again who cares what others think about ur method of trading. :cheesy:

When i do naked calls i rarely risk more than 20% of my total profits for that yr.

Finally, stick to what suits u best! If puts makes u feel good and happy? why mess with the CALL's. Unless of course you like doing short strgls? When i do them i make sure i keep my both eyes on the Call legs.

I think the footsie wiil continue down tmrrow.

How do you see the footsie?

Bull

 

[bulldozer]

Wind ur quote,
"As I am happy trading like I do-and knowing how many traders have been blown up because they couldn't adjust.I think we can trade at variance,and profitably."
===========================================================

They cant adjust because the brokers wont let them in most cases! mainly because of marg rules. Adjusting sometimes makes positions on margin-call and thats the MAIN reason the positions are left to run and closed at a loss or liquidated if not adjusted. No UK broker has the right to close positions or liquidate without giving the client the chance to adjust or pump more money in to hold positions. Apparantly US brokers including IB can close or liquidate WITHOUT notifiying clients.

 

[bulldozer]

Wind,Osho,Steve.
Todays Put trades: Sent to ur PM.

Bull
Always xpect the unxpected!! :cheesy:

 

[bulldozer]

FTSE 100 todays performance

Index Value: 5,113.20
Trade Time: At close
Change: +4.10 (0.08%)
Prev Close: 5,109.10
Open: 5,109.10
Day's Range: 5,097.10 - 5,138.20
52wk Range: 4,283.00 - 5,121.90

 

[stevespray]

FTSE just mental this morning. Big gap down from US sell off last night - not only bought back but bought to +14 within 25 mins of the open. That represents a figure about 40 points above where the spreadbetters were calling FTSE at last nights US close. Not good for my written 5125 Calls (July) but made some very easy money on the way up. The question is, when is this going to end? US Markets starting to look pretty nervous in my opinion. S&P's sat right on the edge of a large downside range. I cant remember such a disparity (FTSE making new yearly highs as I type). Amazing.

Steve.

 

[bulldozer]

Yes steve i now what u mean. Its mind boggling.
Sorry to hear ur still holding those short calls. I've spent some of he scalps profits on buying some julys puts, I've got orders in to buy more, this time on the 5075 strike, trying at single figures.
I cant see the mrkt finishing higher than 5025 for july's xpiry.

Bull

 

[stevespray]

You cant see higher that 5025 for July expiry?? You're expecting a fairly heavy reversal then?

Steve.

 

[bulldozer]

Normaly theres heavy action in prfit taking by fund managers around May and it did'nd happen, it never happened in June either. They must take profits soon to show records of performance and they also need the bonuses,before they go off on summer holidays. My guess is they expect the mrkts to move a touch higher perhaps to around 5200-5225 and then we''ll see some action.
It would'nd surprise me to see it as low as 5000 or lower b4 july options xpiry. [15th]

What have u done with the short calls [5125]

Bull

 

[Windlesham1]

Yet again we see panic buying-based on no particular logic. I think a huge amount is riding on an interest rate cut,but quite why high street sales and property prices dropping, should prompt such a thing is a bit of a mystery to me. I wrote a few Sept 5275C

 

[bulldozer]

Windle,
Ur short sept Calls they cant be in profit surely? When did u do them? I've a feeling they would end up ITM or deep ITM at xpiry

Bull
Happy week-end to all.