Options Trading Thread

esiotrot

Active member
157 0
Stevet
You are correct - I use Options for leverage
Another way of looking at it - is to say I use TA as a tool and options as the vehicle.

The concept of limited downside is two fold: one - the loss is limited by your original investment and two- the use of rigorous stop losses.

I also agree that until you gain experience then breakeven is a fair result. However i think it's been said before that everyone must develop their own trading style. In this business there is no holy grail of a "no loss" trade unless you accept tiny profits but lots of them - and even then..... Seems to much like hard work to me.

No doubt the level two fans can make money but they have to be glued to the screens to read the action. My style is much more relaxed and I probably check the markets a couple of times a day.

Spread is a very annoying fact of life - options are no different but you put up with it. However the way I look at it leverage and spread are the "Swings and Roundabouts"
 

stevet

Established member
917 5
T/A is the only way it is possible to make money trading, but on the trade you described, you have to make around 15% just to break even -

not sure that even the best traders ever, could make money on that basis

if you even managed to break even, let alone not lose your shirt on an ongoing basis, it would be a miracle - i suspect whatever leverage you are getting on options, is only going to multiply your losses over time - but if you are able to trade at the right points, you might find normal leverage on stocks with a narrow spread, will end up a lot more preferable, as you can bale out with a minimal loss if you have it wrong

its losses that make you your money in trading, the winning trades look after themselves, but a profitable P&L is done to controling losses


i'd try the maths on cfds if i were you, you might find it a more attractive trade - certainly could not be any worse!
 

Morris

Well-known member
304 2
Downside is limited on an options trade, in that the most you can lose is the premium.

Compare that to FTSE futures !
 

stevet

Established member
917 5
losing "only" the premium on a trade is a sure way to end up as a losing trader

losses are the difference between the buy and the sell and the costs -

you can bail out of a futures trade whnever you want, but if done correctly, for a small percentage of your investment in the trade, and if you entered the trade correctly, with a good risk to reward ratio, over time with minimal losses and good profits - you will be profitable

i am sure there are a lot of people who have had their bank accounts eaten up by premium losses, and a lot of happy options brokers promoting the ridiculous concept of a limited loss and unlimited profits - thats why options brokers are brokers and not tradersn - they either know nothing about trading, or know that an limited loss is still a loss
 

Morris

Well-known member
304 2
How's this for timing - closed FTSE June 5200 puts 22nd May ?

Groan... lesson - when in the money, let 'em run...
 

stevet

Established member
917 5
Morris

This is part of the problem of trading part time, and also the concept of unlimited profits, verses limited liabilty with options

with options, you pay a high spread, which is a real problem to profitability, and you also have the issue of lack of transparency on the pricing of the option, and in your case, the unlimited profits were limited by you closing the trade - hence the problem of consistent profitiabilty with options - the cards are stacked against anyone trading them, except of course, for arbitrage, which is real profitable

but, i hope you closed with a profit anyone, and taking less of a profit is always better than a scratch or loss
 

esiotrot

Active member
157 0
Hi morris
you wrote "How's this for timing - closed FTSE June 5200 puts 22nd May ?

Groan... lesson - when in the money, let 'em run..."

Thats interesting - I know it's long past now but I wonder if you have any notes on this particular trade?

When did you get in? What were your targets/stop losses? why did you come out on 22nd?

Hind sight being the perfect science and we can all look back at a trade we stopped too soon or not closed when we should have done. Trading is all about fear and greed and getting the balance right is the difference between a successful and unsuccessful trade.

This is in no way critical of your trade but I hope to learn something.

I have just closed a very successful position because FEAR overcame my greed!!
 

Morris

Well-known member
304 2
Got in because I saw resistance on the FTSE above 5250.

Closed because I was worried about time value erosion - this was a mistake, as the option was in the money.

Was my first option trade, so very much an experiment.

Also did a paper FTSE strangle a few weeks back, 4800 put & 5600 call.

Total cost 78, value today 207. Just learning you understand.
 

Robertral

Well-known member
446 4
esiotrot said:
Good question Stevet
I agree that the reason options are normally sold is to cover existing positions in the underlying stock and to sell naked (i.e. uncovered) options is very risky

While understanding the theory expounded in this thread I must admit I’ve always looked at this in a much simpler way. I look for one big win to outbalance several small loses.

I trade (buy/sell) options for several reasons and with a fairly basic technique.

a. Your investment loss is limited to your original purchase while your potential profit is (relatively) unlimited.
b. The stocks covered by options are limited to heavily traded shares, which allows TA to be reliable.
c. Only a few stocks need be watched because some of the optioned stocks are not very interesting. I regularly watch around 8 or 10 stocks only.
d. Leverage of buying 1000 shares for a small fee makes it very attractive.

My technique is, as I said, quite basic.

a. If the price is trending follow it up (or down)
b. Use trendlines, support and resistance levels, volume and some indicators to look for trend reversals.
c. Set strict stop losses and stick to them. Cut your losses and run your profits not the other way round.
d. Understand that you don’t win every time.
e. Buy at, or near, the money with time to run. Time is the enemy.

Example:
CGNU – around end of April this broke the support at 705p in a steep down trend on big volume. Early May tried to break back above 705 and failed, this looked like a pullback as it resumed the down trend, so on 13th May I checked out the option prices.
July 650 Puts were 18p bid and 23.5p ask. Share price 678
Breakeven as follows:
Buy 1 contract - £235
Buy commission - £15
Sell commission - £15
Clearing fee in & out - £3.60
Total - £268.60
So the bid price had to get to 27p for me to make a profit. What’s the chance? Nice downward trendline - the price needed to drop to around 660 to see a profit. Set a stop loss of 705 at which time the bid would be around 11p if I had to bail out. FTSE was near the top of the Bollinger (and the recent trading range) so was likely to go down and nothing else looking interesting. Look tomorrow (14th) to see what CGNU is doing – opened at yesterdays close then down - so let’s give it a go!!

Despite a few concerns afterwards the price never tested the resistance and after 28th May really started to motor. Today the share price is 571p and the option is 79p showing a profit of £521.

What next? Another good question – still around 36 days to expiry and I get twitchy at less than 20 – so I can hang on for a bit. Unfortunately the drop has not generated a stop loss on the chart such as an accepted high, so is 30p too tight (600p)?

So – I got lucky with that one but recently messed up on STAN; a nice trendline break and pull back but I got in too late with a Call and as soon as it got into profit we had another reversal so I bailed out with a small loss. However I was looking at the wrong scale and another 20 days might have been seen a profit. It really does your mind!

When you get one right you think you have got it licked before it turns round and bites your ….

Currently looking at STAN Puts, AL. Puts, BAT Puts, IMT Puts, LLOY Puts and Calls

How’s that for Stone Age trading??

Did you buy the LLOY puts?

I took the ride up by going long March 04 calls, nice 122% return :)
 

Glenn

Experienced member
1,040 118
Anyone know the basic IB symbol for FTSE 100 Options ?
I have no hair left to pull out trying to find it.
Thought it was ESX. 8~\

Glenn
 

RogerM

Established member
752 6
Glenn - "Z" is the basic ftse future symbol. That then gives you the opportunity to select "options" followed by the month. Confusingly, you don't go into page/option chains to set up the FTSE options as you would for US options.

HTH
 

Glenn

Experienced member
1,040 118
Thanks Roger.
When I tried Z yeterday it threw me because the strike prices were numbers like 49.25 etc.
Sorted now.
Cheers
Glenn
 

one2watch

Junior member
16 0
Hi there I am very new to option trading infact I am in paper trading stage ! How much is options-direct charging to trade per contract/trade?and another question I am cautious with my trading and I am only trading deep in the money index options to take advantage of the movements in the market . is this a wrong strategy? should I get more involved with stardlles, spreads etc. Thanks
 

one2watch

Junior member
16 0
depends if you know what you're doing. is your vol model ok?
well I am watching my charts putting my stops and applying them when they hit. As I am on the paper trading stage doing it about a month now my returns are around 25%. what do you mean by vol model? I did say I am novice...
 
 
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