Category Archives: Options

Successfully Played with Fire

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There are a couple of types of trading which appear to generate ungodly sums of profits (at least judging from the advertisements) – – FOREX and options trading. My personal experience with both of those has been bad enough to swear off them both years ago. Indeed, pretty much all options traders get their body parts handed to them in short order.

Some folks, however, fare better, and our own Baywolf shared this success story with the group:

0718-baywolf

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Building Blocks, Part IV (by The Director)

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While I’m with people playing top golf I wanted to write an article on delta.

To recap an option is out of the money when the strike price it diverges the current price. For example for call options if the strike price is below the current price that option is in the money. It will have both extrinsic value and intrinsic value. Remember when we mentioned intrinsic value that means that if the option is exercised at this moment the amount of value between the strike price of a current price represents the intrinsic value. Because options expire in the future they also have an extrinsic value which is governed by four primary factors.

The four Greeks that truly matter are delta, theta, gamma, and vega. The first three are derived from Greek letters by the last one is a common name that has been derived by options traders. These are known as the “greeks”.

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Small Craps

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The Slope PLUS post I did on June 9th pegged, ALMOST TO THE SECOND, the top in the Russell 2000 index. Since then, we’ve been weakening.

Observant readers may recall that I wouldn’t stop bitching about selling my QQQ puts too early. What I haven’t mentioned is that, over the past few days, I’ve been building up the exact same options position (again, July 21st puts, these priced at $142) against the IWM. I solemnly pledge not to completely bungle the exit on these.

As a reminder, I haven’t traded options in ages, and unlike you fancy folks, I am just a dumb old bear who buys puts. My little account is up about 40% since I started just a few weeks ago, though, and hopefully this IWM trade will make up for my “left too much on the table” QQQ trade. Here’s my fingers-crossed anticipation:

0616-IWM

Options Trade Follow-Up

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As a follow up to my post about last Friday’s closing of my QQQ puts – – in green is the buy point, in red is the sell point, and the face indicates how I felt this morning when my $2,500 profit was “coulda been” $19,000………..

0612-options

Anyway, I’m not going to chase my QQQ screw-up, so I’ve started legging into an IWM put position with a pledge to myself not to royally fuck it up this time (that’s fancy technical analysis talk, in case you’re confused).

Beginner’s Luck

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I mentioned a couple of times earlier this week that I had done something which I hadn’t done for years – – bought an options position. Specifically, I bought a big slug of $143 QQQ puts, expiring July 21st. Well, I just sold ’em, and it worked out nicely (I did this screen grab a little earlier; I actually got out at $3.00, higher than shown here).

0609-options

I know most of you are fancy-pants options traders that do sophisticated positions, but I’m just a dumb old bear.

Oh, and one other tip – – now that I’m out, I can assure you that the NASDAQ is going to completely crash sometime between now and July 21st. God has a riotous sense of humor.

Building Blocks V: Volatility (by The Director)

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Before we discuss the basic of options parameters for trading, we need to understand the concept of volatility. This is not simply an observational number, thought it can be used as such. In general stock investors want to avoid volatility. They want to minimize the standard deviation of their investments, as large drawdowns can be petrifying to some. This is a reaction that encompasses more than trader psychology; when the broker taps you on the shoulder with his margin call, it really is game over for you. This can be unfair, but those with the gold set the rules.
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