Anyone here trade options?

[Accipiter22]

After hearing about my trading exploits for some time my dad decided to get in on the action and start option trading. I had never done this before so I read up on it, then decided that I would try at the money straddles on companies about to release earnings statements. I have never seen such an easy way to make money with stocks.


For instance, check out this string of events:

7/26: NVDA (nvida) is trading at 45.47. Their earnings come out on 8/9 I buy a 45.00 straddle with a 9/22 expiration date. The call is 3.70, the put cost 2.90.

7/31: The call is trading at 4.70 so I sell that side.

8/1: The put is now at 3.70 so I sell that side as well. I made a 23% profit, profiting on both sides of the straddle

8/1: Later that day with NVDA trading at 44.83 I buy the same type of straddle again, with the call costing 3.50 and the put 3.40.

8/6: The put is now at 5.20, so I sell that side. The call is only at 2.30, but if I sold it now I'd still make a 9% profit on the trade. I hold off

8/7: The call recovers some value and is now at 2.75. I sell it for an overall profit on the 2nd straddle of 15%.

8/7: Later that day I do the same 45.00 strike straddle AGAIN, with the call costing 2.80 and the put at 4.50

8/8: The put has shot up to 3.80 so I decided to sell that side. Now if the put recovers ANY value I'll have made a profit on the same stock 3 times in about 2 weeks.

So I'm up 41% right now (not taking into account the 36% profit on the call side of the 3rd straddle. I'll wait till that closes on both sides to figure out profit overall).


I'm shocked that more people don't trade on options....I'm actually not sure WHY if you had an opportunity to trade on options with a regular stock you would choose regular shares over the options, especially if you're not in it for long-term holdings..


Here's a great counterpoint to my view, from later in the thread:

Originally posted by: jjsole
I think your experiences trading options are so far a very small window of what issues are involved over the long term trade successfully.

Your first example was to buy an nvda straddle, you sold the call when them stock was up, then sold the put when the market was down, essentially going short before the market went down, and neutralizing when the it went down by selling the put. You can make money in any market going short and long at the right time at the right time.

Right now you seem to be relying on your instincts for volatility to benefit from market direction in the short term, and using the leverage of options to capitalize on it. You're not discussing implied volatility (a fundamental basis for pricing options based on the original black-scholes(?) model), which is extremely high right now.

Over the long run the majority of people will lose money trading options for three reasons:

a) the bid/ask spreads are wide and paying the offer or selling the bid has a statistical disadvantage

b) implied volatility bites people in the @ss more than it feeds them if they buy it - normally interest in a stock drives up volatility (prices of all of its options) and an expected move in the stock is built into the pricing (you're paying up for them). Over the long run a trader may see a move they were looking for, yet the price of the options actually decrease (or calls don't go up as much as the puts collapse etc.) due to the sudden collapse of implied volatility (ie the move happened, things calm, little more is expected.)

c)When a position goes against a trader (particularly non-pro's) they won't know value enough to know whether or not to increase the position, exit the position (probably selling on the bid or buying the offer), or holding, and the trader will usually make the wrong decision because emotions and greed will direct them into the wrong decision.

I read a post recently about a want-to-be trader who's backtesting showed his system was accurate 95% of the time. Only problem was that the other 5% he'd lose 30% of his capital. :Q

If you're going to trade a lot of options I recommend learning about implied volatility and using software to calculate it and graph the changes in it over time. You will have a much greater potential for success if you can add that you your arsenal. Options are not easy - they are simply leverage with more ways to get burned imo. Just like any other trading opportunities, there biggest opportunities buying when 90% are selling and vica versa etc, which not only includes market direction but implied volatility values.

Btw what brokerage do you use? I highly recommend Interactivebrokers.com.

 

[Quasmo]

Options are awesome. It's the fact that people don't know how they work is the problem.

 

[Mxylplyx]

We'll await your thread on losing your shirt on the next gamble. If there was a surefire way to make easy money in the stock market, everyone would be doing it.

 

[Accipiter22]

Originally posted by: Quasmo
Options are awesome. It's the fact that people don't know how they work is the problem.

It's too bad really, I think people don't know what they're doing and out-think themselves.

Take something like the straddles I"m doing...on it's own it's a very dangerous strategy, but if you trade in a very tiny niche that favors them you can exploit it for great gains (such as straddles around FDA approvals, earnings etc.)



I don't profit on EVERY single trade, but when I do it's usually double digit percentages. When I lose on a deal it's maybe 3 or 4%.

 

[Accipiter22]

Originally posted by: Mxylplyx
We'll await your thread on losing your shirt on the next gamble. If there was a surefire way to make easy money in the stock market, everyone would be doing it.

it's not sure-fire, I never said it was. I said it's easier than any other method I've seen.

And just because it's a much easier way to make money doesn't mean everyone would be doing it. As Quasmo said, options are very misunderstood by individuals.

Part of the point of them is that it's nearly impossible to lose your shirt since you're trading at a fraction of the price of the stock. Plus you're not going to get called on them if you're far enough away from the expiration date.

 

[kranky]

I remember your statement from February in this thread

"I short like a mofo and quadruple my money every few months"

Is that still working out?

 

[elmro]

Every time you sell, does that trigger a taxable event? I hope you are making enough money to justify all that paperwork.

 

[alkemyst]

also how much money are we talking....it's easy to get in with a 'few bucks' and cherry pick here and there...but once you scale up to real numbers the gains/losses usually start becoming closer when you are dealing with huge gainers.

Of course there are hedge fund managers doing this kind of thing everyday with millions/billions of dollars and making bank.

 

[Accipiter22]

Originally posted by: kranky
I remember your statement from February in this thread

"I short like a mofo and quadruple my money every few months"

Is that still working out?

yup! Although I'm not shorting anything atm,


edit: A good portion of the money I had devoted to shorting I ended up using for college expenses.

Originally posted by: alkemyst
also how much money are we talking....it's easy to get in with a 'few bucks' and cherry pick here and there...but once you scale up to real numbers the gains/losses usually start becoming closer when you are dealing with huge gainers.

Of course there are hedge fund managers doing this kind of thing everyday with millions/billions of dollars and making bank.

I'm not cherry picking in the sense of a trade here, a trade there, spread out over a few weeks. I'm consistently trading at this point. When you think about what a straddle is, and what it needs to make money, you can see why doing it around earnings reports would work.

 

[Accipiter22]

I also select these stocks beforehand based not just on earnings, but also the amount of volatility they show, their past reactions to earnings, and trading range. You don't want a narrow trading range, non-volatile stock that doesn't react to earnings one way or the other.
I've gotten just as good at predicting horrible options as I am at picking good ones.

Here's a couple more examples:

#1
7/26 SPG is trading at 86.29. I buy at the 85.00 strike, Oct 20th expiration. The call costs 5.60, the Put 4.30. Earnings come out on 7/30

7/30 Call is at 5.50, Put at 4.60, this is before earnings release

7/31: Call is at 7.70. I sell that half.

8/1: Put is at 5.50. I sell that half.

Profit: 33%

#2
7/26 EMC is trading at 18.09. I buy at th e18.00 strike, Sep 22nd expiration. The call costs 1.10, the put 0.85. Earnings come out 8/6

7/30: The Call is worth 1.35. The put is worth 0.60

8/1: The call is worth 1.55, so I sell it. The put is worth 0.55

8/7: After earnings the put shoots up to 0.95 So I sell it.

Profit: 28%


#3 here's an example where I predicted that an option would go nowhere, thus losing time value, and thus money. I kept track of it after I made this prediction.

7/26 DIS (Disney) has earnings coming up on 8/1. I look at it and see that it reacts a little bit to earnings. But then I notice that it has HORRIBLE range over the last 6 months, trading between about 33 and 35 bucks. That's awful for the way I trade, so I don't buy.
It was trading at 33.68. At the 35.00 strike price the call would've been 1.00, and the put 1.70, for the Sept 22nd expiration.

7/31: Call is at 0.75. Put is at 1.90. (Had I gotten into this one I would've probably sold the 1.90.) Either way, at this point it's 2% in the hole.

8/2: Call is at .85, put 1.55

8/6: Call is at .8, put at 1.60

8/8: Call is at .95, put at 1.05, at this point that would've been a net loss of 26%

I'll keep monitoring it to see if it ever turns around, but the closest it came to breaking even is on 7/31 the day before earnings when it was down 2%.

 

[Paul Ma]

It's just a volatility bet, nothing magical. I wouldn't get overconfident since 3 trades is statistically indistinguishable from zero.

 

[Accipiter22]

Originally posted by: Paul Ma
It's just a volatility bet, nothing magical. I wouldn't get overconfident since 3 trades is statistically indistinguishable from zero.

I'm well over 60 at this point, with a couple hundred more in paper trades (fake money ones I did as I honed my strategy). I just post a few examples. But you're absolutely right, it's volatility, and it amazes me that more people don't learn about using it with options.

 

[AnyMal]

What's the good starting point to get some information on how it's done? How much money I would need to get started?

 

[NoStateofMind]

Originally posted by: AnyMal
What's the good starting point to get some information on how it's done? How much money I would need to get started?

 

[pravi333]

so where do we learn about these?

 

[Accipiter22]

Originally posted by: PC Surgeon

Originally posted by: AnyMal
What's the good starting point to get some information on how it's done? How much money I would need to get started?

ygpm

Originally posted by: AnyMal
What's the good starting point to get some information on how it's done? How much money I would need to get started?

ygpm

Originally posted by: pravi333
so where do we learn about these?

www.earnings.com has a list of upcoming earnings releases.

After I cull a list for a given day I examine them and look for a few things. I want a stock with a fairly wide trading range (more than 15-20% over the last 6 months), reacts to earnings (spikes up or down after the last several earnings reports), and also I try to avoid stocks who's options are below 1.00/piece as the time value you that you lose on them is catastrophic as you wait for earnings to come out.




I can hardly wait for tomorrow, ABMD and ABBI are both releasing earnings, and I'm already up 48% and 38% respectively on them...if they go the way I'm hoping they do I could make a disgusting profit on both of them...

 

[kyzen]

Originally posted by: Accipiter22

Originally posted by: PC Surgeon

Originally posted by: AnyMal
What's the good starting point to get some information on how it's done? How much money I would need to get started?

ygpm

I'd like a PM as well

 

[vi edit]

How many contracts are you buying at a time? When you are doing straddles/combos commissions and fees can really eat into your premiums paid if you are only doing single contracts.

 

[Accipiter22]

Originally posted by: vi_edit
How many contracts are you buying at a time? When you are doing straddles/combos commissions and fees can really eat into your premiums paid if you are only doing single contracts.

Honestly it depends on the price of the option. I try to do a few on each side if at all possible....the commissions haven't been TOO bad so far...

 

[Pliablemoose]

Bracketed orders with trailing stops > *

 

[Accipiter22]

Originally posted by: Pliablemoose
Bracketed orders with trailing stops > *

I'm fond of them

 

[rchiu]

Originally posted by: Accipiter22
After hearing about my trading exploits for some time my dad decided to get in on the action and start option trading. I had never done this before so I read up on it, then decided that I would try at the money straddles on companies about to release earnings statements. I have never seen such an easy way to make money with stocks.


For instance, check out this string of events:

7/26: NVDA (nvida) is trading at 45.47. Their earnings come out on 8/9 I buy a 45.00 straddle with a 9/22 expiration date. The call is 3.70, the put cost 2.90.

7/31: The call is trading at 4.70 so I sell that side.

8/1: The put is now at 3.70 so I sell that side as well. I made a 23% profit, profiting on both sides of the straddle

8/1: Later that day with NVDA trading at 44.83 I buy the same type of straddle again, with the call costing 3.50 and the put 3.40.

8/6: The put is now at 5.20, so I sell that side. The call is only at 2.30, but if I sold it now I'd still make a 9% profit on the trade. I hold off

8/7: The call recovers some value and is now at 2.75. I sell it for an overall profit on the 2nd straddle of 15%.

8/7: Later that day I do the same 45.00 strike straddle AGAIN, with the call costing 2.80 and the put at 4.50

8/8: The put has shot up to 3.80 so I decided to sell that side. Now if the put recovers ANY value I'll have made a profit on the same stock 3 times in about 2 weeks.

So I'm up 41% right now (not taking into account the 36% profit on the call side of the 3rd straddle. I'll wait till that closes on both sides to figure out profit overall).


I'm shocked that more people don't trade on options....I'm actually not sure WHY if you had an opportunity to trade on options with a regular stock you would choose regular shares over the options, especially if you're not in it for long-term holdings..

Why? because people invest in stock as a way of long term investment and only a handful play short term which is like gambling. I have listened to many people talking about sure thing with returns like 30%, 40% and more, well the fact is that even professionals (with hedge fund ppl doing options, swap and exotic financial instruments) hardly ever beat S&P.

I have played options since early 2000's and now I have moved on to building portfolios with ETF's from different regions/industry. If you want to play with options, fine, just make sure you don't bet your life saving on it.

 

[Pliablemoose]

Originally posted by: rchiu

I have played options since early 2000's and now I have moved on to building portfolios with ETF's from different regions/industry. If you want to play with options, fine, just make sure you don't bet your life saving on it.

Yep, I've been pretty happy with ETF's :thumbsup:

 

[skim milk]

i'm interested as well
please send me a pm, too

thanks

 

[rchiu]

by the way, if you guys are interested in playing options, Optionsxpress is a nice place to do it with.