So using my filled prices from TOS papertrade, what would you have adjusted the prices to, so that it would reflect reality. The credit to open the spread was: $3.3, what would you change it to? The debit to close the spread was: $2.95, what would you change it to? Thanks!
Another suggestion with making the PaperMoney TOS fills more realistic is maybe even using NDX. Even in real-life, TOS tends to fill NDX spreads only .05 away from the mid and 0.1 is practically guaranteed fill.
This is basic information that people should learn when first learning about option positions. I think I can bring it up when we cover strategies but first will get through the greeks or delta, theta, vega and then strategies. I think the basics of each strategy can be found at www.888options.com with max risk, max reward and breakeven points but we will certainly discuss them in context of any strategy we discuss. If you are asking me about the risk profile of a spread I can explain it now gladly.
Paper-trading is a great idea. The problem is not ToS but the nature of SPX spreads specifically. SPX has super wide bid/ask spreads so taking the mid-point is not a realistic fill nor is $0.05 even off the mid a fill you can rely on. Your frustation is understandable as trading SPX for real can be just as frustrating and a reason I moved more to NDX. However as suggested by another poster, do your paper trades on SPY which tracks the SPX pretty closely and has super tight spreads which makes the filles more realistic. Since I do not know what the b/a was at the moment you placed your order I cannot tell you from experience what a realistic fill would be. But try SPY for testing perhaps or NDX even.
Great thread. Thanks, coach. First-time poster, and glad some decent posts on options evolving. W/respect to fills: what may not be a realistic fill in one given moment may be an easy fill another. I agree w/Coach and others about the limits of ToS paper trading (easy mid fills, etc.), as well as understanding what's possible given a bid/ask spread on a certain underlying. But it's obviously important to understand, track and forecast the underlying's intraday and/or daily movement b/c of the corresponding moves in implied volatility (IV), which can give you a fill you might not think possible right now. For example, I placed an order for a Jul08 125/120 bull/credit put spread on RIMM two wks ago. I wanted a fill at a 2.25 cr - the nat was at 1.83. RIMM was trading at 133, but had sorta consolidated and built minor support around 128, and I was hoping for a pullback and a enough of a spike in volatility to fill. It retraced, almost too close for comfort (right back to 128), but I got the fill I wanted. As coach/others have been saying, understanding volatility - prob the biggest x factor in options trading - is key, and important for planning trades, incl fills.
Hi Coach, I am at a lost on exercise 1. Please see attached screen shot from TOS. I plugged in the strikes for goog in the Analyzer, but unable to understand what I am looking at. With a $575 strike, the delta is 81.27? meaning 81.27% probability $575 will be ITM at expiration with the the lowest Gamma of .31? I highly doubt it and I think I am lost.
ToS gives the dollar value of the greeks which can be confusing. Think of it this way. You have a 510 Call in the analyzer. The price slices give the greeks for the call at different prices whereever you put the slices. Under Mode, you can click on LIVE where it will show the current price of the underlying. You can also move one of the red dotted lines to the strike of 510 to get the current greeks of the position at that stock price. Now to get the actual greeks divide the dollar value by $100 and then by number of contracts. So at $540 where one of the slices are and close to where the stock price is now ($545). $68.18 is the dollar delta value so divided by 100 the delta is .68 at $540 underlying price. So to make sure I am not confusing you, first step is divide by $100 per contract to convert dollar value of greeks to actual greek values. Click on the LOCK word under MODE on the slices and turn it back to live and all 3 will move the vertical dotted red lines to the current price of the stock and give the current greeks of your call. Ok on the main graph, the green line is the expiration risk/reward profile and the white line is the risk/reward profile for today. In between the white and green lines is the decay that will take the position to its max profit or loss. As you change the strike price in the bottom simulated section you can see the changes in the risk profile and dollar greeks and the changes in sensitivities. Remember to unclick the lock next to the price of the option you are looking at as that will ensure it lists the current price to buy or sell and does not freeze the price at the $53.60 you have there. Get familiar with this page as we can use it next to look at decay in your position. This analyzer is the best tool to understand the greeks. After just a week playing with this you got what you need to know to move into strategies.
optioncoach I'd differ with you on OTM vs ITM and sensitivity to movement of the underlying - If you are talking absolute change then yes, ITM is more sensitive, but like everything math related, the relative move is much more important. The true sensitivity is to calculate the ratio of the option premium to the delta - For example - SPY closed at 131 or so today. let's take two options, about mid prices - ITM - SPY July 120 call = 12.10, delta = .87 OTM - SPY July 142 call = .11, delta = .05 A 1 point move in the SPY will change the 120 calls price by a little over 7% (.87/12.1). The OTM call on the other hand will change by 50% (.05/.1). The sensitivity of the options price to a change in the underlying is much, much greater in the OTM option. You can pply this by realizing it is alot cheaper to get flat by buying OTM options (even slightly OTM options) than ITM (even slightly) options. Also, think you meant "great if you are long Gamma, shitty if you are short Gamma" rather than deltas. Being short delta on a down move is great. Anyway don't mean to nitpick I just think these points have merit, as if some people will no doubt be treating your posts as gospel. I'm reading along myself, and I'm sure I'll pick some pointers up.
I will try this from a different angle. I was trying to show that knowing delta makes you a pretty good instant hedger. You should know how to offset your position. The point about the spread is that you are long and short calls so that you risk becomes defined (limited). There was another short thread where a poster was asking about being hedged. Guys that are pit trained understand how to get flat or delta neutral. Here is july straddle of AIG; the underlying closed fairly close to the 30 strike so a one lot july 30 straddle is delta -2.84 so pretty close to flat.