Favorite Trading Strategies

Discussion in 'Options' started by exQQQQseme, Aug 19, 2009.

  1. What is your favorite trading strategy which uses options.

    Mine is a very simple one. I short 200 shares of a stock and buy two current month (7 to 35 days) Calls slightly out of the money. (Premium generally 30 to 50 cents.) This usually results in a beginning net negative delta of approximately 150.

    I try to restrict my stock selection to stocks which do not pay dividends because if we're short when the stock goes ex-div, we have to PAY the dividend.

    My trend line is the 5-day simple moving average.

    Generally I cover the shorts when an up candle crosses and closes above the 5-SMA.

    This is a fun, relaxing, and generally profitable way to go. This is not a recommendation, just an attempt to stimulate a discussion. It's really sweet when you catch a nice down wave and ride it until you get the crossover, as mentioned in the paragraph immediately above.

    General Comment: This is a synthetic Put. But it is easier to adjust as the stock moves.

  2. spindr0


    It's only fun if you make money.
    You only make money if your timing is right.
    Adjusting the synthetic is no easier (or harder) than adjusting the natural. They're the same.
  3. pengw


    Talking about favorite optons strategy ? Here is one of my favorite, it is called Calendar Ratio Backspread, it is not as complicated as it sounds.

    Why I like it: just two legs, very limited downside, lot of upsides,
    very low to none time decay,

    What I don't like about it ( there is always one for any options strategy ): profit accumulating at a slow pace.

    See attached image for positions and chart using today's Apple optons as an example:
  4. pengw


    Here is what the Calendar Ratio Backspread looks like
  5. pengw


    Note that on the expiration date, the chart will look almost the same.

    The example I gave shows a bullish position, you might also contract bearish positions with Calendar Ratio Backspread.

    The trick is you need keep tweeking the number of lots and different strikes in the options lab (http://www.TheOptionsLab.com ) to make the chart look like the one being shown.
  6. Spindro Says:

    1. It's only fun if you make money.

    2. You only make money if your timing is right.

    3. Adjusting the synthetic is no easier (or harder) than adjusting the natural. They're the same.

    My responses:

    1. I'll leave it up to each person to define "fun" for themselves.

    2. I respectfully disagree. You make money if your "direction" is right. In this case downward. I will agree that "timing" affects the amount you make.

    3. I'm not going to ride this merry-go-round and get into a never ending argument with anyone. I mentioned it only as an example of a synthetic long put. On this particular trade, I prefer the synthetic over the natural. I have my reasons. Those who feel differently, I wish them well.
  7. mike007


    I like calenders for alot of trades. Besides the + - vol difference between calenders and butterflies, calenders only have 2 legs with a butterfly having 3 but 4 options. They have both the same breakeven ranges with calenders having less legs. You can also do a 2-3 month calender to buy yourself time and roll a trade.

    That and index iron condors.
  8. I like to surf the waves.
  9. oraclewizard77

    oraclewizard77 Moderator

    I guess you could do that in reverse also, buy 200 shares of a stock and then buy 1 to 2 months out slightly out of the money puts.

    Heres a strategy I did recently, bought RMBS from $ 10 - $ 15/sh. Wrote some calls on the shares for example 1 call which looks like it will be called was the $ 15 strike price in September.

    After RMBS fell from $ 18/sh to $ 16/sh, I thought I want to add some downside protection so when it got back to $ 17/sh, I sold 2 Sept $ 20 strike price calls.

    Obviously, I believe RMBS will continue to go higher, my goal is to set prices where I don't mind getting called away from the stock at least for some of my shares while earning some extra money by selling the calls.

    Reverse is as follows, you find an overvalued stock, short it, then sell out of the money puts to earn extra money.

    Benefit of your strategy is that you have more protection on for losing money if the trade goes against you where I will need to just choose a stop price to get out.

    Benefit of my strategy, is that even if the stock does not move, I still make money. I also make money if the stock goes in my favor.

    A good hedge against market risk would be to have both short and long trades.
  10. drcha


    I like butterflies. They have worked well for most of the last couple of years. Sometimes near month, sometimes the next month, sometimes broken-winged, sometimes diagonalized.

    Have been doing mostly irons, for no particular reason, just out of habit. With my little spreadsheet with my 'uncle' points updated frequently, I don't really have to think much. It has become fairly boring to trade them--I guess that's good.

    I'm thinking of experimenting with using ITM wings instead of OTM wings (reverse the long puts and calls). Do you think this would be marginally more profitable, or about the same?
    #10     Aug 19, 2009