Long straddle (I agree with Atticus, not the way to go) - but, for discussion purposes: If a stock is trading around $50, and the calls and puts are about the same price, say $2.00 (Near term ATM) each. You pay $4.00 hoping that the stock will move up or down more than $4.00. Pretty simple, except that each day that goes by, those options lose value. To help with the thought process. Take a $50 stock, with a historical vol of 30. $50 x 30= $15 each way over the period of a year, right? So, if you divide by the square root of that time frame ( 1year ) which is about 19. So each day makes the assumption that the stock shouldn't move more than 80 cents either way on any given day. And, consider half up half down, or consider 75% up and 25% down, whatever you wish, to see that in 30 days you will likely not move enough to make you money. Now, in these days of really low Vol, you would be selling a 12 implied vol straddle, praying for a 40 vol move, or 2 to 3 standard deviations. Not a wise move. Or, to keep it even more simple. $15 each way based on high 30 vol divided by 12 equals about $1.25 each way. You need to find options that are trading (Implied vol) much higher than historical, to even consider them. And, because the implied causes them to be more "expensive" (still within pennies on conversion of course).... either there is news or some other reason for their higher vol (merger news, dividend news, etc.). And, you don't know what the MM's know generally. I try to keep these simple concepts out for you to read, and digest. Not trying to "show off" what I know or anything, just hoping that by keeping it simple, you'll decide whether options trading is for you. ----------------------------------------------------------------------------- All that being said, options trading boils down to nothing more than trying to out-guess the other side of the trade about next expiry's volatility. Nothing more, nothing less. Simple option valuations. All the best, Don
Did I read Atticus correctly? Are you 75? More power to you if you are. Age really shouldn't matter, I was just curious. Don
Don Margin, No! I never figured it out. If your secured as in a credit spread, it´s $500 bucks margin from your account for each contract if the credit spread is one strike apart. $100 per whatever tick? Don´t know what you call it. I do believe one time a year ago, I was informed I had to have $90,000 to sell something by the exchange, or broker. I don´t remember what I was trying to do at the time though. Atticus I guess I´m looking at a Diagonal Calendar ? $4 premiums. First month sell and Second month buy? Will get to it later in the day. It is approaching time for me to get out of my boxer underwearand change to my swimsuit, and walk down the beach for a couple of laps of swimming in that 82 degree F. Caribbean sea lagoon water behind the reef. Got to get this old man´s blood circulating. Sitting bent over a computer is not good for the health. We annoying you yet? I´m trying.
Well I will be 75 in a few months. This is my year. "To help with the thought process. Take a $50 stock, with a historical vol of 30. $50 x 30= $15 each way over the period of a year, right? So, if you divide by the square root of that time frame ( 1year ) which is about 19. So each day makes the assumption that the stock shouldn't move more than 80 cents either way on any given day. And, consider half up half down, or consider 75% up and 25% down, whatever you wish, to see that in 30 days you will likely not move enough to make you money. Now, in these days of really low Vol, you would be selling a 12 implied vol straddle, praying for a 40 vol move, or 2 to 3 standard deviations. Not a wise move. " ___________________________ This was a good mouthful. It is certainly a good theoretical beginning. I have traded OVERLAPPING STRADDLES. Things can happen fast, and things can happen slow over a few weeks. So I use almost exclusively 90 day options. Don´t do it anymore,as the earnings or profit on a straddle are about 3%. Can take anywhere from one to three weeks. The straddle, or market action does though move up and down. If you use the turning point of say a weekly bar, or monthly bar, that takes care of the volatility problem. I know this is NOT scientific, or GREEKS, but it works and for simple uneducated people like me proves easier to conceptualize, or visualize. I´m still trying to reason it out. Using a STRANGLE of $4 premiums,you should be able to scalp once, maybe twice in 3 weeks and then close the STRANGLE next time around it shows a profit, whichever way the market action? Since we are in a BULL TREND. One would have to probably enter on the top of the monthly bar, so you don´t get exposed on the low end of the move in a two week movement. Trend lines would keep you in the sloping range. Still thinking about it, but will think in terms of a Calendar, but same thing. Time for me to go and change. See you in an hour or so.
You will be back. You need a captive audience for your off topic posts, and this is one of most popular threads on ET. +1
I am done with attempting to explain how to short gamma to Falcon. I'll be here to point out your scams and BS as it occurs.
I'm interested to know where you are at with this and the ORCL trades? My biggest problem right now is with exit strategies so I'm looking for insight on if/how you handled today's swings. I'm guessing that due to the the nature of volatility trading you don't typically have predefined profit/loss triggers set up so what do you look for as a signal to exit a position.