I started this thread as a way to better educate myself as a trader. I fell that putting my trades in writing for all to see, will help me to become a better trader. And I very much will appreciate your comments and thoughts. I'll give you a little history on me so you can better understand where I come from. I am very much a newbie at trading having just started last summer trading futures. I don't have a lot of money to start with, but I STILL belive that i will be successfully in the long run, as I NEVER give up once I set my mind to something. I was break even at best, and was plugging along when I came across Future Wise Trading Group (I'm sure most of you know the story with them ) and I lost all of my trading capital. Still hoping I will get it back, but not holding my breath. I was able to scrape together a couple of grand and opened a Datek account to trade options. I like option, because they let me trade a lot smaller (I like 2 to 4 contracts) than futures with less risk. I like to trade the front months with a 2 day to three week time frame. I still have been break even at best with little draw down. I just recently switched to IB for the MUCH lower commission for the type of trading I do. My first 2 trades were last Thursday. They were 4 May Q $5 puts @ .45 and 4 May PII $70 call @ $3.50. The biggest reason I started this journal was because today, I broke one of my trading rules, I let $400 in profit (in PII) turn into $400 in loss. I should have put a stop order in for $4.50 this morning, but I thought that it was going to jump again today, and I didn't want to get stopped out. (Lesson learned AGAIN!!) I still belive they are going to come back, because the fundamentals are still there, so I will hold them a little longer, until the market proves me wrong, or the fundamentals change. I don't trade for a living, I am no where near ready for that, but some day, maybe. I only get to trade for the first 5 to 10 minutes as I have to leave for work. I still turn wrenches for a "real job." I welcome all of you comments and suggestions, as it can only help me to be the best trader I can be. I will continue to post all of my trades from hear on out. Thank you for your help.
I've been actively trading for about 7 months now, prior to that I was mostly investing and losing lots of money(or at least lots for me). I trade a long/short portfolio and use options when I feel more sure of a trade. I was wondering if you have any method of seeing how liquid an option is. Sometimes the spread kills me on exit. Also how are you finding your plays?
Just a side note: imho futures are easier than options, because with the former it's a straight directional deal, and risk can be addressed with position size. Good Luck.
I sold 4 PII 70 calls this morning @ $2 for a $600 dollar loss. (Ouch that hurt!!!) If I would have put the stop in at $4.50 yesterday morning, I would have made $400, but anther lesson learned, THE HARD WAY!! ) I bought 2 PII 65 puts for $1. Only giving it a little room and if it doesn't work, I'm done with PII for a while. There is just too much spread. Still have the Q puts, going to hold them through the earnings report. Might buy a couple of $10 calls just to hedge them with a straddle. I pick stocks that are in a good trend and try to but on pull backs. And I look for the fundamentals too. Still have a lot to learn though.
Hi KB96, I don't know if you have been trading options long before openning your Datek account, or you are just beginning trading options. If you are a veteran option trader, please ignore this post, but if you just started trading option, I am seeing a few mistakes that all newbie option trader (me included) do ALL the time. 1- Don't trade front month contracts, unless you know something will happen TOMORROW. The theta of the front month contracts will kill you. 2- Don't trade OTM contract, especially front month, because after the theta is done with you, the delta will come and roast what is left of you 3- I see that you traded PII... I supposed it's Polaris? I looked at its chart, and saw an average daily volume of 200K shares traded, and in the options, the front month (May) have an Open Interest of 111 put contracts in total (that's including your 2 May 65 puts .... I don't know why you choose this very thinly traded stock/option? the spread will eat you So, now as I see it, you've been killed by the theta, and the delta came along to BBQ you, and you're eaten by the spread. As I said before, if you are a veteran option trader, I apologize for my post, otherwise, I strongly suggest if you want to buy option contract, go for the ITM or at least ATM contracts, and at least 3 months 'deep', and go with those having large Open Interests. (you don't want to be in the press the next day, as in Volume : 2, and it's the two contracts you bought) One more thing... a lot of people loose $$ buy options... guest who got all that money? --> those who sold them Cheers! Spring is here!!!
Thanks, I am a real newbie. And I have a lot to learn. You are right about PII, I'm not sure way I picked that stock, but there isn't enough volume and the bid ask is terrible. To be honest, I didn't know what a theta or delta was until you mentioned them and i look them up. Do you have any suggestions on stocks that are better to trade options on. I have read a few books on options, but still need to learn more. Can you tell me more about formulas on how to better figure out the if an option is priced right and things of that nature. Thanks for the help.
I have thought about selling option, but the margin requirements are pretty steep for my account size, but will definitely be doing some of that as account gets bigger
KB96, To give you my track record: I openned an option trading account with 2000$, 6 months later, the balance is 256$. Therefore, I don't think I am entitled to give you any suggestions on what to trade, other than the previous post which I explained how one could loose $$. I am sure in a few days, other traders with better tract records will post some helpfull thoughts. As for the price of the options, I don't know if Datek give you the 'option pricer', if not, you could go to www.optionsxpress.com , click on 'Quotes' tab, Option Chain, fill in symbol PII, choose May and 'View Chain'. You'll see your 2 contracts trading today at 'Last' 1.00$. In the Chain Type, click down arrow to Pricer than 'View Chain'. Choose Put, than 'Calculate'. You will see that your Put May 65 has a theorical value of 1.106$, which in this case does not have much significance, due to low volume. You also see the delta and the theta. The theta in this case is -0.038, this means the contract looses 0.036$ PER day untill expiration (if the price of PII stays the same). As for the delta, which is 0.229, this means at this moment, PII goes down 1$, your put will increase 0.229$ in value. (To make the delta a bit easier to understand, you could look at the delta as followed : you have 22.9% of chance that PII will be at 65$ at the expiration date.) You get the rest of the greeks in this pricer table, but Theta and Delta are the more important ones... (vega, or volatility is also important, but it would take too much room to explain... ) Cheers!!
Does anyone trade the QQQ index or options? The options seem to have good Bid / Ask and tons of volume. Any other suggestions for options??
First, I have to agree with the comments made about staying out of the front months ... yes, there are times/strategies/setups that the front month is best suited for, but if you are unaware of pricing/greeks then you really should trade further out ... In the end, the best month is going to depend on your analysis (i.e. what timeframe are you looking at) and where the options are all trading. Aside from that, a few thoughts: - Reading-wise I would check out Options: A Personal Seminar by the New York Institute of Finance ... was the first book I ever read on options (I am not sure where to buy/if it is still in print, though). The book does a very good job of providing an overview of the basic trading strategies (i.e. all kinds of spreads, etc.) in a fairly simple format. - Check out http://www.ivolatility.com ... they have a lot of free info (as well as pay) on where an option's IV is right now relative to the past (a basic way to see if an option is "cheap" or "expensive"). - I am curious in a situation like PII why you just didn't pickup the stock? When I run into a situation where the option volume is too thin, the spread too wide, IV too high, etc. but I have some feeling that the stock is going to move, then I just pick it up and skip playing the options ... sometimes you just can't. - Finally, You said you are trading at IB, I think. Well, with no ticket charge, spread strategies become more viable, cost wise, even at small size (you still are looking at a bid x ask spread twice over, however). I wonder if looking at trading a bull spread or bear spread might be something you should look at right now. You might know this already, but essentially, a basic bull spread is where you pickup an at the money option and sell an equal number of options at a higher strike at the same month. So, for example, taking a 20 dollar stock you would buy 5 20 July calls and sell 5 25 July calls. The total amount that you can loose will be the difference between what you paid for the 20s minus what you have received for the 25s. The max youâre looking at making is 5 (the difference between the 20s you own and the 25s you are obligated for) plus what you received for selling the 25s. Your required margin for the trade should be the price of the debit not margin for selling naked calls since you arenât naked but covered (The margin will depend on your broker ⦠Datek, for example, doesnât offer spreads so you would be looking at a cost of the calls you bought and required margin for the naked calls you sold ⦠naked margin is high, so weather you can do this or not will depend on IBâs rules). The trade has the effect of somewhat mitigating some pricing issues since if the IV is high (and thus the premium is high due to that calculation in the pricing model) you arenât getting as hurt by it since you are capturing that high IV by selling the 25 calls. (You can reverse this and do a bear spread using puts â buy 20s, sell 17.5s/15s or so). I use this strategy a lot when I only see a few points in the stock (i.e. I see that the stock in the above ex will run to 25 but I think that the resistance is going to hold it there or around). I think the CBOE has some info on spreads, etc. at their site. I would suggest sitting down with a notepad whenever you have some time and just start calculating possible spreads until you get comfortable with the pricing. I would also recommend that you watch how a spread will trade for a bit (just pick one) so you might possibly reduce (you canât eliminate) the amount of surprises that occur once you switch from notepad to trade. - Tim