Novel Option strategy!

Discussion in 'Options' started by NathanGresham, Oct 11, 2007.

  1. Ok I am new to options, love them! My first play was Aug $27.50 puts on CFC first monday of Aug when CFC was at $31.50. It slid to $15 the day before expiry! I bought the puts at .70 and they went all the way up to $12.50!!! Turned 3k into over 70k. I do not know about the complex stategies, spreads, straddles and the like, I mean I understand them somewhat, just do not have the desire to use them just yet, later down the road.

    I basically have been buying puts and calls based upon my chart pattern recognition. Basically swing trading techniques involving chart patterns and indicators that allow me to predict PPS pretty accurately over a 2 week period. No different than swing trading and going long or short, just have 10 times more profit potential with options, hence the switch!

    I have some questions for experienced option traders. Bare with me, thank you!

    I love options, however I do hate the spreads and MM games. they can hand you your hat and quick. I bought the Oct. $2.50 call options on LUM for .05 last monday, chart and tape reading said the stock would hit the strike within a week. On friday the stock soared to $3.30. My .05 calls where worth .90ASK! I bought 191 contracts for a grand and was making a haul. Around noon, I went to lunch. Big mistake. I didn't realize it then, but $3.30 was the 2cd pivot point resistance line. Either the MM or someone started taking the stock lower. By the time I got back the stock was at $2.75 and my 15.5k profit was down 5.5k! I decided to hold on to the calls for I thought( and still do) that the PPS would climb back and test the $3.30 area again.

    However, the stock had 8 up days in a row. So now it's in a consolidation phase for the last 4 days. Tape looks like a hedge fund is trying to corner the float and the MM is helping fill the order. Once that order is filled, I beleive the PPS will go past the $3.30 area, taking my calls back to their highs. Currently the PS on LUM is $2.35. The specialist has kept it there most of the day.

    Any way I have untill next friday for the stock to get back to the $3+ area, new is brewing so I think it will make it. Back to my questions.

    Question (1) Seems to me that if you have a option that goes into the money, yet might retrace back to near the strike, option trader will take the profits quick and hit the bid. MM seems to take cpmplete advantage of this and lowers bid/ask quick. When should one take profits? If the stock continues deeper into the money does the value of the option continue to go up regardless of how much volume. OF does volume determine price more?

    (2) What is the best option screening technique out there for finding the most potentially explosive options?

    (3) Who has the bet screener and trading platform for option trading? Seems the pro choice is Think or Swim. Tradestation claims to have the #1 rated option platform? True or TOS?

    (4) Looks like Najarian has a proprietary screent for unusual option volume, but doesn't provide it to retail traders, just a "alert service". Any one has this teck I can use in real time?

    (5) Ok here is what I really want to get to. The fastest money I have ever made(not the most, just the fastest). Was when I bought puts on LEND. That day after hours trading took the PPS down 40%. When the stock opened the next day, as soon as the bell rang, I was up, instantly, another 10k(I had made 4k the day before)!!! This was great untill that dope Cramer went on TV and Saved LEND and caused a rally so I had to sell to protect profits.

    Seems to me the most explosive way to make huge $$$$$$$ in options is to find stocks that will either gap down or up dramatically after hours and by the options right at the EOD before the jump! The next morning when the bell rings you have many times a instant 1000% gainer on your hands.

    So my 5th question is, what technique/scanner does any one use to find these stock that are most likely going to gap up or down big time after hours? Positive or Negative earnings that will be released after the bell and get in rightr before? Up or downgrades from ratings firms? these 2 seem to causing some tremendous gains lately. Here is an example of what I am looking for, dont get to excited!/

    This option went up 2700% today!

    (6) If a stock gaps up or down dramatically after hours, as soon as the bell is rang, the M already have the bid/ask of the option priced upwards to reflect the new valuation. I guess this value iss based off of pricing models? Since the price is already reset by 100's of % at the bell, is the reason I want to cath these stocks the day before and back up the truck.

    Ok there you have it, just a nice gentlemen that desires to get very rich and will do what it takes to do so! Advice and pointers would be greatly appreciated. I am allso single and comtemplating a move to Chicago to work for some ex flooor trader just to earn the ropes. I wish to focus on daytrading the Eminis and options on the side. So if any one know a VERY REPUTABLE firm then send me an email, most appreciative. Ciao! Will look forward to the replies. :)
  2. lindq


    In reading your post I am reminded of the options broker who once told me that the worst thing that can happen to a new options trader is to have big gains on his initial trades. The tendancy is then to assume that it's easy, and to start ignoring the risks. I speak as one who made that mistake and paid big for it.

    Straight calls or puts, long or short, are bets on direction. Trying to predict after hours movement on earnings plays or news will suck up your gains pretty quickly.
  3. Trust me I do not think it is easy at all. As a matter of fact, to keep my gains, I haven't been hitting the buy button the last week. Trying to decide what kind of Broker and platform I want to use. I have Ameritrade which is the worse broker out there. Probably switch to TOS.:)
  4. lindq


    IMHO, you shouldn't lock yourself into an options broker. Interactive Brokers has a platform I have come to like for many reasons, not the least of which is the ability to quickly trade multiple markets/instruments with good cost structure.
  5. AMEN!
  6. CHA is a volatile stock and its options move around accordingly. Yes, the Oct 85 call was a big winner today but not to the extent that you think. The last trade was at 10 cts, probably on Weds when CHA was in the upper 70's.

    Yesterday it closed at $0.55-1.00. That means that at the close, it cost a buck to buy. Your Yahoo quote shows a B/A of $1.30-1.85 which means that it was up 30 cts at that pt.

    The high for the day ($3.60) was around 1 PM. Assume high trade at the ask and a 50 ct B/A. That means high bid of $3.10 and a gain of $2.10 from yesterday. Yes, a very nice trade if you got the top but hardly up 2700 pct today.

    China stocks are volatile and in play. You can get a list of them by looking up the Halter Index and then eliminating the those that don't trade options. There are a few in there that are good candidates for swing traders, scalpers, etc (CHA, SNP, PTR, BIDU, etc.)
  7. Sell your huge gainers in increments so you won't be pissed at yourself if you lose your whole gain IMO.

    Najarian screens for buying and selling of blocks of options. They have a ticker that shows buys vs sells. He claimed at the MoneyShow that he's the only one with the ability to watch the ticks... I can't imagine he'll have the market on that forever.

    You've been amazingly lucky on timing and direction... send some to Uncle Sammy and ladder out some in CD's. If you take my advice and read this thread again 12 months from now, you'll want to send me a X-Mas card.
  8. Ok thanks. Market is becoming volatile again. One more week after today until expiry. What are the best strategies to find the best options that will make huge $$$$$ the last week. It seems that with many stocks that have options in the money and a high interest, the specialist will move the PPS from the put strike to the call strike or visa versa. Game is rigged, this I know. Just want to get it down, of course.

    I am a chartist, first and foremost. I made the right call in buying the Oct $2.40 calls for .05 on LUM. I bought last monday and last friday the stock briefly shot up to $3.30 sending the calls to .85/.90 bid ask. The crummy thing is this happened right as I went to lunch. I thought there was blue skies in the stock and when I got back my 15k profit would be worth more like 20k(I bought 191 contracts for $1000). Lo and behold when I got back the PPS retraced back to $2.75! My 15k profit was only 10k in an hour! So I decided to hold onto the Calls.

    The stock hasn't begun what I think will be the 3rd Elliot Wave in it's current uptrend. It has consolidated all week. Currently at $2.20. 50DMA is $1.91. I notice that alot of times when a stockk has been on a uptrend(LUM had 8 days up in a row!) the stocck will retrace back to the 50DMA, bounce off of it and then make newer highs. Any chartist that has time, go look at LUM chart and tell me what you think.

    The open interest on the $2.50 call is large. Over 2,100 contracts. When they reached .90, someone was out alot of money. My question is this./ If you see a large open interest like this, is is mainly retail or institutional traders writing these options. If it is institutions can they manipulate the PPS to get their options out of the strike? More insight is appreciated.

    Oh one more thing. If any one has excellent option screener parameters they would like to share, please do so, it would be most appreciative.:)
  9. MTE


    Open interest shows the number of open contracts, each contract has a buyer and a seller, so you cannot say that the options are being written!
  10. Thanks, however it the reply doesn't answer my question. I appreciate the reply however. Thanks.:)
    #10     Oct 12, 2007