TJ I have looked at it, but is there a indicator of monthly volatility? I would love it if you would share where you find the usefull information and what to check. Thanks Is it as crucial for a monthly trade? I would think if you were getting close to your target price to make an adjustment, higher volatility would be more of a green lightl to go ahead and do that. Dr Gonzo, thanks
Stanford: Check VXN (volty of nasdaq-100). (On yahoo, type ^VXN). Volty is very important. The price of an option and the volty are "synonymous"! Look at the history of it to have an idea. Gonzo: PM me the blog. Are you a Dr as in PhD or as in MD? Talking about blogs, I have opened one on options. I am thinking to start writing there, as I find myself repeating writing information in here. If some of you are interested, I might add you as editors so you can post your material about options if you wish.
The OEX is a subset of the S&P 500 index. The OEX consists of the top 100 blue-chip stocks from diverse industry groups - they provide a good measure of the marketâs overall performance. OEX is the ticker symbol for the S&P 100 Index. OEX options are popular for several reasons: 1. Investors can trade OEX options rather than analyzing and investing in any of the 100 top stocks individually. It takes less money for greater reward, at greater risk. 2. Purchasing S&P 100 options can be less risky than buying and selling numerous individual stocks 3. Trading OEX options requires less capital than trading the options of individual stocks. The trader can leverage better.
Stanford and others. Well I have a trade on in the OEX for Time Decay in the weekly. So today Friday, I need the market to end up, or sideways. I have a 10 pt cushion on the downside to expiration today at 2 p.m. my local time. I also am holding a scratch paper trade in the NDX WEEKLY. The NDX weekly premiums yesterday gave me .70 cents on an equivalent distance from the market action as the OEX which only gave me .10 cents. The question evolved into what was the MARGIN requirement on the NDX? It turned out to be $2500 margin per contract NDX, vs the $500 per contract for the OEX. I've just run the numbers for return on capital, or margin. The NDX .70 cents return is .028 % on capital, the OEX .10 cents return on capital is .02% on capital/margin. So I ran the numbers again and found if I had got .15 cents on the OEX instead of .10 cents I would have got a 3% return on capital/margin. I could not get the .15 cents and was running out of time to make the trade, so took the .10 cents. That is presuming using $50,000 in margin for the NDX and also for the OEX. As it stands in these two trades, I'm using $50,000 on the NDX and $25,000 in the OEX trade. This study therefore shows the returns for the same standard deviation in both the NDX and OEX are roughly equal, but the NDX will give you slightly more return on a WEEKLY expiration trade, than the premiums in the OEX. One would have to start the trade earlier in the OEX, the day before to make a better return on margin. I tried but was unable to get a decent premium. Cash wise it looks like a $500 return on a $25,000 margin/capital GROSS for the OEX. And a $700 gross return on capital for the NDX using the same amount of capital/margin and at the same deviation from the market. PERHAPS STANFORD can enlighten me as to the TOS commissions for the NDX trading? I guess it would be 10 or 20 contracts. -------------------------------------------- Trading Journal I was very disappointed in learning to use the Short Straddle and the Short Strangle. I got very comfortable with them over 3 weeks of practicing. However when I got to do it in the TOS account, the margin turned out to be $9000 per contract. Totally out of the question. Therefore when you throw out a tidbit like a TIME SPREAD or any other SPREAD I guess the first thing I'm going to ask you, IS HOW MUCH MARGIN per contract is required? What is the margin with the TIME SPREAD? _______________________________ Maybe TRADING JOURNAL can save me a couple of weeks practical work? If he please would? In a vertical credit spread, when the index moves in your favor away from you, I noticed in a scratch paper trial this past week, that I made, or thought I made money on a 5 point OEX index move. This when I closed it out. I had put on an IRON CONDOR on scratch paper and let the market move 5 points either direction, then closed both sides of the IRON CONDOR. The Bear Call side lost over $8 on closing and I thought the Bull Put side had made $2.20 on the favorable index move directional. Stanford questions this positive return. As I recollect I made .30 cents credit originally placing the Bull Put side, and when another day it moved UP 5 OEX points I closed it out and thought I made $2.20 on it. I lost my notes so will have to repeat the experiment. But you with infinitely more practical experience prhaps can tell me did I win or lose that $2.20?
Stanford VOLATILITY Here is my bookmark for the VIX http://finance.yahoo.com/q/bc?s=^VIX&t=5d&l=on&z=m&q=l&c= This is a chart on the S & P 500 index, but overall for market conditions you can use if for any index. I believe TOS have a volatility reading on one of those columns? I've been playing with gamma and delta this past week, trying to find some correlation to price action in TOS. I use VIX two or three times a week and it is a general market directional indicator. 25 is the neutral number. Above that the market is bearish and below that the market is bullish. That said, there is a grey area between 20 and 30 when things go to extremes. Rotating around the 25 line, which is right now. The market is just churning directionless. The VIX gives you an idea how to play your trades. You can run a trend line along the peaks or valleys and generally predict the next day's action from this. A bullish VIX below 20 means daily bars are tightening up shorter in length and above 30, things are going hairy with big drops and long bearish bars. You can make good money in the bearish market, playing the down trends. Upside bullish trends you can do spreads, or Iron Condors quite comfortably and just put an Iron Condor any time the rising trend line momentarily corrects for 3 or 4 days. Wait till it starts to rise again and put an Iron Condor. Or Bull Put spread. When trading journal talks volatility it can get confusing. I call what you were doing earlier this week PREMIUM BALLOONING, WHEN you are trying to place a spread while a trend is going. If you catch the trend BEFORE the turning point, you get maximum premium ballooning in price to SELL your SPREAD into that you expect to go down. You collect the most money when you SELL. Once the trend stalls, or turns to go sideways, your premium will deflate like sticking a balloon with a pin. You can actually trade off the change in volatility, or premium ballooning and collapsing. The short straddle worked like this. Just that $9000 a contract margin was way too high for me. You had the right idea this week, when you ran that question before. You SELL the spread into the premium ballooning.
Does anybody have a location for an option testing program? I'd like to run the Vertical Credit Spread for a 5 point OEX move direction.
Stanford and Trading Journal My indicator says we are having a longer BULL trend here. Slow moving. Probably be handy to trade a Vertical Credit Spread on the weeklies on Monday next week? Will review Monday morning, but in a weekly credit spread you get better premiums earlier in the week. In the meantime in the search for better percentage returns, I'm going to try an OCTOBER LONG CALL position, 2 contracts at $12.50 So the long CALLS are costing me ($2500) debit. and also try a Vertical simple BULL SPREAD, which is the 10 contracts to buy of the 505 $12.50 and the SELL of the 500 Calls at $9.60 for a net debit of $2.40. This BULL SPREAD in CALLS is costing me ($2400). Both of these BULL trades are being done on scratch paper for this week. I need to see what happens to the premiums. The amounts are more in line with what I will probably start off trading with in a $5000 account eventually and not too far away. ___________________________ Two hours to go and for this week, I will make in my TOS account $500 gross on 50 contracts at .10 cents in the OEX. Or a net after commissions of $340 net. A return of only .013 % Pretty lousy. For the NDX credit spread trade not in my TOS account but on scratch paper, it will be a gross of .70 cents x 20 contracts, or gross $1400. I do not know what the commissions are for this in TOS? Presuming $160, - a return of $1240. Which would be a return of .0248 % on capital. ____________________________________
Falconview, commission on 20 contracts is 69.95 per trade. I also think the returns are .026 or 2.6%. Could you explain your bull call spread to me? not picturing that one yet. Thanks Michael PS, how is the tooth?
Stanford Thanks for the commission info.l The dentist lady is a public health dentist at the Poly Clinic here but when she gets home from work, she has her own clinic. Don't know what about the x-ray, but she didn't have one yesterday and told me to come Saturday at 1 p.m. and she would check with an x-ray at her home clinic to see if the root is big enough to take a post for a root canal. Last time ( some months back ) I went, the root canal came out twice and we gave up in another back jaw location. The bone was too soft with age to hold the post. So tomorrow, we either drill, or extract I guess this new broken tooth in the center of the lower palate. The take from both trades for the week was + $1670 net take and this works out to .022% return for the week using $75,000 in margin. This credit spread margin is way too much money involved. I want to find something different and maybe DEBIT spreads might work? It would help if contributors would post their own trades and describe them, so everybody could learn from them. ----------------------------------- I just entered a third trade on scratch paper, this one an OCTOBER Vertical Bull Put Credit Spread. To settle the argument about the closing of such a credit spread when the trend is favorable. Does it make money in 5 OEX points is the question. It is easy to extrapolate that to the NDX. This one is sell 10 - 520 @ $3.20, Buy 10- 525 @ $3.25 for a + credit of .85 cents. Want to see if it can be used to CLOSE at a profit, like a regular BULL CALL SPREAD. My understanding is that the Bull Call spread, when you sell and buy CALLS and buy the more expensive and sell the cheaper one, is a directional play and expands out to maximum of $5 return in a trend for the spread. So my $2.40 DEBIT can expand to $5 in profit. Or a gain of about + $2.60. I believe the CREDIT Spread equivalent is the BULL PUT Spread and I thought it was supposed to be both TIME DECAY earning and directional earning for a close out? Nobody who knows has chimed in with an explanation, so I have to do it the hard way, by trial and error. -------------------------------- My indicator is saying we have a steady slow moving BULL TREND through next week probably, so will pile on all the TOS funny money account into a BULL PUT Credit Spread on Monday. Go for broke! ------------------------------------------