option scanning

Discussion in 'Options' started by patefern, Feb 2, 2002.

  1. Anyone using option scanning software/sites like Optionfind, The Option Club etc. and what are your opinions of them. Not looking to daytrade options, but hedged positions, and have always started with charts of stock than looked at options, maybe I should be scanning options first instead?........Pat
  2. End of day option quotes are meaningless.
  3. Try ivolatility.com or better yet buy optionvue. Really nice 10 minute delayed data but pretty steep-$1500 to buy and $59 monthly to scan your own query formulas-really neat stuff.

    Most of the web sites use overprice/underprice logic to recommend a strategy so be careful. Example. Query their database for straddle buys and they might recommend an option that is underpriced relative to the entire matrix BUT the entire IV of the matrix could be at 2 year high-witness EK, TYC,HAL, their IV's are at 90 percentile above. No way will I buy "x" straddle just because it is cheaper than a, b, or c straddle.

    Be careful

    Hope this helps
  4. GAtrader, thank you for the reply and I have two questions.

    You mention HAL which came up on one of my screens. The chart pattern the first week of Feb. and the cost of a hedge, long stock and long Mar. 15 puts, had an acceptable risk/reward and it turned out you could sell the Mar 15 calls in mid Feb. to capture the profit and premium and still be hedged. This is basically what I look to do, I start with the chart first, and than buy lower volatility and contracting price movement.

    I would rather trade the gamma but my experience is that you need large positions for it to work. The question is, from your reading "Option Volatility and Pricing" and C. Cottles book, can you trade gamma with 1000/2000 shares? Can optionvue query the hedge described above?
  5. I am not sure I understand your question but let me try. If you are long stock, long put you are synthetically long call. So in that case, I would just intiate a trade by buying the call at the strike of your long put. This way less execution risk, less commish. When you have the long synthetic, and then sell a call later on when price moves your way, you have basically a locked position called a conversion which will neither profit or lose anymore. I personally would rather use chart to make a price judgement call buy/sell option or spread options if you don;t like vol levels then just sell it outright. Conversions are fine if you are on the floor for inventory management purposes but you have to then deal with multiple unleggings if underlysing is close to stirke to avoid pin risk. Imagine the underlying being 25 cents near your strike with 2-3 days to go , and the spreads are 20 cents apart on the call/put, It would cost you a lot of money to get out of a position that essentially is dead money. I've tried gamma scalping w limited success due to the inactivity of the market lately. I know it is a valid strategy. A lot of floor traders I know have done it. The problem is the psychological makeup of the trader needed to cope with the equity curve. I know this one guy in coffee who can take a 4000 / week decay in coffee options knowing that he will make it many times over in case of a strike or a frost.I remember him making 250K in that week of a port strike. I have to fee 3 kids everyday, so I can't do that for now.

    Even if optionvue has scans to judge hedges with an edge, it is not going to be valid since their scans is on a 20 min delay, these mispricings correct themselves in seconds. Best bet i to get a system which collects Real Time data in YOUr PC and scan them. Maybe create your own system using excel and DDE links.

    Hope this helps
  6. GATrader
    If you are long stock, long put you are synthetically long call. So in that case, I would just intiate a trade by buying the call at the strike of your long put.

    By buying the 2 options as described you are giving up 2 premiums/time values verses one with a long stock, long put position, but the benefit is there is less capital involved and about the same commission. I am as risk adverse as I am sure you are, so I prefer some sort of hedge. By giving up as little premium as possible I can go to expiry if the stock doesn't make a move and exercise my ITM put with little loss.

    If the position becomes a conversion I will buy/sell stock and/or options according my chart reading. My explanation in the prior post may not have been clear, however as you can see it is a hedged position looking to sell premium as the vol. expands and to trade within that position, i.e. sell the stock without an uptick if it craters and just be long the puts ect.

    For my purposes I think using the Ivolitility married put scan would be best. My screens turn up enough stocks to chose from and IF I have an edge it would be the selections I make.

    Thanks again for your input and I'll keep working on the optionality part.
  7. One other thing, I have always sensed, like just before you solve a mystery, just before that light bulb in your head goes on, there is a matrix, a template somewhere in the world of option configurations that is a lock. I haven't found it yet.
  8. I too have thought of using married puts for my daytrading. Long stock and long put as long as the IV history of the put is favorable. In fact I favor it over holding conversion to short my stocks on downticks, this way if the stock has a big move up in 3 months, I can then sell the call and have the conversion.-but the married puts in my LLC expire that day.

    Just be careful about the recommendations of the sites. You need to know the logic behind their "position finder" screens. Most of them base their decisions on comparing one IV against the avergae IV of the entire series which means that they will recommend to buy striek A if A is the cheapest among all the strikes. What they might not consider is that the entire month eg. Jan calls puts went from 30 vol to 80 vol due to some news event so even though A strike is cheaper it won't help you being long vega at its 90th percentile. Good luck
  9. The most crucial aspect, for me, is by far the chart, it has to "speak" to me and indicate a high percentage of X happening than I go on from there. What I see in the chart are what others see in a favorable IV and my selection usually has IV being lower than historical, but always chart first. I see premium/time value as what I'll risk. The greatest lessons I've learned are from trading itself and I'm slowing involving more of the greeks into my trading.

    The options are 1 to 3 months out and I'm not concerned about assignment because I'm long the stock, and I almost always go to expiration. Do you hold your spreads that long?

    About recommendations on sites, I'm not one to go to chat rooms, follow the selections of gurus and being only 11 miles from Manhatten I didn't go to the Expo, but I appreciate the warning.

    When I started this thread I wanted to go into a trade via the options selection first, not the chart first and you've been a help. Thanks again.