COnverting your times to est you went short an OTM put spread at 11:38 AM and covered at 12:45 PM. At 11:38 AM the SPX was about 1328 or so. At 12:45 PM est SPX was at 1327 or so. Basically SPX wnet no where. ToS paper trader is not 100% realistic on fills since it cannot send orders to the floor and replicate the difficulty in getting filled on SPX spreads near the mid. Your long puts in the bull put spread did not move and the short puts in the bull put spread moved from 10.00 to 9.45 for 0.55 gain or your $550. In my honest opinion this is a result of the wide bid ask spreads of SPX and where ToS let you get filled in the paper account and is NOT a realistic trade. So no result of SPX move or VIX change, just the weakness if using a paper trading platform with respect to SPX options. In the future, my advice is to take half the distance between the bid and the mid for a realistic sell and half the distance between the ask and the mid for a realistic buy on SPX though that still makes an assumption.
To finish off on what I was saying on DELTAs: ITM - higher cost but higher sensitivity to movement in the underlying price. Higher probability of option staying ITM so this shoudl balance out higher cost. If we do ITM spreads such as bull call spreads, we negate deltas and gammas to an extent since we are short and long an option and the sensitivity is not coming from delta so much as it is coming from time decay for the most part (depending on how much time to exp is really left). OTM - tiny deltas and gammas and initially not very sensitive to movement in the underlying. However being on the tail of the gamma curve, the sensitivity can increase rather fast if a significant move in the underlying occurs. Great if you are long deltas, shitty if you are short deltas. ATM - sort of your best balance of deltas and gammas are at their peak. Cost is less than ITM options but slightly less sensitivity, cost is more than OTM and slightly more sensitivity. Better prob. than OTM and less than ITM. THis is the delta/gamma balance and we use this understanding each and every time we choose to select a position, strikes and use it to compare spreads v. single option positions as well as to better understand complex option positions. Your goal starting now is before each and every position you put on is to calculate or find the position delta, or net delta if it is a spread, and understand in general what is the sensitivity of your position. ToS analyzer makes it easy to do this as well as the position monitor page. Alwas ask yourself are you long or short delta, which also tells you if you are long or short gamma, and then determine where on the gamma curve are you? Are you near the peaks sliding down or are you at the tails buying or selling "cheap" gamma. Remember that calls have +delta and puts have - delta. Same strike deltas should add up to zero for calls and puts. So any straddle will have a net delta of 0 initially- thus the moniker "delta-neutral" What makes it move from delta neutral to a delta bias? Gamma in each option changing the deltas so the addition of the call and put deltas no longer equals 0.00 but a positive or negative number based on movement in the underlying. Here are some questions to "test" your understanding: 1. Pick any stock (not an index for now) and look at the ATM, ITM, and OTM deltas in the option chain for a given month. Taking turns plug in a random ITM, ATM and OTM call into the ToS analyzer and using day step +4 over a few days each step see how the call reacts to movement in the underlying. SEE the sensitivities. If you were to buy a call on this stock and had an expectation it would go higher, make an assumption of how much higher you think it would go and see which options offer you personally the best risk/reward trade off that suits your style. If you are stuck, take GOOG at 546 and compare the 545, 514 and 575 strikes for either AUG or SEP whichever is traded (skip JUL right now as we do nto want to introduce time concepts yet). Assume you expected GOOG to hit 575 in a month or so, which option reacts best in your opinion (this is not a trick question, there is no right answer, only the best answer for your own risk tolerance so dont look for a specific answer, pick the one you like best). 2. Now put a 545 SEP (if traded) straddle in the analyzer for GOOG and notice over a few days how the position does if GOOG moves up or down. Not much given the delta neutrality and the fact that both options have high gamma. In other words if stock goes up, call gains and deltas change by gamma but put loses and deltas change by gammas and they usually offset each other for the most part. Therefore it shows WHY the straddle needs a lot of movement to profit. It has to overvcome the deltas and gammas offsetting each other from the calls and puts until one side starts winning and the position develops a delta bias in one direction. I think doing this will get you familair with ToS analyzer and bring home the point of SENSITIVITY of options.
Thanks Coach regarding the papertrade, now it makes sense to me! I think I just need to remember papertrading is a lot more forgiving than the real trades. Based on what you were saying regarding taking the mid point, so the assumed debit to close the position would be: $2.75/2 = $1.37? Thanks for the additional materials and analysis to performed on TOS, I will work on these and get back to you either Monday or Tuesday.
Keep reading, keep playing with TOS, ask a lot of questions. That's how I've been learning ... Picking strikes depends on what kind of position you're putting on and how much risk you are willing to assume. That's the most open-ended sounding description but you'll find it applies.
He sure is. Would have been a lot easier to get the student to bone up on option basics first (iow get him to do some homework rather than spoon feeding him like a little baby) before spending his, I assume, valuable time mentoring. But each to his own, lol. db
Well by now we do not have the quotes to determine exit and entry but in one hour I can guarantee with the SPX barely moving at all and these being JULY otpions the spread would not have moved $0.55 for you to be able to sell and buy it back at that difference. Again, this is a quirk of paper trading unfortunately, especially in SPX with really wide spreads.
Allow me to chime in here, coach. TOS papermoney often does fills at the mid price, which is kind of unrealistic for papertrading. Using an underlying like SPX with a wide bid/ask spread just amplifies this problem. I overcome it (somewhat) by manually backing it off the mid price towards the nat to get a more 'realistic' fill. This doesn't always work -- TOS papermoney often will think 'hey, you can get a better price at the mid' and fill it there anyway, even though I know it wouldn't happen. The other option (pardon the pun) for more realistic papertrading on TOS is to use an underlying that has a much tighter bid/ask spread, like pennies. If you like SPX, have a look at SPY.
Yes, I forgot about the mid-point fills too on papertrader lol. I think testing in real time using the approach I mentioned for SPX is a good close approximation although you have to write out the fills, or as mentioned above test it on SPY where spreads are tight. P.S. Chime ins are welcome!
I think it is important to explain risk profile. Most new option traders do not get this. Coach can you explain risk profile in terms of a spread. For example, let's say you are long: 10 spy july bull call spread 1300/1310 you are long here so based on friday's closing prices you open the spread for $.73 or .73 x 100 = $730 for a debit to your account. What is the most you can lose or gain on the position. Is the risk limited or unlimited and why?
I want to make sure I understand this. Question: What should we do to get a realistic filled price for SPX while using TOS Papertrade? Do we use the mid-point given by TOS Papertrade and then adjust it by maybe a nickel? if not, how much should we adjust it? or we just don't know? So for example, for this trade, the TOS papertrade credit was $3.30, we should use $3.25? debit to close the position was $2.95, we use $3.00 instead? would this be realistic? At this point, it seems we are working in the dark while using TOS papertrade and I feel quite uncomfortable about it, since it defeats the whole purpose of papertrading?