I've started a more advanced options trading strategy than merely swing trading long options. It has been three years since my last experience trading like this on the floor. My capital is small at 30k, but, should allow me to put on positions large enough to eek out a profit. I will focus on stocks trading in their teens. There are a couple with high option volume and it allows me to trade a sizeable position. Perhaps, the most important reason, is that I'm much more comfortable trading options with small premium values.
Yes I look forward to reading it too, I hope it goes well for you. Over what kind of time frame do you intend to trade these options.
The trades I made this morning: bought 40 feb 12 puts for .25 sold 16 feb 15 puts for 1.3 sold 1000 csco for 14.12 I was able to get the 12s off between the markets and the 15s on the offer. Could have gotten the stock off for more but was slow in moving. My plan for this is a decent probability that it will approach the 12.5 line by the earnings release next week. My plan was hatched a week ago, but there was a problem of my check clearing due. It seems still to be a valid idea. My thoughts were that I wanted to long premium going into earnings hence the 40 puts. This will allow me to sell premium on Tuesday if the stock makes a move down in the next couple of days. If it doesn't, my risk is small unless it shoots up. In the longer run, or next three weeks, Feb will likely be a fairly volatile month. Volatility paid for these options is higher than the stocks. Why 40 to 16? The credit premium was twice as big as the debit. How did I decide this was the right ratio? Provided protection for the upside and more time decay. The time premium at execution was 16*.45=720 and 40*.25=1000. I wanted a long gamma and vega postion so it isn't flat but my risk from decay is hedged. Symbol Description Qty Price Market Value Delta Pos. Delta Pos. Gamma Pos. Theta Pos. Vega Action CISCO SYS INC -1000 13.97 -13,970.00 1.00 -1,000.00 0.0 0.00 0.00 CSCO FEB 15 Put -16 1.40 -2,240.00 -74.08 1,185.28 -376.0 19.52 -18.24 CSCO FEB 12.5 Put 40 0.25 1,000.00 -11.49 -459.60 564.0 -32.40 27.20 Total Position Delta -274.32 Not big but it is a start. Short deltas for two reasons, one is that I'm a little bearish, two is that you should lean deltas where the postion is long premium.
It will probably consist of the front two month options. My focus will be on every time frame in that range. From scalping for a quick flip to earnings plays, my focus will be on finding what I perceived to be mispriced options. This won't neccessarily be what a pricing model says is cheap or expensive. My only limitation is that I can't sell naked calls. I have to create them synthetically like what I did above.
look forward to your journal... I trade options about 80% of the time... on equities and indexes. Right now am short strangles/straddles on several equities and MNX. All legged into at pivot points, and higher volatilities. i.e., NVLS and KLAC options before earnings, etc. Then will typically leg into a (double) backspread/credit spreads going long a (now) a much less expensive call and put. (or lower) strike; i.e., enter kcq bh @ .40 spreading short klac 35 calls (kcqbg) sold @ 4.50 vs. short 35 puts sold at 2.40 v.s long kcgnf @ .40. ALso trade MRK alot. But higher margin, obviously. Don't trade CSCO.. trade QLGC quite a bit. Always interested in learning new ideas and looking for new underlyings to trade. G'luck..
My game plan is similar right now, will adjust it as needed on Tues. P&L for the day is $170.00 not including commissions.
Forgot to add that as the stock tanked, I offered 5 more of the Feb 15s at 1.50 just in case somebody was desperate at the close. Nobody was. I will also add that the position currently takes about $10,000 for margin.