Hi dottom - Please elaborate - what's vague & what does it depend on? If you had to choose @ 4pm Friday when these prices were traded which 1 would have been your trade? cowpok1027
I'll bite on this - I apologize since I have read only 10% of this whole thread. If I make an arse of myself, well, just pm me and It'll be a good laugh. A similar question was posed to me a long time ago, which is the one-day option conundrum. Assume that there is one day left until expiration of GOOG's options. As theta decays when the option is short date, the gamma becomes very sensitive to the underlying. The call option is close to the underlying and has high gamma. The put option is struck about 10 bucks away from the current price and likely has a corresponding delta further from 50, which the call is almost at (or a little higher). So, the answer is to buy the one day (or short date) call and trade the hell out of the delta (or whip). Technically, you should be buying the 50 delt strad. You basically are getting near-infinite gamma, and if you don't have to pay too much for it, its not a bad deal. However, because someone's got to sell it, in experience its not cheap unless the seller has a definate agenda. If you buy the put, your gamma is lower and you may not recoup your investment unless the market moves sharply lower, pumping up your gamma and allowing you to aggressively trade your delta. If you simply buy the underlying, you are just making a directional play. That's my answer. If you however were seriously asking about which way to play the market, you're asking the wrong guy.
Hello drsteph That was a very good "technical" response. the only thing you may have missed was that option C) was to SELL 1 put. Anyway, since I enjoyed your post I'll divulge my motive --> it was designed to be a question of whether you'd rather buy prem, sell prem or just trade directionally. It was intended to see what the ET option traders preferences are. I was thinking of adding a caveat (or bonus points if your scoring) that your MUST HAVE A POSITIVE RETURN TO WIN. GOOD TRADING & GOOD HEALTH cowpok1027 PS - I posted my bullish GOOG position on a GOOG thread under trading & will try to retrieve it & post here sometime soon.
Well, like I said, I really don't know what I am doing anyway. You'd be wiser to listen to someone else more experienced.
I don't think that lottery odds can be compare with option's expectancy. I will try another gambling analogy: Race Track. Once I wrote a program that takes Win Odds for individual horses and and convert it to Exacta odds. then I looked at the real exacta odds (meaning : how the same PUBLIK that awarded horses "A" and "B" with odds of "X" and "Y" to win the race , calculated the chance of horses "A" and "B" to finish the race in 1-2 order"). This way I got the over or under value in prices. Maybe some successful option's traders came up with the similar ways to ID the over/under value in options. Just my take here.
parimutual betting like on horse races is a very good analogy to the options market: zero-sum, negative expectancy because of the house take. and the tote odds of a horse winning are about as accurate as option prices are to future value - which is pretty much dead on. the information flow in most track betting though is archaic by market standards. the lack of instantaneous real time quotes makes doing an arbitrage between the win (or place/show) odds and exotics a possibility. the only problem is that you can't lay off (i.e. short the odds) and you can't lock in odds so all you get is the final, unknown odds that can change drastically seconds before post. it's a lot like the old days of option trading where you could only buy calls. and that house edge - particularly on the exotics is very hard to overcome. because of the flow of info, ability to short and the locked in odds a trader gets, there is almost no chance for a similar arbitrage (or finding over/under priced puts or calls) in options trading. but your system sounds intriguing. any success with it?
agree with you on race track analisys , it is very very accurate like options . Horse with 9:1 odds DOES win every 10th race. My system was(is) very good ;125% , but track is NOT a fair lottery : Track&State take 17% of money from the pool so my return was (83*1.25=104) only 4%. As for similar strategy in options , between all types of HV and IV and Beta calculations multiply by different time periods , then add Events and so many other variance , retail trader like me can definetly find some price discrepancies and make a good living out of it. And I never took directional trade , so not looking for extra luck here. I have a feeling that you find the way to turn neg exp to positive too , lol. You have very intrusting posts , D-V. Read you later.
that's still incredible. if you can get off bets with any size and keep this performance, screw options trading , you can make a living at the track!
If you want to want to make supplement income from it, it is good and easy money when you watch them expire worthless most of the time. Even if if the market crashes, by just holding a small position, you would not be completely wiped out anyway. The essence of option writing lies in making many small but probable gains. However, if you go big time, it takes only one big move to kill you out. To play professional, take covered position like doing a spread. Although this severly reduce your profits, as least you sleep better. By the way just share something with you. Beware more of naked puts then calls. a sudden market collaspe will leave you little time for actions. Even volatility will turn against you.