WEEKLY OPTIONS
makes it affordable for expensive underlyer (which also has expensive monthly options)
be sellers - take advantage of faster time decay
learn more on this...
OTHER STUFF
use sizzle index on your positions with MarketWatch. If the index is 1 to 2 or 3, it's a quick way to know nothing major has happened in your instruments. If you see, over 30 or 50, something is happening, take a look and maybe do something.
when trading spreads, the price defaulted by TOS is actually MID PRICE (which is good, protects you). If you go to NAT (natural), you are alomost always overpaying.
VIX futures are coming soon
Usually, close positions a few days (4 or 5) before expiration cuz after that, risk increases sig
when shorting singles or spreads, how to understand "assignment" scenarios?
my question of "how to chart/see history of IV relevant to your trade (single or spread) as opposed to composite IV" was not answered yet. They proly didnt see it
Showing posts with label options. Show all posts
Showing posts with label options. Show all posts
Wednesday, December 1, 2010
Friday, October 15, 2010
options: time value over wknd counts or not?
10/15/2010 Fri GOOG soared after earnings last evening
This news bodes well for AMZN whose earnings comes out Tuesday or so I believe. I wanted to buy call today (with the intention of closing out before Tuesday since volatility crunch could again decrease the option value) but I didn't like theta eroding option value over the wknd.
In theory, wknd should not matter i.e. there should be a usual one day of time value erosion. However, I feel there is some level of additional value erosion going from fri to mon.
Does that happen? Let's see!
How do we do this? On Monday morning, at the open, record the option prices and see if they reflect any ADDITIONAL time value erosion from the wknd or not!
Note: If there is a significant level of price change, then answer should be YES. If there is a small change only, the answer is IDK.
AMZN
fri 11:47AM P=161.27
B A DGVT IV VOL OI
nov 165c
7.40 7.55 .46 .02 -.13 .20 45.09 314 2789
nov 165p
11.20 11.30 -.53 .02 -.13 .20 45.52 78 971
fri close P=164.64
nov 165c
9.40 9.55 .53 .02 -.13 .21 46.13 1730 2789
nov 165p
9.75 9.85 -.47 .02 -.13 .21 47.25 713 971
=============================================
mon at or around open P=??
nov 165c
???
nov 165p
???
=============================================
calculations
This news bodes well for AMZN whose earnings comes out Tuesday or so I believe. I wanted to buy call today (with the intention of closing out before Tuesday since volatility crunch could again decrease the option value) but I didn't like theta eroding option value over the wknd.
In theory, wknd should not matter i.e. there should be a usual one day of time value erosion. However, I feel there is some level of additional value erosion going from fri to mon.
Does that happen? Let's see!
How do we do this? On Monday morning, at the open, record the option prices and see if they reflect any ADDITIONAL time value erosion from the wknd or not!
Note: If there is a significant level of price change, then answer should be YES. If there is a small change only, the answer is IDK.
AMZN
fri 11:47AM P=161.27
B A DGVT IV VOL OI
nov 165c
7.40 7.55 .46 .02 -.13 .20 45.09 314 2789
nov 165p
11.20 11.30 -.53 .02 -.13 .20 45.52 78 971
fri close P=164.64
nov 165c
9.40 9.55 .53 .02 -.13 .21 46.13 1730 2789
nov 165p
9.75 9.85 -.47 .02 -.13 .21 47.25 713 971
=============================================
mon at or around open P=??
nov 165c
???
nov 165p
???
=============================================
calculations
Thursday, May 13, 2010
My Continualy Changing Options Strategies
Given that I decide to take on a trade based on volatility risk, consider the following:
(1) Read news. If anything significant jumps out (like earnings anouncement, new guidance, possible takeover, new contracts etc. or even something related to market at large, like interest rate change, political crisis, unemployment rate etc.) and I am reasonably swayed to one side of price movement, factor that in to my trade. This is ok, you have got to take a view sometimes. Just make sure that this view does not represent 100% of your trading risk. On the other hand, if you cannot reasonably be swayed to one side of price movement (whether there is significant news on the underlyer or there is absolutely none), then stick to 100% of volatility risk.
(2) Make the trade. Always embed a stop loss. I like the trailing stop or trailing stop limit (the latter is little riskier)
(3) Constantly modify your trade, relative to market news and changing volatility? how to do this?
(1) Read news. If anything significant jumps out (like earnings anouncement, new guidance, possible takeover, new contracts etc. or even something related to market at large, like interest rate change, political crisis, unemployment rate etc.) and I am reasonably swayed to one side of price movement, factor that in to my trade. This is ok, you have got to take a view sometimes. Just make sure that this view does not represent 100% of your trading risk. On the other hand, if you cannot reasonably be swayed to one side of price movement (whether there is significant news on the underlyer or there is absolutely none), then stick to 100% of volatility risk.
(2) Make the trade. Always embed a stop loss. I like the trailing stop or trailing stop limit (the latter is little riskier)
(3) Constantly modify your trade, relative to market news and changing volatility? how to do this?
Options Trading has essentially 2 strategies
Abbreviations used
==============
ST = Short Term
LT = Long Term
With options trading, you are essentially trading
(1) direction in which the underlyer will move ST
and/or
(2) volatility of underlyer
Strategy (1) is very difficult to achieve as a LT goal, akin to the difficulty of beating the casino over a long period of time. Even though you might still believe you have a good chance of consistently making profitable trades based on (1), if you haven't started trading strategies based on (2), you are missing out big time and honestly you are bound to be doomed over LT!! (2) is far more achievable LT than (1). Period.
It's true what I said above is nothing new - it's been explained, researched and demonstrated to be true in academia and on the street for ages. Still, what makes people forget and concentrate on (1), at least initially? The answer is simple. (1) is easier to understand and make decisions on. Initial success might even push you into playing more. If you are a bit shrewd, you probably understand the winning streak won't last very long. Yet you push it to one more play, thinking the luck has probably not changed course yet and sure you can afford to lose this one play and still profit if you stop right afterwards. Ha! Know this feeling? And then you keep going even after that one loss, thinking oh well, what are the chances of another loss again when I have made more wins so far? I swear if I win 2 more, I will stop and go home happy. On and on! I mean come on!! I happen to be a pretty good player at roulette and I have had far more wins than losses so far in my life but I also know when to stop, either after losing the entire budget I had set aside BEFORE entering the casino (NOT after) or after I have made some profits that I'm comfortable with (not letting my greed get in the way).
As of writing this blog, I'm beginning to focus more and more on (2) while still trading (1), albeit applying more restraints on (1) than I had before. Like many traders, I find it impossible to let go of (1) entirely. I will need to act on it more judiciously but definitely play it.
Conclusion:
==========
Trade (2) consistently while trading (1) judiciously, knowing that (1) alone will likely make you a loser over LT.
==============
ST = Short Term
LT = Long Term
With options trading, you are essentially trading
(1) direction in which the underlyer will move ST
and/or
(2) volatility of underlyer
Strategy (1) is very difficult to achieve as a LT goal, akin to the difficulty of beating the casino over a long period of time. Even though you might still believe you have a good chance of consistently making profitable trades based on (1), if you haven't started trading strategies based on (2), you are missing out big time and honestly you are bound to be doomed over LT!! (2) is far more achievable LT than (1). Period.
It's true what I said above is nothing new - it's been explained, researched and demonstrated to be true in academia and on the street for ages. Still, what makes people forget and concentrate on (1), at least initially? The answer is simple. (1) is easier to understand and make decisions on. Initial success might even push you into playing more. If you are a bit shrewd, you probably understand the winning streak won't last very long. Yet you push it to one more play, thinking the luck has probably not changed course yet and sure you can afford to lose this one play and still profit if you stop right afterwards. Ha! Know this feeling? And then you keep going even after that one loss, thinking oh well, what are the chances of another loss again when I have made more wins so far? I swear if I win 2 more, I will stop and go home happy. On and on! I mean come on!! I happen to be a pretty good player at roulette and I have had far more wins than losses so far in my life but I also know when to stop, either after losing the entire budget I had set aside BEFORE entering the casino (NOT after) or after I have made some profits that I'm comfortable with (not letting my greed get in the way).
As of writing this blog, I'm beginning to focus more and more on (2) while still trading (1), albeit applying more restraints on (1) than I had before. Like many traders, I find it impossible to let go of (1) entirely. I will need to act on it more judiciously but definitely play it.
Conclusion:
==========
Trade (2) consistently while trading (1) judiciously, knowing that (1) alone will likely make you a loser over LT.
Tuesday, July 7, 2009
Tuesday, April 14, 2009
Options: Exercise and Assignment
https://www.thinkorswim.com/tos/displayFaq.tos?categoryKey=TRADING
How do I exercise an option contract prior to expiration?
If you trade options, it's imperative that you understand the basics of exercise and assignment. You don't need to know all the theoretical details, but you must be prepared for it, especially if you're short options where you don't control the exercise feature. Learn more in the "Exercise and Assignment, Early or Otherwise" section of the Option School section of our website. Remember that clients are required to submit an electronic exercise advice by 3:20 pm CST.
How do I know that I have been assigned on a short option?
If you are short any options that are in the money you should check your account daily to see if you have been assigned. In the case of early assignment (assignment prior to expiration) we will make every attempt to reach you prior to the opening of the market on the day we receive the exercise notice on your behalf, but you still need to maintain the habit of checking your account personally.
At expiration, any equity option that is .01 of a point or more in the money will be automatically assigned. In addition, in the money cash-settled options are exercised on the holder's behalf. There is too much volume on expiration to contact each person individually, so you need to check your accounts on the TOS system on Monday morning after expiration to see where you stand. In any case, our clearing firm will send you a confirmation showing your purchase or sale of stock on an exercise.
Please explain automatic exercise at expiration.
Equity options that are in-the-money by .01 of a point or more by the close of trading on the Friday before expiration are automatically exercised. Clients who wish to exercise options that are in-the-money by less than .01 of a point must notify us electronically via the exercise page by 3:20 pm CST.
How do I exercise an option contract prior to expiration?
If you trade options, it's imperative that you understand the basics of exercise and assignment. You don't need to know all the theoretical details, but you must be prepared for it, especially if you're short options where you don't control the exercise feature. Learn more in the "Exercise and Assignment, Early or Otherwise" section of the Option School section of our website. Remember that clients are required to submit an electronic exercise advice by 3:20 pm CST.
How do I know that I have been assigned on a short option?
If you are short any options that are in the money you should check your account daily to see if you have been assigned. In the case of early assignment (assignment prior to expiration) we will make every attempt to reach you prior to the opening of the market on the day we receive the exercise notice on your behalf, but you still need to maintain the habit of checking your account personally.
At expiration, any equity option that is .01 of a point or more in the money will be automatically assigned. In addition, in the money cash-settled options are exercised on the holder's behalf. There is too much volume on expiration to contact each person individually, so you need to check your accounts on the TOS system on Monday morning after expiration to see where you stand. In any case, our clearing firm will send you a confirmation showing your purchase or sale of stock on an exercise.
Please explain automatic exercise at expiration.
Equity options that are in-the-money by .01 of a point or more by the close of trading on the Friday before expiration are automatically exercised. Clients who wish to exercise options that are in-the-money by less than .01 of a point must notify us electronically via the exercise page by 3:20 pm CST.
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