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Old 12-15-2011, 09:20 PM   #21
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Keep watching this thread and we will see. Its not like I just started doing this. Ive posted 2 trades so far. One went against me and one went my way. I lost $2000 on one and made $3600 on the other (same initial investment). That's pretty normal.

Not sure how long I'll keep this thread going. I think I'm on the wrong forum to discuss these risky investments. I doubt too many people are all that interested.
I'm very interested. And it seems others are also. If some others are not, I promise not to force them to read this thread.

I wouldn't necessarily define these trades as 'risky'. In the OP, you said:

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reward on this trade was max loss of $2880 and max gain of $13120 or 4.5-1
So that is a clearly defined max loss. It's only 'risky' if that represents more loss than you can afford in a single trade. And far less risky than many here take with what they would call a 'safe' investment.

But I'll still stand by my statement that the people on the other side of the trade aren't likely to part with their money so easily and regularly. Logic tells me that if these trades were obviously and regularly imbalanced, the pros (computers most likely) would come in and take those bets, and supply/demand would eat up that advantage so fast that it would be gone before our screens updated.

As we observed in dixonge's thread, it can take a long time for the law of averages to catch up with you.

To the extent you are taking on risk, you should expect that risk to be rewarded. If you expect to regularly take in gains in excess of that risk, well, good luck.

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Old 12-15-2011, 09:41 PM   #22
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I'll start posting my SPY trades either on this thread or the other one.

I am in the process of freeing up cash one of my IRAs. (The last element is selling my Berkshire A, which isn't easy to since it require talking to the brokers at Schwab, not surprisingly their system isn't set up to deal with $100,000+ share of stock).

When this is I done I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.

I also signed up for an OptionHouse account (one of the premiums was 1 year subscription to M* newsletters) I am not sure what option trades I'll be doing in the account.
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Old 12-15-2011, 10:06 PM   #23
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I'll start posting my SPY trades either on this thread or the other one.... I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.
That should be very interesting. You'll normally be 1/2 in cash, so in an up market, you'd need to do pretty well to make up for not having that money in the market. But selling on both sides, maybe those premiums could exceed B&H over time.

Please do post your trades.


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Old 12-16-2011, 07:33 AM   #24
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I'll start posting my SPY trades either on this thread or the other one.

I am in the process of freeing up cash one of my IRAs. (The last element is selling my Berkshire A, which isn't easy to since it require talking to the brokers at Schwab, not surprisingly their system isn't set up to deal with $100,000+ share of stock).

When this is I done I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.

I also signed up for an OptionHouse account (one of the premiums was 1 year subscription to M* newsletters) I am not sure what option trades I'll be doing in the account.
They have some good sign up bonuses depending on how much money you are depositing. I was going to get a 30" Dell monitor but to avoid having to pay taxes on it they offered me $250 cash and a 23" monitor which I accepted.
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Old 12-16-2011, 07:36 AM   #25
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If there does turn out to be interest and others get involved, I will post all of my option trades. I average about one per day. Some are earnings related trades that last 1-5 days and others are trades that I keep on for several months. So far Ive only talked about the very short term earnings trades. My goal is to get other people involved and learn from things that they are doing.
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Old 12-16-2011, 10:12 AM   #26
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I obviously like this thread so I'm hoping we can keep it going.

Next week RedHat (RHT) has earnings on Monday and Oracle on Tuesday. News as of this morning is positive on RHT; ORCL tends to move up by 5 points from what I see in their charts. Let's hope for the best!

I'm definitely small time when doing this as I'm just learning. All my training so far has said trade small to limit your risk. We'll see what's on Options Action tonight!
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Old 12-16-2011, 10:25 AM   #27
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Just a thought, but maybe we should keep one thread devoted to option plays on earnings announcements, and another on longer term strategies like clifp's put/call on SPY vs B&H?

I've generally avoided earnings announcements, thinking that the occasional big swings might wipe out many premiums. But I also see how it could make sense to jump in. The 'excitement' and attention could be driving the premiums to higher than expected levels?

I dunno, but it would be interesting to observe, and maybe play along if I like what I see.

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Old 12-16-2011, 11:34 AM   #28
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Just a thought, but maybe we should keep one thread devoted to option plays on earnings announcements, and another on longer term strategies like clifp's put/call on SPY vs B&H?

I've generally avoided earnings announcements, thinking that the occasional big swings might wipe out many premiums. But I also see how it could make sense to jump in. The 'excitement' and attention could be driving the premiums to higher than expected levels?

I dunno, but it would be interesting to observe, and maybe play along if I like what I see.

-ERD50
Can you explain that bolded statement? In my opinion, you would only want to avoid big swings if you were selling options. When earnings come out, there are big swings but that's what you want if you buy options. You can only lose 100% of your investment if you're wrong but you can easily double or triple your investment, or more, when you're right.
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Old 12-16-2011, 12:17 PM   #29
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Can you explain that bolded statement? In my opinion, you would only want to avoid big swings if you were selling options. When earnings come out, there are big swings but that's what you want if you buy options. You can only lose 100% of your investment if you're wrong but you can easily double or triple your investment, or more, when you're right.
Yes, I was referring to selling options. When I've looked at buying them on EA, they look attractive on one hand - hey, this stock could swing wildly and give a nice profit on the trade - but they also seem expensive, and often the stock doesn't end up doing much.

Having a 2x or 3x upside and 1x downside means little to me. As I tried to explain in the thread dixonge started, I see that as the difference between betting evens/odd or red/black on the wheel, versus betting on 17. The odds and payoff on a single bet are different, but in the long run they both provide the same average payoff.

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Old 12-16-2011, 02:09 PM   #30
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The roulette analogy is a bad one. You cant compare something with a 35-1 payout and 37-1 odds against hitting it...to something with a 2-1 or 3-1 payout and somewhere near even odds of hitting it.

(My roulette odds might be slightly off. I don't play roulette rumbers)
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Old 12-16-2011, 02:23 PM   #31
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The roulette analogy is a bad one. You cant compare something with a 35-1 payout and 37-1 odds against hitting it...to something with a 2-1 or 3-1 payout and somewhere near even odds of hitting it.

(My roulette odds might be slightly off. I don't play roulette rumbers)
It isn't a bad analogy. You can take any odds you want at roulette table even (red and black) 2-1, 3-1, 5-1 (various combinations) or even 35-1 with a single number. You can do pretty much the same thing with options, the main difference is the house's edge is a lot lower
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Old 12-16-2011, 02:29 PM   #32
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Apparently I am really bad at explaining myself.
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Old 12-16-2011, 02:56 PM   #33
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Apparently I am really bad at explaining myself.
I used those numbers to illustrate the principles. It isn't important whether the numbers are in alignment with your example or not. It's the concept that is important.

Look up 'roulette' on wiki, and they give all the odds. Play any way you like, the long term averages are the same for each bet. They are all an expected value on a $1 bet of −$0.053, except for the "Top line" bet, which is worse, a −$0.079. It makes no difference if the odds on a single roll are 37:1 (any singe #) or 1.111:1 (even/odd, red/black, etc), or anything in-between.



This is all getting very deja' vu of that Insane Emergency RE strategy thread. Which is not to imply that anyone here is saying anything insane, it is just that the discussion is very similar. I hope it ends better.

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Old 12-16-2011, 03:47 PM   #34
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I couldn't get everything settled in time to do option trading this week. My one virtual trade on Options house selling a Dec 124P and 128C at a net credit of 1.84 when the SPY was ~126 on 12/12 I end up closing at 2.40 for a net loss of .56.

Fortunately my real money monthly trades all did much better.
SPY Dec 117P/123C strangle with net credit of 5.06 traded on 11/21 when the SPY was ~120. Both sides expired worthless.
Likewise my USO 35P/40C short strangle net credit 1.31 also expired worthless written on 11/21
Individual puts also all expired worthless. BRK/B 65, CVX 95, ITW 42.50, O 30, GOOG 460, $14 for that 3 month option and since I'd do cart wheels to own GOOG <450 I'm disappointed that didn't get exercised but the 14% annualized return is ok also.

Expired calls BBT @28 CMP @105 (of course it would have been nice to sell the stock in the mid 90s rather see drop to 72..) Exercised calls BBT@22. This is tax loss selling but I wrote a put so I'll probably be buying this stock in Jan.

I did lose money on a GE put that I sold for .95 and bought back yesterday at 1.24.

Now that the VIX has dropped below 25, I am going to cut way back on selling individual puts, once all of my Jan options expire I'll probably only write a couple until VIX is near 30. Instead I'll concentrate on selling the index options.
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Old 12-16-2011, 04:29 PM   #35
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I used those numbers to illustrate the principles. It isn't important whether the numbers are in alignment with your example or not. It's the concept that is important.

Look up 'roulette' on wiki, and they give all the odds. Play any way you like, the long term averages are the same for each bet. They are all an expected value on a $1 bet of −$0.053, except for the "Top line" bet, which is worse, a −$0.079. It makes no difference if the odds on a single roll are 37:1 (any singe #) or 1.111:1 (even/odd, red/black, etc), or anything in-between.



This is all getting very deja' vu of that Insane Emergency RE strategy thread. Which is not to imply that anyone here is saying anything insane, it is just that the discussion is very similar. I hope it ends better.

-ERD50
What I'm doing and what the other guy was doing in the thread you referenced is apples and oranges. He went bust taking insane risks. A few posts ago you said my trading wasn't risky.

I'm not going to debate this anymore. Its getting old having people tell me what Ive been doing successfully for years wont work.
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Old 12-16-2011, 04:31 PM   #36
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I couldn't get everything settled in time to do option trading this week. My one virtual trade on Options house selling a Dec 124P and 128C at a net credit of 1.84 when the SPY was ~126 on 12/12 I end up closing at 2.40 for a net loss of .56.

Fortunately my real money monthly trades all did much better.
SPY Dec 117P/123C strangle with net credit of 5.06 traded on 11/21 when the SPY was ~120. Both sides expired worthless.
Likewise my USO 35P/40C short strangle net credit 1.31 also expired worthless written on 11/21
Individual puts also all expired worthless. BRK/B 65, CVX 95, ITW 42.50, O 30, GOOG 460, $14 for that 3 month option and since I'd do cart wheels to own GOOG <450 I'm disappointed that didn't get exercised but the 14% annualized return is ok also.

Expired calls BBT @28 CMP @105 (of course it would have been nice to sell the stock in the mid 90s rather see drop to 72..) Exercised calls BBT@22. This is tax loss selling but I wrote a put so I'll probably be buying this stock in Jan.

I did lose money on a GE put that I sold for .95 and bought back yesterday at 1.24.

Now that the VIX has dropped below 25, I am going to cut way back on selling individual puts, once all of my Jan options expire I'll probably only write a couple until VIX is near 30. Instead I'll concentrate on selling the index options.

My bet is that it wont take long.
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Old 12-16-2011, 04:45 PM   #37
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What I'm doing and what the other guy was doing in the thread you referenced is apples and oranges. He went bust taking insane risks. A few posts ago you said my trading wasn't risky.

I'm not going to debate this anymore. Its getting old having people tell me what Ive been doing successfully for years wont work.
I think what we have here is a failure to communicate. ERD50 isn't claiming what you are doing is crazy and not even all that risky. There are other people on the side of the trade and if options are priced fairly on average you break even (less commission.)

The exceptions are if only
1. If you are more skilled at trading.
2. You are more lucky
3. Or options are not priced correctly.

It is obviously difficult to separate 1 from 2.
My guess is options aren't always priced correctly and generally speaking puts are overpriced in volatile markets, and index options are overpriced generally.
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Old 12-16-2011, 05:04 PM   #38
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What I'm doing and what the other guy was doing in the thread you referenced is apples and oranges. He went bust taking insane risks. A few posts ago you said my trading wasn't risky.

I'm not going to debate this anymore. Its getting old having people tell me what Ive been doing successfully for years wont work.
clifp said it well. Thanks clifp.

I wasn't comparing your trades to his, but the expectations of reward exceeding the risk profile and the betting analogies seemed very similar.

I'm not really debating it, just trying to give you my viewpoint. I like to get different viewpoints on investing to test my own thinking. And I'm interested to see your trades. It's hard for me to imagine that 'the market' can be so consistently wrong that one can make large profits in a zero sum game, or that the big boys aren't jumping in and trading on it until the advantage gets soaked up.

That doesn't mean it can't happen, just that I don't expect it to be so over the long haul. I've been wrong before, and will be wrong again.

So I'm interested to see how it goes.

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Old 12-16-2011, 06:40 PM   #39
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Personally I don't care if I'm more skilled, more lucky or the options are priced incorrectly as long as I make money which Ive been doing long enough to have full confidence that I will continue. I don't spend much time wondering which it is either.

Today I bought HANS Feb 85 Puts for 1.05 when HANS was at 96. The puts closed at 1.13 with HANS at 95.89. I may leg into a spread at some point.

I also legged into a put spread on FDX. I made a nice pile of change on the calls I bought before earnings but I think the run-up is temporary. I own a Jan 82.50 / 80 Put spread for 0.50. Its now worth 0.70. FDX is down further after hours.

I sold SPY 121 weekly puts for 1.26

A bullish trade was discussed on Options Action regarding ORCL which has earnings coming out on Tue. I don't like the trade because I dont feel like it is appropriate for a stock with earnings coming out, but I will probably make some other bullish trade on ORCL on Monday because I do agree its going higher.
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Old 12-16-2011, 07:03 PM   #40
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That should be very interesting. You'll normally be 1/2 in cash, so in an up market, you'd need to do pretty well to make up for not having that money in the market. But selling on both sides, maybe those premiums could exceed B&H over time.
This is exactly the point I was trying to make in the other thread. An ATM call has a hedge ratio of about 0.5, so a covered call on SPY starts off with a beta of 0.5 (one half stock and one-half cash). As SPY declines the call's hedge ratio declines, increasing one's beta in a down market. Vice-versa as SPY rises. For this reason, I would expect that over time a covered call strategy on average would underperform a 50/50 stock-cash mix, let alone a 100% stock B&H. A cash-secured put is functionally the same investment as a covered call and behaves the same way. Net result - increased exposure to the left side of the probability distribution (down market) and reduced exposure to the right side (up market). It takes a lot of overpricing in the options to make up for this.
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