Anybody ever traded options??

[yona]

Last week was my first time to by options. It did with small percentage of my money and only because the execution date is Febuary 2009.
The stock is a real estate company in HK and is traded for about 1/3 of NAV. So, I believe the risk is small (the option name on yahoo is 0507.hk)

I think I'll never buy short term options. One can have a very hight return without much risk if he buys extremely cheap nano caps, so there is no need to gamble with options.

[unclemick]

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Originally Posted by VaCollector Ok....I'm not sure if this is the proper area to post this inquiry.....or if it might be considered heracy to post such an idea --- Anybody here ever traded options with positive results?? Any other advice (other than to run the other way - hard and fast)??

Listen to your belly button - RUN!

Everyone I knew in the last forty years who dabbled either lost big, barely got out even after a lot of work - it has a tendency to test/strain some/many peoples nerves.

I haven't seen any papers/studies on the average trader's odds of winning lately.

heh heh heh - anyone here old enough to recall Hilary Clinton's Cattle future story?

[FinanceDude]

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Originally Posted by terminator I've looked at selling call options, but it doesn't work for me primarily because if were to get called away then I'd have to pay capital gains in exchange for the (typically) small premium.

The private money manager I work with does this all the time. If there's enough spread, he buys the stocks and sells the call the SAME day. He looks at it as a way to enhance income in the portfolio. I haven't done a lot of it but it works well at times.

[clifp]

Quote:

Originally Posted by FinanceDude The private money manager I work with does this all the time. If there's enough spread, he buys the stocks and sells the call the SAME day. He looks at it as a way to enhance income in the portfolio. I haven't done a lot of it but it works well at times.

My gut instinct and a bit of back of the envelope calculation leads me to believe that writing covered calls (similar to what the money manager does) by reducing volatility would lead to a (slightly?) higher SWR.

I've a done a moderate amount of covered call writing on individual stocks, and looked at lot of index writing on ETFs.

If anybody would be interested in collaborating on back-testing this theory please let me know.

[Meadbh]

Moshe Milevsky's paper on "Asset Allocation and the Transition to Income: The Importance of Product Allocation in the Retirement Risk Zone" (M.A. Milevsky and T.S. Salisbury) 495KB, October 2006; accessible from Welcome to the Individual Finance and Insurance Decisions Centre online... - advocates the use of carefully planned options as a strategy to reduce portfolio volatility during the critical early retirement years. (and confirms that it's better to avoid retiring into a bear market).

I agree with other posters. Try this at home only if you really understand it, and if you have the time to keep a constant eye on the stock. Otherwise you could find yourself in deep doo doo.

[fmhealth]

First time poster. Long time trader in options. I respectfully have to take exception to many of the ideas offered-up on this topic. Yes, most option traders LOSE MONEY. That's simply because they are BUYERS. Virtually all option SELLERS are very profitable.

I myself operate in a somewhat arcane corner of this mkt by selling PUTS. I can tell you that 80% of the trades using this strategy are profitable. I've been embracing & fine tuning this approach for almost 15 years. I keep very detailed records. Since I retired 13 years ago at 48, I have surplus of time that I can dedicate to this avocation.

If anyone is interested, I will gladly post the July & Aug. positions that I've taken. One more aspect to this. The proceeds that I generate are then invested in Closed End Funds that yield approx. 8% & pay on a monthly basis. Once again, I will gladly flesh out these ideas if anyone feels they may be able to benefit.

As usual, PLEASE due your own DD before investing dollar #1.

[ERD50]

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Originally Posted by fmhealth I myself operate in a somewhat arcane corner of this mkt by selling PUTS. Once again, I will gladly flesh out these ideas if anyone feels they may be able to benefit.

fmhealth, welcome.

I have been selling (cash covered) puts and (stock) covered calls. I sell at strikes below the current price of the underlying, which gives a little downside protection.

The process was giving me returns a bit better than the market and with less volatility, but it seems that lately (last 6 months?) the premiums have dropped, and this is much tougher. The 'cap' on gains from selling options versus gains from a rising market just hasn't worked in my favor. I benchmark against SPY, as that is where this money would be otherwise.

Have you found that to be true? Is there a 'good' and a 'bad' time for this technique? Can one identify those times?

I would be interested in seeing your positions.

TIA - ERD50

[ERD50]

Quote:

Originally Posted by clifp My gut instinct and a bit of back of the envelope calculation leads me to believe that writing covered calls (similar to what the money manager does) by reducing volatility would lead to a (slightly?) higher SWR. I've a done a moderate amount of covered call writing on individual stocks, and looked at lot of index writing on ETFs. If anybody would be interested in collaborating on back-testing this theory please let me know.

clifp, search this forum, google and the cboe for "BXM". That is a 'buy/write' option index.

short version - They buy SPY and sell a call one strike higher than the stock price. Rinse/repeat each month. Do a bit better in down/flat markets, a bit worse in rising markets. Which, does not seem like a bad thing for a conservative investor?

-ERD50

[brewer12345]

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Originally Posted by fmhealth First time poster. Long time trader in options. I respectfully have to take exception to many of the ideas offered-up on this topic. Yes, most option traders LOSE MONEY. That's simply because they are BUYERS. Virtually all option SELLERS are very profitable.

Heh, speak for yourself. I've made an awful lot of money in the past couple of years buying options, mostly calls. Of course, there is money to be made selling options, too.

[ERD50]

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Originally Posted by brewer12345 Heh, speak for yourself.

C'mon brewer, he said 'most'.

Sure, if someone manages to pick the right calls at the right time, they can make a bundle in buying calls. I would tend to agree with fmhealth that 'most' (>50%) of the people buying calls are not good enough at their picking/timing to overcome the burden of paying the premiums.

I'm happy it has worked for you, there are always exceptions, sometimes lots of 'em.

-ERD50

[FIRE'd@51]

Quote:

Originally Posted by fmhealth I myself operate in a somewhat arcane corner of this mkt by selling PUTS. I can tell you that 80% of the trades using this strategy are profitable. I've been embracing & fine tuning this approach for almost 15 years. I keep very detailed records. Since I retired 13 years ago at 48, I have surplus of time that I can dedicate to this avocation.

I'm not at all surprised by your results - selling puts is a bullish strategy (the expected return on a short put is positive), and since stocks trend upward over time, most of the puts will expire worthless. I would expect that selling cash-covered puts (which is functionally equivalent to covered calls) will under-perform holding the underlying stocks over time, since you will not participate in the upside. I sometimes sell naked puts as "targeted buys". I only do this on stocks I am sure I want to own, as it potentially lets me get them a few points below the current price. Of course, it the stock trades up, the put doesn't get assigned, and I miss the rise in the stock price.

[FinanceDude]

Quote:

Originally Posted by fmhealth First time poster. Long time trader in options. I respectfully have to take exception to many of the ideas offered-up on this topic. Yes, most option traders LOSE MONEY. That's simply because they are BUYERS. Virtually all option SELLERS are very profitable. I myself operate in a somewhat arcane corner of this mkt by selling PUTS. I can tell you that 80% of the trades using this strategy are profitable. I've been embracing & fine tuning this approach for almost 15 years. I keep very detailed records. Since I retired 13 years ago at 48, I have surplus of time that I can dedicate to this avocation. If anyone is interested, I will gladly post the July & Aug. positions that I've taken. One more aspect to this. The proceeds that I generate are then invested in Closed End Funds that yield approx. 8% & pay on a monthly basis. Once again, I will gladly flesh out these ideas if anyone feels they may be able to benefit. As usual, PLEASE due your own DD before investing dollar #1.

I think there's a few of us who are interested.........

[fmhealth]

ERD & Brewer thanks so much for your rapid replies. I've found the best time to sell Puts is when bad news is oversold in the mkt. Premiums tend to quickly expand as sellers head for the exits at any price. Also, when a new month is added, for example in 10 days Sept will be a new month for many stocks. Premiums tend to be on the generous side. Finally, I sell LEAPS and then fill in the closer months. I find that this technique locks up very generous premiums that of course slowly erode. I also use tight stops on expensive stocks that I rather not own (GS & BOT).

The following are my PUT positions for July& the strike price.

1-GS--200
2-HAL--35
3-WAG--42.5
4- FDX--95
5-INTC--20
6-YHOO--25
7-APPL--70
8-QCOM--42.5
9-WM--37.5
10-GS--185
11-AMGN--50
12--VLO--67.5
13--BOT--180
14--WYNN--80
15-RIG--85
16-MSFT--27.5

These precceeding are by no means any type of reccomendation. Simply my positions at this point in time.

Proceeds are invested in PFN, EOE, HTR & PTY.

Best of luck!

[fmhealth]

Fire'd your spot-on when it comes to missing some large upside moves. APPL is a prime example. Sold the 60s, 70s & 80s at one time. Stock is now around 120.00!

But, since my objective is very simple, TO MAKE MONEY, I'm really not interested in owning many stocks. Currently I hold 54 various positions. This is probably too heavy an equity weighting for me. I simply cannot resist the tempation to scoop up the very generous amounts of cash folks are willing to pay for some downside protection of their positions.

Taxes, as someone already mentioned, can be a thorn in the side of a PUT seller. I prefer to look at it simply as the cost of doing business. People buy & maintain real estate for far less profit than can be generated by a thoughtful option selling program.

Just one man's thoughts. Continued success & most importantly STAY WELL!

[utrecht]

I also sell options. Can you give me some of your criteria for opening a position? Obviously you pick a stock you are at least slightly bullish on, but what criteria do you use to pick the strike price and month of the option?

Also, do you ever close these positions out? If the stock starts dropping, do you roll forward , buy back at a loss, or what?

What broker do you use?

[fmhealth]

Hi UT. I'll give your queries my best shot. My brokers are Ameritrade & Schwab. Like Schwab the best because of their user friendly trading platform.

My stock picks are an ecletic mosaic of technical & fundamental plays. I LOVE T/O & Buy outs. Especially when the BOD are involved. Premiums quickly expand & you can rapidly make some serious money. I've found this to be especially profitable. BOT & HET quickly come to mind. Also, when a stock is unfairly punished simply because the public doesn't understand how an industry functions. A vivid example here would be MRK when they had the Vioxx problem. The stock was beaten down to the low 20s. People even used the term BK when looking at the weight of all the lawsuits.

NOTHING could be further from the truth. I was selling PUTS very aggressively at that time. MRK, like most Big Pharmas are pure money machines. Even in the worst case the earning would have had a momentary problem. Last time I checked, MRK was in the 50s. BTW, I'm still selling 40 Puts on this one. Take a look at DNA. IMO it's on it's way to 100 within 12 months. Folks, even analysts simply cannot grasp just how powerful these companies truly are.

I choose the strike & month in the following manner. Let's take a real example GS. Been selling PUTs on this one every month. I start with the LEAPS & then work backwards starting with the closest month. If GS is 220, I usually look at a strike 10-15% below the mkt. Giving me some room for error. With expensive stocks like GS I ALWAYS put in a stop as soon as the buy is confirmed. If I take in a 5.00 premium I put the sell at 7.50.

I have been taken out numerous times already this year. I actually like to take as many small losses as possible. Keeps me away from the devastating effects of major hits. Which BTW I used to experience before I stared using stops. I don't use stops on stocks I'd like to own. MS, VLO, HAL, DNA, AMGN, RIG, BHP come to mind. I also buy back positions for gains & rollout to a further month where appropriate.

Hope this is helpful in some small way. It's my hobby & I found out along time ago that I like to make money on a regular basis. Best of luck!!

[clifp]

FM what happens if we have a broad market correction of say 20-25% this summer? Do you have sufficient cash/assets to purchase all of these stocks at the exercise price?

[fmhealth]

Clif, excellent question. One that rumbles through my mind on a regular basis. The short answer is yes. I believe that the brokers insist & rightfully so that you are fully collateralized (sp) with enough resources to cover a complete meltdown.

As you know, the Mkt at some point will head down. My strategy is two fold, first & foremost I place stops under stocks I'm simply playing & have no intention of owning. Secondly, let's say that DNA get some bad news from the fda on one of their key products. The stock sinks, the puts blow up. I immediately buy back the puts for a significant loss. I then look at the puts at the current level & see what value can be found, if any. Usually the price on the now lower puts is very high. People think the stock is going MUCH lower. I'll sometimes step in & reinitiate my position at these lower prices.

Sometimes, although not often, the stock is actually Put to me. At that point I sell calls against my position, cutting my loss a bit & holding for a rebound somewhere in the future. This is all part of the game. Everyone involved has to make a buck at some point in time. That's why I only sell puts on stocks that I'm willing to own. Otherwise, tight stops are essential.

Hope this helps. Your comfort level with whichever strategy you ultimately embrace is one the the keys to success!

[nfs]

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Originally Posted by ERD50 I would tend to agree with fmhealth that 'most' (>50%) of the people buying calls are not good enough at their picking/timing to overcome the burden of paying the premiums.

Who do you believe is buying what fmhealth is selling?

[ERD50]

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Originally Posted by nfs Who do you believe is buying what fmhealth is selling?

I think a lot of speculators are drawn to buying calls. They see the possibility of huge percentage gains through leverage, and are willing to pay the premium for that opportunity.

But, in order to make a profit, not only does that speculator need to be correct in the direction of the underlying stock, but also the time frame. And the directional move needs to exceed the premium.

So, I think it is tough to make money on average buying calls. Certainly you can find the opportunities, I have done it on occasion, brewer has, but I suspect there are plenty of losers in the game.

If you sell options, you trade the possibility of large returns for the consistent premium, but you still hold the downside risk ( a bit less if you sell at a strike below the current stock price). I'm not convinced that is always a good trade-off, but it sure seems to be under the proper market conditions.

-ERD50