Best Thread The Options edge (Writing Vs Buying)

[ducati998]

Split

Why go naked.? Writing shares on which you have, already, made a profit, but which you believe are due for a setback but do not, particularly, want to sell, are what options are for. If you get called, you still get your option money plus the exercise price of the stock. If the price drops below the exercise price, then you won't be called. In my opinion, callers who buy with nice, fat, time premiums on them are just what the writers are waiting for.

A number of points;
*If you already own the shares, and presumably want to continue to own them, why risk having them called away if their price rises during the Options life.

*If you have just bought them, and are now using them as a hedge against a price rise, what will you do if price falls significantly?

*This strategy is a synthetic position, which is a *sold naked Put*. Naked Puts & Calls are very high risk low reward positions, why would you wish to implement a potential career ending position?

You again seem to be advocating the position based on *DIRECTION*
Options can be used for directional strategies.
When thus utilized, you are trading *PRICE*

Options traders tend not to trade Price, they tend to trade;
*Volatility
*Time


jog on
d998

 

[Splitlink]

No, I am a suggesting a trading idea for someone who has held the shares for a while. already, and there must be many in this bull run who are wondering if they should hold or whether the market will top out. My point is that lots of shares in the top indices are showing large time premiums on their six month options , options that will waste away entirely in the last couple of weeks, leaving them near their intrinsic value.

Let me say that none of the holders of these shares would write options if they had an idea that they might be called. That is simple common sense. They have to have a very clear idea of what they think the shares will do. From the number of posts that I have read on these boards in recent years that should not be a problem for many experts

I have not traded options for the last ten years, probably, and then I was an amateur, buying them too expensively and making a loss, sometimes when the underlying price of the share went up. Towards the end, though, I started buying on a longer term basis, several months away, where the time value does not waste so quickly and, also, within the last ten days, where the time waste has mainly occurred. I started to make money then but thought that I could make more by trading shares in the normal way and, so, left it.

Since then, I have become convinced that the accummulation of shares in a portfolio and writing them at strategic times, is what I would do if I had my time over again.

Split

 

[Splitlink]

Blow you lot!! You are getting me interested again. Can anyone tell me where I can get free option prices for UK shares?

In the days of my earlier forays there was no internet and I got the main prices from the FT and the broker. I don't read the FT, anymore.

Split

 

[grantx]

Everyone and especially Spitlink,

Check this site out for exposition of the theoreticals, some of which have been touched on in this forum.

There's nothing that can't be found elsewhere but this is all in one place, and written with generally greater clarity.

Some of the calculus is difficult (for me) so I may ask questions.

Sections read so far and can recommend are Correlations, Random (Walks), Ito calculus, Reversion/Regression. Excel worksheets are also provided.

http://www.gummy-stuff.org

The articles are at left.

Spitlink, I read the FT 6 days a week for 12 years. I stopped because it degenerated into nothing more than a snobby rag fetishising investment - especially the players - and aimed at American money and conspicuous consumption, especially the Saturday edition (I did buy it this Saturday for something to read but threw most of it away, keeping the main and market sections, although this section leaves a lot to be desired).

Grant.

 

[garethb]

http://www.euronext.com/editorial/0,5371,1732_203409259,00.html

I haven't tracked down free prices but this might be a goodplace to start

 

[grantx]

Re Gareth's link, registration is required but it's free.

Grant.

 

[grantx]

Attached is list of articles from the above site.

Grant.

 

[Splitlink]

No place that will just give the closing Friday option prices for the leading UK shares?

Sorry, guys, but that is all I, really, want. I've Googled for them with no avail, which I find strange.

Split

 

[Lightning McQueen]

No place that will just give the closing Friday option prices for the leading UK shares?

Sorry, guys, but that is all I, really, want. I've Googled for them with no avail, which I find strange.

Split

Hi Split found this, but the links not working, maybe it gets going during the week. advfn have equity options data also, thats not working either

"LIFFE, in conjunction with Thomson Financial Limited, have introduced a 15-minute delayed data service which covers prices for LIFFE's range of equity futures and options.

This comprehensive service can be accessed free of charge at"

http://www.liffe-data.com

don

 

[ducati998]

Three further quotes from COW

A buyer can only profit on a call option if a market rallies over a specific price in a specific time limit.

Nonetheless, traders continue to be lured into long option strategies. This is likely due to the fact that purchasing an option provides traders with unlimited profit potential and the risk is limited to the premium paid. The peril in this type of approach, as mentioned before, lies in the fact that although one’s losses are limited it is likely that an option buyer will lose some or all of the value of the option.

The exposure to unlimited losses by option writers is merely theoretical. In theory a market could go up forever, but it isn’t likely

*Quote 1
Incorrect, Options purchased at low IV, can show a profit, independent of any price movement, if IV rises.

*Quote 3
But, the market could rise [fall] during the lifespan of your Option.
Look at the US markets DJIA, NASDAQ over the last 5 months.
Sellers of CALLS have been consistently punished.

*Quote 2
Unlimited profit..................sounds good.
Limited losses..................sounds good
Further, buy a 4month CALL, place a TIME based stoploss @ 3months, and recover some premium if you wish.
Read quote 3 again...............Unlimited losses [if naked] exposure. Limited Profits.

As evidence for *the edge* this article is dangerous in the extreme.
That it is being promulgated as such by Soccy & crew, is either irresponsible, or they are novices who themselves are reaching for basic understanding.

jog on
d998

 

[SOCRATES]

Three further quotes from COW



*Quote 1
Incorrect, Options purchased at low IV, can show a profit, independent of any price movement, if IV rises.

*Quote 3
But, the market could rise [fall] during the lifespan of your Option.
Look at the US markets DJIA, NASDAQ over the last 5 months.
Sellers of CALLS have been consistently punished.

*Quote 2
Unlimited profit..................sounds good.
Limited losses..................sounds good
Further, buy a 4month CALL, place a TIME based stoploss @ 3months, and recover some premium if you wish.
Read quote 3 again...............Unlimited losses [if naked] exposure. Limited Profits.

As evidence for *the edge* this article is dangerous in the extreme.
That it is being promulgated as such by Soccy & crew, is either irresponsible, or they are novices who themselves are reaching for basic understanding.

jog on
d998

No, you are wrong, refer to my post 460 above.

......................................

I prefer to keep the discussion strictly on topic, as to whether it is the writer or the buyer that has the edge, and this has been proved already conclusively without doubt.........

Jog on..

 

[Splitlink]

Hi Split found this, but the links not working, maybe it gets going during the week. advfn have equity options data also, thats not working either

"LIFFE, in conjunction with Thomson Financial Limited, have introduced a 15-minute delayed data service which covers prices for LIFFE's range of equity futures and options.

This comprehensive service can be accessed free of charge at"

http://www.liffe-data.com

don

Hi Don,

Thanks, I'll try there next week. Glad to see you circulating, by the way. Why the name change?

Split

 

[ducati998]

Here are trades that were taken by a professional firm, specializing in the writing of Options.
As you can see, 7/10 were winning trades, but the 3/10 wiped out all the profits.

jog on
d998

 

[ducati998]

Therefore in reference to the *edge* or higher probabilities in the writing of Options, yes the number of winning trades was higher than the losing trades [the probabilities worked out]
Yet, the ability to make money was eroded or eliminated by the skewed risk to reward.

Of those three losing trades, ONE TRADE did 90% of the damage [WMT]

If perchance one more losing trade had eventuated, the trader would have moved from breakeven to a losing month.

jog on
d998

 

[SOCRATES]

Therefore in reference to the *edge* or higher probabilities in the writing of Options, yes the number of winning trades was higher than the losing trades [the probabilities worked out]
Yet, the ability to make money was eroded or eliminated by the skewed risk to reward.

Of those three losing trades, ONE TRADE did 90% of the damage [WMT]

If perchance one more losing trade had eventuated, the trader would have moved from breakeven to a losing month.

jog on
d998

Yes, this is exactly what happens when a static solution is forced on a dynamic environment.

 

[CYOF]

Here are trades that were taken by a professional firm, specializing in the writing of Options.
As you can see, 7/10 were winning trades, but the 3/10 wiped out all the profits.

jog on
d998

Hi d998,

Your post is indeed relevant, and shows how, even with the odds on your side, the majority of Professional traders, so as to speak, find it hard to make consistent profits.

Before I continue, and which my time is very limited this week due to more serious matters, I would like to share with you all two stories, and allow you to decipher the meanings yourself.

I will post both stories separately, as I am trying to keep my posting to a minimum.

Regards,

 

[barjon]

This is no longer an options thread.

Split

split

well i hope it can get back to it - i've split ( :cheesy: ) CYOF's little circles into a new thread and that thread should be used to continue that route. it's here
http://www.trade2win.com/boards/showthread.php?t=23199
cheers

jon

 

[CYOF]

split

well i hope it can get back to it - i've split ( :cheesy: ) CYOF's little circles into a new thread and that thread should be used to continue that route. it's here
http://www.trade2win.com/boards/showthread.php?t=23199
cheers

jon

Jon,

Whilst I can not stop you moving my posts, please do not move post#478 - as it really is very important, and should be left for readers to make up their own minds as to whether the words I speak are indeed Common Sense, or not.

Thank You,

 

[CYOF]

Common Sense Questions

Common Sense Question No.1

What is the most important thing to understand, in relation to trading Commodity & Index Options, for consistent profits?

Now, this question is not a trick question, It is but a simple common sense question, that is based on my study of Options to date, and from a logical deduction, been backed up by market data from the various exchanges, proves to be a question well suited to the desired outcome, the desired outcome been, consistent profits when trading Commodity & Index Options.

 

[Sharky]

It's a continutation from your stories so makes no sense on it's own - hence have merged in with the thread now residing in the Psychology forum. CYOF - please continue to post on that thread - as we want to keep things on topic and flowing on this thread, and not have to continually move things across.