UK Options- good online data

[mesuno]

Hi Folks,

This is my first post here so i guess i should introduce myself. I'm a final year student about to hit the real world and start earning some money, so i'm doing a bit of research really into various investments.

Some stuff i've been reading has suggested writing covered call options as a good strategy for steady income with limited risk. Problem i'm having is that currently i can't afford to subscribe to a site that charges for live options data so I can do some 'dry runs' before I start.

Can anyone recommend such a site, or give any advice on how to go about the first trade?

(BTW I'm definitely NOT going to rush into stuff, and I know a fair a bit about assessing different underlying shares, I just want to find the raw data to look at)

Cheers

Mesuno

 

[RogerM]

mesuno - you don't need a live feed to papertrade - the 20 min delayed prices on the LIFFE site (for the UK) or CBOE (for the US) will do you fine.

http://www.liffe-data.com/equityOptions.aspx

http://quote.cboe.com/QuoteTable.asp?TICKER=spx&ALL=0


Covered calls are a great way to generate income from a portfolio of shares already held. But the risks can be understated. A covered call has the same profit/loss profile as a naked put. Don't believe me? Draw the payoff diagram for each and compare them.

The true power of options comes in both buying and selling them is some coordinated strategy which can accentuate profits and limit potential losses. You really need to be able to swing trade shares successfully before you get too involved in options.

Read everything you can get your hands on, and papertrade some basic strategies - i.e. call spreads, put spreads, ratio spreads, backspreads, butterflies - and see how they work in practice.

Download the free software from Peter Hoadley to play your "what if?" games.

http://www.hoadley.net/options/LatestVersion.htm

good luck

 

[ubi]

Don't jump into selling options, until you at least understand synthetics and call-put parity.

 

[osho67]

Dear ubi

Please tell me where can I learn more about synthetics and call-put parity. I sell covered call options (see another thread) but I would like to learn fast as to what else can I do to generate regular income. Thanks

 

[ubi]

I've only just joined this site and have noticed there is a lot of confusion between covered call and a short put position.

Start with a book by Sheldon Natenberg...called Option Volatility Pricing. Ever single Option Market Maker in the world has read that book.

The majority of Options expire worthless and will generate income, but selling front month ATM options that generate you high time decay also comes along with massive amounts of short gamma....something extremely dangerous!!

I stress again do not go around selling options (especially ATM front month) if you do not have a good handle on options, as you can end up doing your coconuts in!!

 

[RogerM]

Welcome ubi - input from an experienced options trader will be very welcome.

osho67 - The Sheldon Natenberg book recommended by ubi is first class and is the natural follow-up to a primer like Terry Jordan. There is a link for both in the T2W Trading Guide:Options

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=8414

With covered calls the main risk is not that you get assigned, but that the share price goes down. Also consider maybe using a deep ITM far month call option as your long position and write the near month call against it. Provided that you choose a stock which is trading with IV near the low of its IV range there should be only a small amount of time decay in the far month long call before the near month call expires, and delta should be in excess of 0.85, so you will get very nearly the same move in £'s as you would have had from the underlying. And if IV increases, then you may do considerably better. Your downside is limited to the cost of the call which will be very much less than the cost of the underlying.

Anything to add ubi?

 

[ubi]

Calender spread in general are less risky than short covered calls.
You'll have to keep an eye on volatility as back month options contain more vega, and less gamma.

If you're trading stocks, then keep an eye out of company reports that conincide with your expiry date, especially if you're selling front month options.

 

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[xusorcim]

Welcome ubi - input from an experienced options trader will be very welcome.

osho67 - The Sheldon Natenberg book recommended by ubi is first class and is the natural follow-up to a primer like Terry Jordan. There is a link for both in the T2W Trading Guide:Options

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=8414

With covered calls the main risk is not that you get assigned, but that the share price goes down. Also consider maybe using a deep ITM far month call option as your long position and write the near month call against it. Provided that you choose a stock which is trading with IV near the low of its IV range there should be only a small amount of time decay in the far month long call before the near month call expires, and delta should be in excess of 0.85, so you will get very nearly the same move in £'s as you would have had from the underlying. And if IV increases, then you may do considerably better. Your downside is limited to the cost of the call which will be very much less than the cost of the underlying.

Anything to add ubi?

I have the book "Options, Futures and Other Derivatives" by John C Hull, which I am using in my university finance courses.

Just wondering how does this book compare with the book you listed (by Sheldon Natenberg)? My school library doesn't have that book, and if they share similarities I wouldn't want to buy it (A$89.99 hardcover only), well maybe if I start working in a market maker or prop firm ... at least I'll have wages then ...

But I find Hull doesn't teach things like how to spot arbitrage opportunities like negative spreads, or how to be really fast in calculating options prices on the top of your head when you're trading in the pits or something. And it's time series GARCH models are a bit fudgy, but I think that's not the main point in options trading where I believe people tend to use implied vols anyway.

 

[jamescummins]

A few books that are worth having if you really want to trade options seriously and understand them I ahve come across are the following:

Dynamic Hedging: Managing Vanilla and Exotic Options
The Complete Guide to Option Pricing Formulas
Hull - everyone needs a copy of that Same with Wilmot really - bit steep but a bible in my humble view...
Another couple of good ones, but not suer how useful you would find them are:
The Volatility Survace - A practitioner's guide
inside Volatility Arbitrage - The secrets of skewness

Besides all of these though, I think the most important thing is to get some of the better maths book. Options are ALL about maths in my mind. You have to have a strong understanding of how they are priced, and why, otherwise I dont think you can long term trade them without running risks you are unaware of - and that ends in tears..

try wilmott.com for some of the more in depth stuff - very very good source of info, but it does assume a fair amount of knowledge in most of the forums.