Jump to content

OPTIONS Q&A and Resources (For Beginners too)


Recommended Posts

OPTIONS Q&A and Resources (For Beginners too)

I have agreed to start a new thread here to talk about options.

Questions from Beginners are welcome too

I used to teach Courses on Derivatives for one of the world's largest banks, so am well qualified to help people learn

OPTION PRICE (is a function of...)
=======
+ P: PRICE of Underlying Asset
+ X: STRIKE Price
+ T: TIME to Maturity
+ V: VOLATILITY of the underlying asset
+ R: RATE, ie. interest rate, vs (Dividend) Yield of the underlying asset

VIX / Volatility Index (Vol.for SPY) ... All : 2yr 1yr 6mo : 10d /

VEIxP1z.gif

(RESOURCES):

Options terminology - wiki : https://en.wikipedia.org/wiki/Option_(finance)

xx More Coming xx

Market Commentaries: Tony-C : redDrLeoTWYS : TObs :

Quotes, Charts : SPY-Live-quote : SPX-Live-chart  SpyAft /

Link to comment
Share on other sites

Comment #1

Start with this / DEFINITIONS: Calls = Up bets. Puts = Down bets.

This could be easier to understand, because it is SIMPLER than the usual definition:

"An option gives the holder the Right but not the obligation to Buy (or Sell in the case of a put),

an underlying asset at a pre-agreed Strike Price."

You pay only the Option premium.  That is all you have at risk. 

And you might lose the entire premium, but THAT is all you risk.

Also, you have a limited Time, up to the Maturity date of the option, to make a profit.

If the option is "out of the money" (ie below the Strike Price of a Call) at Expiry,

then the option will have zero value, and the option holder will lose the premium that he/she paid.

WpKWa1s.png

As we get deeper into this, we will....

Look at the formulas to see what determines the size of the Premium the Option Buyer pays.

This will help new traders to have a deeper understanding of how option pricing works.

Pricing elements (such as VOLATILITY) can change from day to day, and that may have some impact upon the optimal options trading strategy.

If the terms I have used here are new to you, then you may want to read carefully:

Options terminology - wiki : https://en.wikipedia.org/wiki/Option_(finance)

Link to comment
Share on other sites

Comment #2: How a Price gain raises the value of a Call Option

175OJfe.png

As the Price of the Underlying Asset rises, the In-the-Money value of a Call option rises dollar for dollar.

But the Time Value diminishes.

So a Call option will not gain 100% of the Price rise.

(more coming ?)

Link to comment
Share on other sites

For I.,

Books mentioned at last meet-up
FREE CAPITAL. Guy Thomas
- (It's a UK Version of Market Wizards, can bring my copy to next meet-up)
EDUCATION OF A SPECULATOR, Victor Neiderhoffer
BOLLINGER, on BOLLINGER BANDS (can lend my copy)

Link to comment
Share on other sites

On 02/11/2018 at 4:55 AM, drbubb said:

For I.,

Books mentioned at last meet-up
FREE CAPITAL. Guy Thomas
- (It's a UK Version of Market Wizards, can bring my copy to next meet-up)
EDUCATION OF A SPECULATOR, Victor Neiderhoffer
BOLLINGER, on BOLLINGER BANDS (can lend my copy)

This is a welcome idea Dr B, I’ve got Guy Thomas’s Free Cqpital and guess what,  I skipped the options comments.

I’ve done real well on stocks, I can’t decide whether i just see it as a lack time barrier to throw myself at learning, as I don’t think I’m that much of dim wit or I’m simply being lazy (third possibility both).

Link to comment
Share on other sites

"... Dr B, I’ve got Guy Thomas’s Free Cqpital..."

Great,  what did you think of the chapter on Nigel?

Did any of his cyclical and trading ideas resonate with you?

Which was your favorite chapter?

Link to comment
Share on other sites

MARKET COMMENTARY sources

#1/ My favorite: the brilliant E-Wave analyst : Tony-C (free) :

ninjashade314 says:

Hi Tony, a silent reader here but really appreciate your updates. After this Major 2 ends then we will be onto the most bullish phase of all: Major 3 of Primary III? Then this bear market should be the last major one for possibly years right? To me it seems that “To infinity and beyond” times is just around the corner…

  • eff7f88db00d7228d55fd86d5319cc26?s=40&d=tony caldaro says:

    Correct the beginning of Major 3 after this Major 2 ends.
    Bullish for years? Possible. But most likely small bear markets along the way as well.

    His E-Wave Count : source :

    C9muIgq.png

    #2 / Also Try : redDrLeo :

    " Well, the bulls put on a stellar rally yesterday in relief that the midterms are over with. It's back to original target zone of 2800-2850 on the SPX, and we are hit the lower zone yesterday. Today is looking like a small pullback day as the futures are down a little here before the open. There's no way to know the exact high for this rally up but time-wise it should finish by the end of this week and rollover next week. I'm looking to add more shorts today or tomorrow as this is likely the last time we'll see this level for quite awhile. "

Link to comment
Share on other sites

On 08/11/2018 at 2:02 PM, drbubb said:

"... Dr B, I’ve got Guy Thomas’s Free Cqpital..."

Great,  what did you think of the chapter on Nigel?

Did any of his cyclical and trading ideas resonate with you?

Which was your favorite chapter?

Lol Dr B. I’ve been visiting here long enough to remember when there was quite a discussion on here before, it gave the game away easily enough. Nigel seems a smart trader and yes I get the swing trade ideas, but I’m only ever moderately successful in that respect.

Favourite chapter? Hmm, well several. Taylor fits my style if not personality and circumstance but I also saw something in Luke too.

The rest were an interesting read but I could only find any style fit with Vernon but I think I’ve moved away from glitch trading. Whilst I’ve read quite a lot of comment about and from John Lee, finding him interesting from an investing viewpoint; his methods though would never appeal racy enough to me. Which is an odd comment but I think true in the sense I like more high octane, excitement stocks than he rarely, if ever would.

 

Link to comment
Share on other sites

"... it gave the game away easily enough. Nigel seems a smart trader ..."

As time moves on, I seem to trade fewer stocks, using simpler strategies - like channels*

(Like Nigel -haha), I still use cross market charts, comparing Oil with Gold or whatever, when developing trading ideas

Link to comment
Share on other sites

Comment #3:

rgY75UN.png

In the Money, versus Out of the Money...

(more coming)

Link to comment
Share on other sites

Comment #4:

rgY75UN.png

In the Money, versus Out of the Money...

(more coming)

Link to comment
Share on other sites

OT#1: Option trading series, no.1

" I Bought Nov30th SPY $280puts, paying $3.24. The closed a bit higher at $3.43 "

Wow, just sold 25% of my SPY $280-puts at HOD- $7.95, vs. $3.24 cost a few days ago

That's a nice +145% return.

I am targeting $270 level to Sell or Hedge the rest

(in edit) : SPY : SPX pre : SPY-soxx10d : SPYvsFAG :

5ArVfag.gif

I sold another 25% at $8.60 going into the close - that's +165% return

The rest (50%) are now "FREE" (I have locked in a certain profit on the original package)

Luck or skill? (bit of both, probably)

: Nov30-280p : / Nov16-275p : Nov23-260c 265c : TonyC :

0pRxRrh.gif

I got morning High on the first trade, and then later when the  market closed weak,

my $8.60 trade was within 10 cents of the ultimate HOD, $8.70.

Link to comment
Share on other sites

OT#1B - I am LONG now

(I posted this on my Diary yesterday):

Sold out the rest of my SPY-$280p at average of $10.20, for 215% Gain

And BOT Nov23rd $265c at $7.21

I AM LONG SPY NOW - & Here's Why:

SPY - etc ... update :

PKAUBqL.gif

Note in the Chart above that...

Yesterday's SPY low at $268.45 filled (most of ) the gap from about two weeks ago,

But it was NOT confirmed by FB or SOXX, which made HIGHER lows yesterday.

When I am done with this series of trades I will tally the gains.

Meantime, I remain on the Options-Bike, peddling hard

(in edit, I added more calls at $5.71, & they close about $3 up from there.)

Link to comment
Share on other sites

STOCK Index SPY Road Map - what I am expecting ... but am not "wedded to"

SPY - soxx, etc ... update : Semi-Conducters (SOXX) tend to lead the market Up & Down

7YnE2Mo.png\

Daily / SPY-soxx-etc ... update :

RyWt11h.gif

Tony C : source

Our long term SPX count remains the same. Five Intermediate waves up, with a subdividing third wave, from early-2016 to late-2018 to complete a Major wave 1 bull market (1810-2941). After that high the market entered what we suspect will be a short-lived Major wave 2 bear market, with a possible loss of 15% to 20%.

spxwkly2.png?w=640&h=485

MEDIUM TERM: uptrend possible

The first wave down of the bear market, Intermediate wave A, appears to have ended at SPX 2604 (11.5% decline). Now the market is in a counter-trend Intermediate wave B rally. Since Int. A was three Minor waves down, we have been expecting Int. B to be three Minor waves up. Minor wave A topped at SPX 2815, and Minor wave B probably bottomed at SPX 2671. After the Minor wave A high we were expecting a drop to SPX 2700. The market went right through that level on Wednesday, and bottomed on Thursday.

spxdaily2.png?w=640&h=485

We have been expecting the rising Minor B to rally back to SPX 2815 area or slightly higher. However, due to volatility and seasonal factors it could rally all the way to SPX 2880. At that level Minor C would about equal Minor A. After Int. B completes then the bear market should resume with Intermediate wave C.

SHORT TERM

At the recent SPX 2671 low the market presented a short term double positive divergence, and a sufficient oversold condition on the daily RSI. On Friday the SPX put in its first higher daily bar since the Minor wave B began. Further signaling that Minor B may have indeed ended at SPX 2671. From that Thursday low we have counted eight waves up, with a possible ninth underway: 2709-2691-2735-2712-2739-2720-2747-2734-2744 so far.

spxhourly2.png?w=640&h=485

Not expecting any impulsive activity for a counter-trend wave, this choppy overlapping activity looks quite normal. We think it should continue this way into early December. Then the market is likely to rollover heading into the FED’s next rate hike in mid-December. January could be a nasty month to start the year. Short term support is at the 2731 and 2656 pivots, with resistance at the 2780 and 2798 pivots. Short term momentum ended the week just below overbought. Best to your holiday trading.

Link to comment
Share on other sites

  • 1 month later...

Using Gold And Silver Options As A Strategic Investment Tool - Patrick Ceresna

He talks about Trading the Cycles... Average length: about Nine Months

(my own work finds short cycles of 4-6 months)

 

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

×
×
  • Create New...