No lack of OPTIONS

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MightyOne
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Postby MightyOne » Sun Mar 03, 2013 10:15 pm

If you understand the 'shapes'/strategies then you will know when to use one over the other.

I think that professionals speak negatively about DOTM options because they do not want YOU to buy them; legging into DOTM spreads can lead to a profit potential that is beyond your imagination.
What happens if you buy 100 DOTM calls for $10 and then hedge with the $20 higher strike (after a favorable move/inc. volatility) for $12?
1) you get a credit of $200
2) you have a chance at $400000 (100 winning vertical spreads).
Even if you have a 3% chance :D ...

Just because an option is likely to expire worthless, that doesn't mean that they are worthless.

Options allow for a great amount of creativity; Space Wars meets psychedelic drugs :D

The first step is understanding the combinations so that you can change your shape to align with the current idea.

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Postby aliassmith » Mon Mar 04, 2013 1:47 am

MightyOne wrote:If you understand the 'shapes'/strategies then you will know when to use one over the other.

I think that professionals speak negatively about DOTM options because they do not want YOU to buy them; legging into DOTM spreads can lead to a profit potential that is beyond your imagination.
What happens if you buy 100 DOTM calls for $10 and then hedge with the $20 higher strike (after a favorable move/inc. volatility) for $12?
1) you get a credit of $200
2) you have a chance at $400000 (100 winning vertical spreads).
Even if you have a 3% chance :D ...

Just because an option is likely to expire worthless, that doesn't mean that they are worthless.

Options allow for a great amount of creativity; Space Wars meets psychedelic drugs :D

The first step is understanding the combinations so that you can change your shape to align with the current idea.


I have seen OTM for 1 cent worth 4 cents the next day. They can definitely fit into a strategy.
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Postby PebbleTrader » Mon Mar 04, 2013 2:53 am

"Options allow for a great amount of creativity; Space Wars meets psychedelic drugs"

I can see that. FX has been kind of boring for me lately, so this will give me some new OPTIONS to work with.

"The first step is understanding the combinations so that you can change your shape to align with the current idea."

Using the options to adjust to what the market is doing and reduce risk or build a larger position.
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Postby rushN4 » Wed Mar 06, 2013 1:05 pm

MightyOne wrote:If you understand the 'shapes'/strategies then you will know when to use one over the other.

I think that professionals speak negatively about DOTM options because they do not want YOU to buy them; legging into DOTM spreads can lead to a profit potential that is beyond your imagination.
What happens if you buy 100 DOTM calls for $10 and then hedge with the $20 higher strike (after a favorable move/inc. volatility) for $12?
1) you get a credit of $200
2) you have a chance at $400000 (100 winning vertical spreads).
Even if you have a 3% chance :D ...

Just because an option is likely to expire worthless, that doesn't mean that they are worthless.

Options allow for a great amount of creativity; Space Wars meets psychedelic drugs :D

The first step is understanding the combinations so that you can change your shape to align with the current idea.


So i guess you are primary an Option buyer?

Could you show us some example trades you did in the past?

surprisingly i found more information on the Net about Option SELLING then Option BUYING.

In Germany there is an Exchange (EUWAX) where the Banks SELL Option
certificates to the people because they know that 95% of them will lose. It is not possible for these people to SELL these Option certificates they only can be buyers.

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Postby PebbleTrader » Wed Mar 06, 2013 6:37 pm

Sell -> Buy -> Underlying

(High probability, limited risk/profit) -> (Reduced risk, unlimited profit) -> (Reduced risk, underlying)

Was my thoughts...
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Postby MightyOne » Thu Mar 07, 2013 5:03 am

HEDGE/DEHEDGE,
CONVERT, COVER, & COLLAR.

Accumulate a large position in the underlying and then write options.

If you have some covered calls then you can convert them into verticals, for no less than a credit, and then write some more calls (covered again by your position in the underlying).

Using the covered call as a base, what other strategies can you employ when opportunity arises?

-Unless a strategy require that you hedge right away, you should leg into spreads.

-Powerful strategies often times use the underlying in combination with options.

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Postby PebbleTrader » Thu Mar 07, 2013 3:26 pm

Using the covered call as a base, what other strategies can you employ when opportunity arises?


Starting with a covered call:
You are long the underlying & selling a call /````

We can morph into:

-You are long the underlying & selling a call & buying a put ___/````

-You close out the long & buy a call ___/````

-You close out the long & sell a put /\

-You close out the long & sell a put /````\

-You close out the long & buy a put \

-You close out the long & sell another call & buy a call & buy a call __/ \__

-You close out the long & buy a call & buy a put & sell a put __/```\__

Did I miss any?

Did any of those not make sense? (Like, you wouldn't be able to morph into it?)
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Postby PebbleTrader » Thu Mar 07, 2013 3:32 pm

Unless a strategy require that you hedge right away, you should leg into spreads.


Like with a vertical spread:

1.) Just buy a call first ___/

2.) At a later point in time, sell a call ___/```
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Postby PebbleTrader » Thu Mar 07, 2013 3:44 pm

HEDGE/DEHEDGE,


Like with a vertical spread:

1.) Just buy a call first ___/ <----Dehedged?

2.) At a later point in time, sell a call ___/``` <----Hedged?

When I think of "hedging" I think of "reducing risk"

or opposing positions which limit profit/loss?
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Postby MightyOne » Thu Mar 07, 2013 5:52 pm

There is no need to liquidate your long position in the underlying; the more contracts that you accumulate the more options you can write.

By "using the covered call as a base" I meant that the outrights are used to cover the sale of expensive options while you wait for your long options to become cheap enough to generate a credit; worst case scenario you are stuck with your covered call.
If/when you generate a credit, your outrights are not being used to protect a sale so you would write more options.

-Space Wars strategy would have you use put options to multiply the remaining space (the distance between your put & 00); with that in mind, you should understand that you do not need to collar your entire position.

-If price moves beyond your write then you are left with a fixed space, 00 to the write, with which you can use to reposition after your write is exercised.

-Before you can even begin to accumulate naked Futures you need to generate Space using option hedges/spreads/shapes.

-With limited Space and naked Futures you will want to hide in an intermonth spread (long month A, short month B) overnight as you probably do not want to deal with gap opens and overnight margin ;)

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