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drbubb

OPTIONS Q&A and Resources (For Beginners too)

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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 /

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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)

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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 ?)

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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)

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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).

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"... 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?

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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. "

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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.

 

Edited by jerpy

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"... 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

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Comment #3:

rgY75UN.png

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

(more coming)

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Comment #4:

rgY75UN.png

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

(more coming)

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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.

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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.)

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