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John,
I should have read my next post. :)
What we're trying to do is figure out a methodology to trade options (SPX
and OEX only). We've been lucky, so far, picking stocks, individual options
and pseudo stocks (DIA, SPY and QQQ). Lucky in the sense that we've stuck
to value plays (real companies with real products) and the general market
has, luckily for us, gone in the direction of our trade (overall). I
noticed a couple of trades ago, that while we made money in our futures
trading, we lost a few bucks trading stocks.
Now the signal we trade is based on the S&P 500, so it seemed obvious to me
that we should limit our trading to something that directly relates to the
S&P 500, hence my question on how to trade options in order to maximize our
profits (and it would be nice to minimize risks as well, if possible). By
trading deep ITM options, my thought was to maximize our profit potential
while taking advantage of the time dilution factor. I had noticed that
there was a noticeable difference in my CSCO Calls, for instance. I had 10
Sep 65 Calls and 10 Oct 70 Calls which I sold on the open yesterday. The
Sep calls returned about 70% while the Oct calls returned almost 50% (I
think). It just seemed that the further out we go, the less the option
price reflects the day's price action (delta).
Looking at the options I included in my original post, we have the following
results for today (I didn't write down the opening bid range yesterday) so
I'm just using today's results. :)
Close Last Trade
SXZLO Dec 2000 1475 Calls 88.1250 79.0000
SXMFT Jun 2001 1500 Calls 143.2500 130.0000
SXZIO Sep 2000 1475 Calls 38.0000 31.2500
I'm sure there were better options out there, but these are three I just
picked out to follow. I wished I had written down the opening range as
well, but I didn't. :)
Thanks,
Guy
Never be afraid to try something new. Remember, amateurs built the ark,
professionals built the Titanic.
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
Behalf Of John Manasco
Sent: Thursday, August 10, 2000 6:36 AM
To: metastock@xxxxxxxxxxxxx
Subject: Re: What options to sell?
Hi Guy
I know absolutely nothing about futures so that makes me a perfect candidate
to explain the intricacies of options trading on futures.
Time dilution is irrelevant for the longer term options and should not be
the basis of a trading decision even on the September options if you only
plan to hold for two weeks, in my humble opinion,. Time dilution is only
important during expiration week. All other times the movement of the
underlying will overwhelm the effects of time dilution.
What are the implied volatility's of the options you are considering? That
could enter into the discussion. Are futures options European or American
style options, i.e.. can they be exercised early and are you prepared for
that? Just curious - why are you selling ITM options? Is it because your
models have you short and you expect them to be out of the money by the time
you close out your position?
Regards
John Manasco
----- Original Message -----
From: "Guy Tann" <grt@xxxxxxxxxxxx>
To: "Metastock User Group" <metastock-list@xxxxxxxxxxxxx>
Sent: Wednesday, August 09, 2000 10:37 PM
Subject: What options to sell?
> List,
>
> OK, we've finally determined that we're going to be in the option writing
> business as opposed to the option buying business. Our primary reasons
for
> this are:
> 1- Time dilution works in our favor.
> 2- Capitalizes on our SP trading system.
>
> I would like to pose the following question assuming that we want to sell
> ITM Calls since we are now short the S&P futures. In looking at the
various
> Calls available, how would I determine which ones to write (or which
others
> not listed and why)?
>
> 1- SXZLO Dec 2000 1475 Calls @ 88.1250
> 2- SXMFT Jun 2001 1500 Calls @ 143.25
> 3- SXZIO Sep 2000 1475 Calls @ 38.00
>
> First, there are a few things that need to be considered. Our trades, on
> average, last for approximately two weeks. They can, at times last a
month
> or two but that would be quite unusual. We would like to maximize the
time
> dilution factor in our favor and at the same time minimize our whatever
> margin we have to maintain. We learned about this the hard way a trade or
> two ago when I sold 10 Sep SPX Calls at 46 and didn't impact my trading
> account at all while my brother sold August Calls and had to put up margin
> of $89,000 for the 10 Calls he wrote.
>
> I guess I better call my Schwab desk to find out what the margin rules are
> for trading the near month (you can tell we're futures traders).
>
> Thanks in advance,
>
> Guy
>
> Never be afraid to try something new. Remember, amateurs built the ark,
> professionals built the Titanic.
>
>
>
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