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Guy
One correction. Your brother has the Jul790 Puts so he is $5 in the money
and you are $15 in the money with the OEX at 785. So the spread is $10 on
the options and 5.50 on the price. With the VIX up 2.09 that is an 8.9%
increase in volatility and the spread is not unusual.
John
---- Original Message -----
From: Guy Tann <grt@xxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Thursday, June 22, 2000 10:27 PM
Subject: RE: Selecting options or writing uncovered options
> John,
>
> OK, here's what I show for the close on Thursday (7PM PDT).
>
> I show for the OEXST, a bid of 24, an ask of 25.5 and a last of 24.5.
> Taking the last, that shows a profit of 7.5 and a percentage gain of
43.5%.
> For my brother's OEZSR, a bid of 18.5, an ask of 19 and a last of 19.25.
> Again taking the last, he shows a profit of 6.25 and a percentage gain of
> 47.25%.
> According to Quote Tracker, I'm up $7,427 and he is up $6,177. We're
> closing them out on the open, so we'll see what the final numbers are.
>
> The OEX closed today at 785. Theoretically, I'm $15 in the money while
he's
> $5 out of the money, I think. You would think that with a spread of $20,
> there would be more than $5.50 difference between us.
>
> Guy
>
> Paranoia...you only have to be right once to make it all worthwhile!
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]On
> Behalf Of John Manasco
> Sent: Thursday, June 22, 2000 6:17 AM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Selecting options or writing uncovered options
>
> Comments are embedded.
>
>
> > In looking at my almost RT feed from CBOE through Quote Tracker, I show
> the
> > low today for the OEZSR Puts was 14. Were you stopped out yesterday?
> >
> > Oops, just checked again and my brother is in OEZSR Puts (Jul 2000 OEX
790
> > Puts) not your OEXSR.
>
> I was in the OEZSR (Jul OEX 790 Puts). I saw your followup message about
> closing prices. I was stopped out late Wednesday afternoon.
>
> >
> > His OEZSR Puts closed up 19.52% while my OEXST Puts (Jul 2000 OEX 800
> Puts)
> > closed up 12.75%. Here's where I get confused. When we bought these
> Puts,
> > the OEX was at 802.5 (2.5 points out of the money). My 800 Puts were
> > basically in the money (so I thought) and I paid $17 for the Puts. My
> > brother's Puts were at 790 (12.5 points out of the money) and he paid
> > $13.00. I thought this meant that he paid $4 less than I did, but that
> the
> > OEX would have to move an extra 10 points to get in the money. Now, to
my
> > little mind, this looked pretty good to me. Pay the extra $4. If it
> > doesn't move the full 10 points, I should be further ahead. Today, at
the
> > close, his Puts were ahead 19.52% (granted from a lower base) while mine
> > were ahead 12.75%. In terms of real dollars, his options are worth $375
> > more than mine (in terms of profit) and the OEX went back up and closed
at
> > 800 (my strike price).
>
> I show OEX close at 800.00, OEXST last 17 3/4, bid 17 1/8 and OEZSR last
at
> 13 1/2, bid at 13 for the close on Wednesday. If you look at the last
price
> you are up 3/4 while your brother is up 1/2. If you look at the bid price,
> which I do, you are up 1/8 while your brother is flat. Either way you're
> ahead but ain't no one gettin' rich yet<g>. If the OEX drops below 790 and
> you are both in the money then your options should provide a better dollar
> return than his. However his will provide a better percentage return due
to
> his lower entry price. Without using an options calculator I will guess
that
> the delta on your options are right at .50 and his are about .43. That
means
> that for every dollar the OEX moves down your profit will go up 50 cents
> while his will go up 43 cents but percentage wise his return will be
larger.
>
> If the OEX stands at 791 on expiration day your options will be worth
$9.00
> while his will be worth $0. What if he had bought the 760 put for $6.00
and
> on expiration day the OEX stood at 730. You would have a profit of $53 and
> he would have a profit of $24. He would have a larger percentage profit
but
> you would have a larger dollar profit. He started off with a smaller
> investment but a larger risk so he should get a larger percentage return.
> When I have a large risk I always use stops, but that's a subject for
> another discussion.
>
> If the OEX closes lower Thursday lets do this excercise again. Please
quote
> your closeing prices so we're both on the same page. I'm on the east coast
> and usually leave my computer at 4:00 local time so I don't miss happy
hour.
> So I'll reply Friday morning.
>
> John
>
> Just because you're paranoid doesn't mean they're not out to get you.
>
> > These things just confuse the heck out of me. You would think his would
> > move less than mine. Makes me wonder if I understand these things at
all.
> >
> > Guy
> >
> > Paranoia...you only have to be right once to make it all worthwhile!
> >
> > -----Original Message-----
> > From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On
> > Behalf Of John Manasco
> > Sent: Wednesday, June 21, 2000 12:53 PM
> > To: metastock@xxxxxxxxxxxxx
> > Subject: Re: Selecting options or writing uncovered options
> >
> > Guy
> >
> > Forget everything I just said. I was just stopped out of my OEXSR puts
at
> > 12.50 for a 2.50 loss. Oh well! However that is well within the
parameters
> > of the system I'm following. Tomorrow's another day.
> >
> > John
> > ----- Original Message -----
> > From: Guy Tann <grt@xxxxxxxxxxxx>
> > To: <metastock@xxxxxxxxxxxxx>
> > Sent: Wednesday, June 21, 2000 2:12 PM
> > Subject: RE: Selecting options or writing uncovered options
> >
> >
> > > John,
> > >
> > > Our system provides us with absolutely no indication in terms of
trading
> > > market or bull or bear move. Actually, we seem to do equally well in
a
> > > trading market as long as the trading range is fairly broad. Since we
> > seem
> > > to be able to pick those turning points, we have made a lot of money
in
> > this
> > > type of market. I'd be overjoyed in the NASDAQ would continue to
trade
> > > between 3,000 and 5,000 forever. :) Same with the S&P.
> > >
> > > A few years ago I mentioned that long bull or bear moves without
> > > consolidations, retracing, etc. are where we do the worst. I think
1997
> > (if
> > > my memory hasn't failed me) was our worse year ever, and while we made
a
> > > 100% return that year, our profitable trade percentage declined to
below
> > > 60%, which is highly unusual for us. We spent a lot of time working
on
> > this
> > > and subsequently modified our trading rules (not the system or the
> > > calculations) to better handle this type of market. With this
modified
> > rule
> > > set, we are able to maintain our historical profitability percentages
> > > without sacrificing control.
> > >
> > > I should drop a warning in here. The current market appears to work
> well
> > > with our system and we are running slightly above our historical 75%
> > correct
> > > profitability level. In case anyone is following what we do, they
> should
> > > remember that historically we're wrong on 1 out of every 4 trades.
> Never
> > > forget that.
> > >
> > > Here are the dates of all of our futures trades since last October
(when
> > we
> > > started keeping track of them for our little family newsletter). You
> can
> > > see that we're always in the market. I will look at your VIX
suggestion
> > to
> > > see if there might be any relationship to our trades.
> > >
> > > 10/11/99 Sell 1343.00
> > > 10/26/99 Buy 1285.20 57.80
> > > 10/27/99 Sell 1327.00 41.80
> > > 11/23/99 Buy 1409.00 (82.00)
> > > 12/23/99 Sell 1477.50 68.50
> > > 01/28/00 Buy 1365.00 112.50
> > > 02/01/00 Sell 1415.50 50.50
> > > 02/28/00 Buy 1327.20 88.30
> > > 03/06/00 Sell 1410.70 83.50
> > > 04/03/00 Buy 1513.20 (102.50)
> > > 04/07/00 Sell 1517.00 3.80
> > > 04/14/00 Buy 1439.00 78.00
> > > 04/25/00 Sell 1444.00 5.00
> > > 05/09/00 Buy 1430.50 13.50
> > > 05/16/00 Sell 1428.50 (2.00)
> > > 05/30/00 Buy 1381.80 46.70
> > > 06/05/00 Sell 1476.50 94.70
> > > 06/13/00 Buy 1467.00 9.50
> > > 06/20/00 Sell ????
> > >
> > > We are running over 82% correct at this point in time, however we
always
> > > have to keep in mind our 75% historical number. You can see that our
> > trade
> > > duration varies from 1 day (10/26/99) on up. The last couple of
trades
> > > being 0ne week in duration.
> > >
> > > That loss last November hurt. It was right at that point when we were
> > able
> > > to increase the size of our trades (based upon our money management
> > rules).
> > > Of course the April loss didn't help and it took a while to recover.
> That
> > > loss could have been avoided, but my brother and I had been dissecting
a
> > > trading rule change for the past 3 years (we don't like to rush these
> > > things). I was the con and he was pro. I didn't think it made much
> > > difference, but this loss (real money) helped convince me to
surrender.
> :)
> > > As you can see, we don't make changes just because they might
eliminate
> a
> > > loss. It's easy to tailor a rule set to fit the market. That's why
we
> > > don't optimize. When we discover something that looks like it might
> have
> > an
> > > impact on our trading, we first back-test if for up to 12 years.
> Second,
> > we
> > > start to watch the current market and paper trade the changes while
> still
> > > trading the old rule set. In this case, we've been monitoring it for
3
> > > years. The proposed change helped, but I wasn't convinced that it
made
> > any
> > > sense (logically and mathematically). After 3 years of paper trading,
> and
> > > making sure it didn't negatively impact our system, and after that
huge
> > > loss, I finally gave in and we added the new rule to the rule set.
> > >
> > > I guess what I'm saying is that we have a collaborative effort here,
and
> > > don't make changes on the spur of the moment. It's taken us a long
time
> > to
> > > realize that we need to look at our trading over a longer window.
Like
> > last
> > > year when we finally incorporated money management techniques. Since
> > then,
> > > and since we have taken this long-term approach to trading (like not
> > having
> > > to make a million dollars by Friday) we have succeeded in building our
> > > trading capital to a substantial amount. I'm comfortable taking
smaller
> > > positions, as I know it really doesn't matter in the long term. After
> > doing
> > > this for 45+ years, I'm finally maturing. :)
> > >
> > > Guy
> > >
> > > Paranoia...you only have to be right once to make it all worthwhile!
> > >
> > > -----Original Message-----
> > > From: owner-metastock@xxxxxxxxxxxxx
> > [mailto:owner-metastock@xxxxxxxxxxxxx]On
> > > Behalf Of John Manasco
> > > Sent: Wednesday, June 21, 2000 5:03 AM
> > > To: metastock@xxxxxxxxxxxxx
> > > Subject: Re: Selecting options or writing uncovered options
> > >
> > > Guy
> > >
> > > Spreads can be used for many purposes and in many markets. For example
> if
> > we
> > > are in a trading range market a spread may be an even better way than
a
> > > directional play to squeeze some money out of the market. Does your
> system
> > > ever not have a strong opinion of the market direction? That may be a
> good
> > > time to put on a spread trade. Your example of a spread is just one
> small
> > > example of a large number of combinations available. And like I said I
> do
> > > think spreads are a good way to price a future that is locked and
> > extricate
> > > oneself from a position. Also, an understanding of the uses and
> > applications
> > > of spreads is helping me get a better understanding of the market.
> > >
> > > Having said all that I do initiate more directional trades than
spreads.
> > If
> > > I do my research and feel I'm right about the direction of the
> underlying
> > > I'll buy or write contracts depending on my outlook. This has been
very
> > > profitable at times but also kinda gut wrenching at the wrong times. I
> use
> > a
> > > broker who accepts stops on options so I sleep better.
> > >
> > > If you're going to play the OEX then I would suggest getting an
> > > understanding of the VIX. This is the put call ratio of several at and
> > near
> > > the money call and put options on the OEX. When the VIX is high it's
> time
> > to
> > > buy and when the VIX is low it's time to go is a cute saying that does
> > have
> > > a historical basis. A VIX above 30 often signals a good buying
> opportunity
> > > while a VIX below 20 is often a sell signal, or at least a signal to
> > tighten
> > > up your stops. These are my levels and you may come up with different
> ones
> > > that you're more comfortable with.
> > >
> > > A high VIX reading is often a good time to start writing puts. It
means
> we
> > > are near a market bottom and puts will lose their value in a rally
> faster
> > > than a purchased call will gain value. A low VIX is a good time to
write
> > > calls although my call writes are usually not as profitable as my put
> > > writes. In the middle you try to find support and resistance levels
and
> > move
> > > off them. Just so you understand me I don't write options on the OEX
but
> I
> > > use the VIX to guide me in writing options on stocks I follow. Just
> > another
> > > tool in my toolbag. And yesterday I bought the OEXSR puts at $15.00.
> We'll
> > > see if you or your brother are better pickers.
> > >
> > > Good luck,
> > >
> > > John
> > > ----- Original Message -----
> > > From: Guy Tann <grt@xxxxxxxxxxxx>
> > > To: <metastock@xxxxxxxxxxxxx>
> > > Sent: Tuesday, June 20, 2000 11:24 PM
> > > Subject: RE: Selecting options or writing uncovered options
> > >
> > >
> > > > John
> > > >
> > > > I've seen similar strategies used trading futures. Used them myself
> > many
> > > > years ago without a lot of success. I've found it sort of like
> kissing
> > > your
> > > > sister. Yes it does limit your risk, but it substantially limits
your
> > > > profits as well.
> > > >
> > > > Let's see if I understand you. If you write your call option at
> $15.00,
> > > you
> > > > make $1,500. Then you would have to buy a call option further out
at,
> > > let's
> > > > say $10.00. That way you have nothing invested (you actually make
> $500
> > > less
> > > > commissions) and as long as the market moves the way you think it
> > should,
> > > > the further out calls should drop faster than the call you wrote.
If
> > the
> > > > trade goes against you, you have at least limited your exposure
since
> > you
> > > > own a call to effectively offset the one you wrote, albeit now under
> > > water.
> > > >
> > > > I guess that makes sense, but I'd have to think about it. My first
> > > thought
> > > > is that as long as we're able to maintain our current probability of
> > > > success, are we better off just buying the puts and calls that we
want
> > and
> > > > not bother writing anything? I really don't know and I am trying to
> > learn
> > > > the best approach to use. Today I bought 10 OEXST at $17, while my
> > > brother
> > > > selected OEZSR Puts.
> > > >
> > > > We'll have to follow this through.
> > > >
> > > > Guy
> > > >
> > > > Paranoia...you only have to be right once to make it all worthwhile!
> > > >
> > > > -----Original Message-----
> > > > From: owner-metastock@xxxxxxxxxxxxx
> > > [mailto:owner-metastock@xxxxxxxxxxxxx]On
> > > > Behalf Of John Sellers
> > > > Sent: Tuesday, June 20, 2000 11:23 AM
> > > > To: metastock@xxxxxxxxxxxxx
> > > > Subject: RE: Selecting options or writing uncovered options
> > > >
> > > > Please consider the placing of the writing of a call option say at
> value
> > x
> > > > and also purchasing a call option at 5 or 10 dollars higher in price
> to
> > > > protect your position with a an approximate maximum loss. This
> strategy
> > > most
> > > > brokers feel more protection and should make them more
accommodating.
> > > >
> > > > This method can also be used to Puts also. Practice moderation in
the
> > > > beginning as incorrect positions are costly. I used this approach
with
> > OEX
> > > > options in the past.
> > > > -----Original Message-----
> > > > From: owner-metastock@xxxxxxxxxxxxx
> > > > [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of John Manasco
> > > > Sent: Monday, June 19, 2000 3:20 PM
> > > > To: metastock@xxxxxxxxxxxxx
> > > > Subject: Re: Selecting options or writing uncovered options
> > > >
> > > >
> > > > Guy
> > > >
> > > > Are you going to write options only on indexes or also on stocks? My
> > > broker
> > > > requires $100,000.00 and lots of history to write naked index
options.
> > > >
> > > > John Manasco
> > > > ----- Original Message -----
> > > > From: Guy Tann <grt@xxxxxxxxxxxx>
> > > > To: Metastock User Group <metastock-list@xxxxxxxxxxxxx>
> > > > Sent: Monday, June 19, 2000 2:49 PM
> > > > Subject: Selecting options or writing uncovered options
> > > >
> > > >
> > > > > List,
> > > > >
> > > > > Well, here I come again from our normal position of ignorance.
> > > > >
> > > > > We're planning on getting more involved with options. For our
next
> > sell
> > > > > signal that could arrive any day now, we plan on writing SPX Calls
> and
> > > OEX
> > > > > Calls in addition to buying SPX and OEX Puts. We have very little
> > > > > experience buying options and have had beginners luck with our
first
> 5
> > > > > trades. Now we're going to get a little serious here and try to
> make
> > a
> > > > few
> > > > > bucks.
> > > > >
> > > > > We've each budgeted $10,000 for buying options and another $10,000
> as
> > > our
> > > > > exposure writing options.
> > > > >
> > > > > Now, I'm busy reading my option book, like a good little student.
> > Since
> > > > we
> > > > > lucked out with our previous trades we're feeling overconfident.
:)
> I
> > > do
> > > > > have a question regarding buying options (since I haven't gotten
to
> > that
> > > > > chapter yet):
> > > > >
> > > > > How should I select what option to buy? Currently I select 'in
the
> > > money'
> > > > > options and look for option months that have a pretty large open
> > > interest.
> > > > > Is there a formula or a decision process we can apply to pick the
> > right
> > > > > option month?
> > > > >
> > > > > In terms of writing uncovered options, my question is basically
the
> > > same.
> > > > > How do we determine which options to write? I guess, even more
> > > important
> > > > > is, do we write options that expire out 3 months or would we write
> the
> > > > near
> > > > > month options? Again, since we're short term traders and will
> > probably
> > > be
> > > > > buying these back before they expire, my guess is that we should
> write
> > > the
> > > > > near month.
> > > > >
> > > > > Additionally. my idea is that we should write 'in the money'
options
> > > with
> > > > > pretty good open interest. Again, I'm sure there is a methodology
> > > > somewhere
> > > > > that would help us make a semi-intelligent decision.
> > > > >
> > > > > Any recommendations or thoughts would be appreciated.
> > > > >
> > > > > Thanks,
> > > > >
> > > > > Guy
> > > > >
> > > > > Paranoia...you only have to be right once to make it all
worthwhile!
> > > > >
> > > > >
> > > > >
> > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
>
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