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--- Begin Message ---
To: <Metastockusers@xxxxxxxxxxxxxxx>
Subject: Re: [Metastockusers] Stock Option
From: "Martin Blain" <martin@xxxxxxxxxxxxxxx>
Date: Wed, 9 Apr 2003 07:34:38 -0400
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Freddie
I can send many many articles your way regarding a
secular bear market. I do have one though that came from my broker that
shows it very simply.
I was thinking of placing a PUT on the DOW (ticker
DIA)in the amount of 5k. A leap so I would get the time frame I want. I would
also do this on the Nasdaq (ticker QQQ). I
was trying to calculate the potential profit. I know the potential loss is
everything but it would hedge my remaining mutual funds and retirement
account. I was trying to figure out the potential
gain.
You are right the ticker was VSEA
I will send along the article to your
address.
Regards Martin
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Freddie
Ng
To: <A
title=Metastockusers@xxxxxxxxxxxxxxx
href="">Metastockusers@xxxxxxxxxxxxxxx
Sent: April 08, 2003 11:01 PM
Subject: Re: [Metastockusers] Stock
Option
Martin,I must declare that I am no expert but I could
share the theory of hedging on stock using option.I presumed that you
already own a long position in stock and you want to maintain that stock at a
specific price, say you own 100 shares of ABC at $50. To hedge the long
position, you can buy puts as an insurance against the drop in long position
price. This is where the GREEKS come into play, i.e., Delta, which is the rate
of change of an option with respect to a change in underlying. As you know, a
long position in stock has a delta of 1. So you must buy put at $50 strike
price, assuming at that strike price, its delta is 0.25, then you need to buy
4 contracts. If each contract worths $2, then the total cost would be (4 X 2 X
100)= $800. Once this is achieved, you have attained a net position delta
equals to zero, which is perfect hedge. However, in practice, you can't
achieve perfect match, something close is good enough. How did
the Puts protect the long position ? I assumed you understand the risk/reward
chart of put. The max risk is the $800 premium paid if the underlying price
goes above the strike price and option will expired worthless. The reward is
unlimited if the underlying price falls below the strike price(more specific
B/E point), the puts will rise in value proportionately according to the
option delta. By purchasing puts worth $800 premium, you have
ensured that no matter what happens to the price of stock, you will be able to
sell 100 shares of ABC for $50/share. If the stock price declines, two actions
you can take. Sell the put options(that is gaining value) for a profit or
exercise the put contracts for your right to sell the underlying at $50.
Whichever situation is best you have to do the maths to maximize your
return.A word of caution, option is a very risky instrument, as it
involves expiration unlike stock. Your premium paid is not retrievable unless
the option is performing well. The beauty in option is the leverage you
enjoyed if you can predict the direction correctly, your outlay is much lower
than in stock. Imagine a small premium of $200 can control 100 shares of
stock, if share price is %50, you are controlling $5000 worth of stock with
$200 premium. By saying that, I hope I'm not soliciting traders to jump into
option trade, you are doing it at your own risk.Like to learn from you
on point and figures, is it effective tool ?That's all
folks.Best RegardsFreddie Ng
At 07:43 PM 4/8/2003 -0400, you wrote:
<FONT face=arial
size=2>Freddie PabloI was wondering
if you could help with a few beginner type questions? <FONT
face=arial size=2>I just became interested in Options and was thinking of
using it as a hedge as well as short term. <FONT
face=arial size=2>I am hearing rumors from many different areas that the
bottom will be in 2006. One chart actually mentions Dec 26 2006 and a 50%
drop from here. I though a simple put on the DOW and NASDAQ would act like a
good hedge for my long positions. Using 5k as an example for two PUTS
leaps. First terminology. How would you state that. Buy a.... contract on
the ???For a PUT on the DOW does
drop 50% I would be up how much? Obviously if I am wrong it is all
gone. I suppose if felt really
strongly about this I could by Call options on
Gold I was following
ticker (VESA ) UESQD.X PUTS late last week and noticed it
is now at 1.90 up from 1.60. If one was used to taking 10k positions on a
stock could one now take 2k positions. If so I would assume the most would
lose is 2k if it expired. BTW I
am back to using point and figure charts. Regards
Martin
----- Original Message -----
From: Freddie Ng
To: <A
href="">Metastockusers@xxxxxxxxxxxxxxx
Sent: April 08, 2003 12:18 AM
Subject: Re: [Metastockusers] Stock Option
Pablo,
Thanks for the advise for buy/sell on volatility. You are right, the
IV high-low must have a base for reference, otherwise it is meaningless.
If we can have a historical volatility of the option IV, that should
serve our purpose, right ?. Apply IV/HV will then yield the ratio, if
ratio <1, buy and if ratio is >1 sell. Is this what you use ?
Thanks for the Meta HV formula, on comparison, I realize I had it
programmed in my indicator already. It was kind of you to point out that
HV is for stock and not on option. I would have taken it for
option.
The IV indicator you mentioned is referring to the "option volatility"
in the indicator drop down menu ?
As for the Greeks, as an example, say you bought a call, its price
will rise dollar for dollar with the stock if delta is 1, if the delta is
near to zero, even if the stock gap up, you would not see any up price in
option. Such position should be disposed asap. Delta of 0.5 has the max
time value with no intrinsic value. If trade is against your direction,
for every dollar of stock decline, option will fall by 50cts. Direction is
abstract if we can forecast direction accurately, buy simple call and put
will be neat, forget about other complex strategies in options. Then we
will enjoy the leverage in options, less outlay and high % return.
However, volatility could override greeks.
Best Regards
Freddie Ng
At 11:54 PM 4/7/2003 -0300, you wrote:
I actually didnt mention specific options
soft on account your request was related to metastock capabilities and
use for options, the best options soft is optionvue, or you can use the
web service of <A
href="">www.optionetics.com.
there is other site like <A
href="">www.IVolatility.com
forget about the greeks in my experience
they dont add anything crucial to your trading, but volatility is
crucial, this was the reason i used the ip/hv ratio when i was still
investing in options in the american market
mostly you must buy low volatility and sell
(or write) high volatility, but the problem is high or low comparing to
what, so i started to use the ratio to spot it fast, i dont have the
exact code for the ratio with me, but you can find the iv indicator on
metastock quick indicator list and for the hv i usethis
formula:
<FONT face=arial
size=2>Std(Log(C/Ref(C,-1)),10)/Std(Log(C/Ref(C,-1)),100)
make notice that while the implied is
calculated based on the option price the hv is calculated on the
underlying.
about the <FONT
face="Times New Roman, Times">group/industry ranked by their volatility,
you can find in the sites mentioned by me and debra that
infomation
i never used it but optionetics is very much
discussed and recommended inoptions boards and usenet groups, but as a
rule you should check the cboe site
Bye
----- Original Message -----
From: Freddie Ng
To: <A
href="">Metastockusers@xxxxxxxxxxxxxxx
Sent: Sunday, April 06, 2003 10:13 PM
Subject: Re: [Metastockusers] Stock Option
Pablo,
Appreciate your valuable systematic explanation. Those points that
you discussed were very important in option trading. If it can determine
or anticipate the correct underlying direction, this info can then be
used to interpret the option direction. Call follows underlying while
Put is reverse. I also understand that not all indicators are suitable
for each stock and Metastock can search and match the best indicator to
optimized profit, I wonder if I had missed out anything in Metastock for
option.
Volatility(implied and Historical)
Keen to know how you use these info to analyze the option. I am
aware that one can lost trade due to volatility. You mentioned about use
ratio of IV & HV, can you elaborate a little bit more. The option
volatility indicator is for IV, how do you obtain HV in Metastock.
Btw, do you have any good source where I can obtain the volatility
info. Is there any such listing of group/industry ranked by their
volatility.
Best Regards
Freddie Ng
At 04:07 AM 4/5/2003 -0300, you wrote:
Freddie,
on using metastock for options you have 2 problems
1 Data problem
2 analysis problem
1 since options trade for a short period, the problem arises, you
cannot
make any analysis for a while, there is 2 ways around it :
continuos
contracts (i tried them for a while , but they are not reliable in
my
opnion), the alternative is using intraday data, so even if you
can make
analysis on daily charts for a while, at least you can run
intraday an.
2 about the analysis:
you must keep an eye on the stock or whatever the option is for
then you can analyze the option itself by common tech an. tools
then you have to keep an eye on implied volaitity and hystorical
volatility,
for while i used a ratio between the implied volatility and
hystorical
volatility
check the quick drop indicator youll find some options
indicators
Pablo
----- Original Message -----
From: "freddie_ng" <n07476@xxxxxxxxxxxxxx>
To: <Metastockusers@xxxxxxxxxxxxxxx>
Sent: Saturday, April 05, 2003 2:00 AM
Subject: [Metastockusers] Stock Option
> Hi all Metastock experts,
>
> Can anyone enlighten me how to make use of Metastock to trade
on
> options. I own a Metastock ver 8.0, just recently upgraded
from v7.2.
>
> Best Regards
> Freddie Ng
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