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Debra,
I hope you understand those statement on hedging, it's something I
learned through reading. As to who ask who, I treat everyone an expert on
line. Each of us has his/her own strength, I believe in sharing
knowledge.
I had viewed Don's website, there isn't much notes I could gather about
the Don Fishback Cone. I had registered with them to access info but
nothing much. I was hoping on application notes that I could download, to
understand how it applys on option trading. Do you come across anything
like that, I would like a copy of it.
You mentioned that you got a copy of Don's program and was given out
during seminar, I suppose it's free. Is it possible to get hold a copy of
it to evaluate ?
Best Regards
Freddie Ng
At 11:47 AM 4/9/2003 -0700, you wrote:
Hi Freddie,
Just reading your statement on hedging to Martin.
You
are the person I should be asking questions of insted of your asking
me.
It is evident you know about Options and I am just learning but with
Don's program. Did you check out his websit yet?
Debra
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Date: Wed, 9 Apr 2003 07:34:38 -0400
Subject: Re: [Metastockusers] Stock Option
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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
----- Original Message -----
From: Freddie Ng
To: 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 Regards
Freddie Ng
At 07:43 PM 4/8/2003 -0400, you wrote:
Freddie Pablo
I was wondering if you could help with a few beginner type questions?
I just became interested in Options and was thinking of using it as a hedge as well as short term.
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: 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 www.optionetics.com.
there is other site like 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:
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 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: 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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