|
PureBytes Links
Trading Reference Links
|
Options are funny things. When dealing with options and stock, you can put in a
spread using the stock and the option. Say the stock is selling at 62 and the
65 call is 2 1/2 at 2 3/4, you can place an order to buy the call and sell 100
shares of stock for 59 1/2 net. You don't care what the prices are, just the
net result. In effect you sold the stock at 62 and bought the call at 2 1/2 for
a net revenue of 59 1/2. This is common practice in stocks and can be
accommodated on most options floors. It is far more difficult in futures. I
have been able to do it in the bonds and some of the currencies. Why the
problem with the futures markets? I don't know, other then the fact that they
don't want to do it. At one time more IBM stock was traded at the CBOE then on
the NYSE. This could still be the case in some stocks, maybe the Doctor can
tell us if that is still the case.
The same can be said for options spreads. They should be entered as a net. One
price minus the other. Look at bid-bid or offer-offer and the least amount
should be your bid price. If selling the spread look at these relationships for
value. In markets where options have a high implied volatility, the spreads
usually have the least volatility risk. Ira
BrentinUtahsDixie wrote:
> >(1). Short D.Mark futures and then place a stop loss order (buy stop);
> >
> >(2). Short D.Mark futures and then buy D.Mark call options;
> >
> >(3). Buy D.Mark put options.
> >
>
> I would use choice #2 most of the time. The following is some very basic
> thoughts and examples about options by me.
>
> Regarding your example; you don't just call your broker and
> say I want to buy DM call(s), you have to specify the month and the strike
> price. When ordering I never go with an "at the market" order unless I'm
> desperate. I
> always bid low. If your timing is right (a big if) you can get cheap
> options. Good timing is usually when Volatility and Implied Volatility is
> low and a pull back is in process.
>
> Trading options is exactly like an auction; you bid what you want to pay and
> if someone likes your bid you have a sale. If not, they will most times
> counter offer,
> then you must decide to accept, stand, or to place another bid. Today
> (Friday) I bought a July Wheat 250 Put option. I started out bidding 5 1/2.
> The price started
> out at about 7. As the price came down I moved my bid to 6 where I was
> filled. I might have gotten a fill at 5 3/4 but it's only 12 dollars
> difference and I might have missed it.
>
> When you become a seller it's the same thing in reverse. You are trying to
> get the best (highest) price that you can for your option. Naturally, if it
> is a Call and it's an up day you are going to do better than on a down day.
> Same thing for a Put on a down day.
>
> A day that has a large range is going to get you even higher prices so it's
> a good day to sell but not to be a buyer unless you have a good reason.
> Implied Volatility is used to determine option prices.
>
> I was also selling a Wheat Call today (Friday) and I was anxious
> to sell it because today was the first day that the price was up strongly
> and because my loss had hit my mental stop. I got 2-3 points more then it
> was just yestersday because of the up day and volatility. I lost about $350
> dollars on the Call but I have traded several Puts against that Call option
> on its way down so I am only out about $100 and if we get new lows over the
> next few weeks in Wheat I should be on the plus side.
>
> Options are less liquid than the corresponding Futures Contract. You want to
> paper trade some options to start with and then I suggest that you buy a
> real cheap option in something so that you get a feel for it (by bidding
> less etc). A cheap
> option will most often expire worthless, but sometimes not a price explosion
> will sometimes make a $20 option worth thousands but again its rare.
> http://www.mytrack.com has the best intra-day option information for the
> money (free, or you can pay for option chains etc.) that I know of. A good
> Option Site is at http://www.optionsanalysis.com/ Take some time to
> learn how it all works. If you're like me you will find that going naked and
> using stops only is for suckers.
>
> Brent
> *************************************************************************
|