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  4. Kim

    Welcome to Simple Spreads

    Could be due to rounding error because we post only 1 decimal number. For example, January was actually 1.51, we posted 1.5. February 5.64 we posted 5.6.
  5. z0ned

    Welcome to Simple Spreads

    Thanks for the prompt response Kim. I fixed November but still get a compounded loss of 1.16%. I don't know what I am doing wrong. Do you publish the Simple Spreads results for individual trades like you do for Steady Options? That data would help me figure out what's going on. Thanks.
  6. Kim

    Welcome to Simple Spreads

    Model portfolio is $25k not $10k, and Nov. return is 0.2% not 0%. 0.4% was calculated by my spreadsheet.
  7. z0ned

    Welcome to Simple Spreads

    Hey Guys! I am having a hard time reconciling my P&L to the official. I looked at the official P&L and tried to get the same compound e.g. 0.4% compounded for 2021 and must be doing the math wrong on misunderstanding what is meant by compounding. Can you see what I am doing wrong? Numbers are for 2021. Thanks!
  8. Pat Crawley

    Option Settlement: The Basics

    There are two types of settlement: physical and cash. The settlement process in an option contract depends on whether you own an American or European-style option contract. Before we talk about the specific mechanisms of these contracts, we need to clarify the two types of options contracts. The Difference Between American and European Options There are two styles of options in exchange-traded markets: European and American. Two fundamental properties distinguish the two: The settlement style (cash-settled or physical settlement) When the contracts can be exercised What is an American Option Contract? American option contracts have two unique properties when compared to European options: American options use physical settlement American options can be exercised at any time until the expiration date What are European Options? European options have two unique properties when compared to American options: ● European options use cash settlement ● European options can only be exercised at expiration What is Physical Settlement in Options Trading? A physically settled options contract settles for actual ownership of the underlying asset. For example, when you buy a call option on a stock like Apple or Microsoft, you will receive shares of the underlying stock should your call be in-the-money at expiration. The catch here is that only American-style options contracts settle physically. Nowadays, the only liquid options contracts that physically settle are options on US equities, as settling something like a wheat or crude oil contract would be far too cumbersome for most traders, given the burden of transporting and delivering potentially thousands of pounds of goods. It's critical to be aware of this crucial distinction when trading American-style options, as not knowing it can lead to some hiccups. For instance, if you own an American-style call option on, say, AAPL, and it's in the money at expiration, you'll be required to "take delivery" of those Apple shares. Taking delivery, in this instance, would require you to buy the shares. So if you own a 120 AAPL call and AAPL is at 130 at expiration, you'd be required to buy 100 shares of AAPL at $120. Of course, because AAPL is trading at 130 in this scenario, you can turn around and sell them for a $10/share profit, but there's an asterisk there. Your broker has discretion if you need the margin in your account to support the purchase (or sale) to fulfill the assignment at the expiration time. They can fulfill the assignment (usually charging you a fee), then give you an immediate margin call, allowing them to sell your securities using a market order to fulfill the margin call. This can lead to a scenario where your deposits are sold out from under you to satisfy a margin call. The situation gets direr because options assignment takes place after the market closes, meaning the bid and asks are typically super wide, especially for less liquid stocks. And they'll also charge you a fee when they have to trade your account on your behalf in case of a margin call. However, all of this is very avoidable. All you have to do is ensure you close your options positions before their expiration date. That can even mean minutes before the market closes on the expiration day. So long as you're out of the position, you don't have to deal with any of the politics of settlement, assignment, or expiration. Early Assignment in Physically Settled Options American-style options can be exercised at any time before the expiration date, in contrast to European options, which can only be settled at the expiration date. As a result, American-style options are sometimes exercised early, in which the physical settlement begins immediately. While this is rare, it is likely to happen to an options trader at some point in their career and knowing how the process works beforehand is critical to reacting correctly. The first thing to get straight is how option exercising works. Only the owner (holder) of an option can initiate an early exercise. This means that if you only buy puts and calls, you never have to worry about this being sprung on you. However, as an active options trader, you're likely utilizing several spread strategies involving buying and selling (shorting) options. In this case, there's a remote chance you'll face an early assignment. Let's look at an example to simplify things. If you receive an early assignment, you must deliver on half of the transaction. You're short one 120 AAPL call that expires in 12 days. The holder of this option decides to exercise the option, and now the settlement process begins. AAPL is currently trading at 170. At this point, you're obligated to deliver 100 shares of AAPL at $120 per share. If you own the shares of AAPL, this is easy, your broker will transfer your shares of AAPL, and you'll receive $120 per share. However, if you don't own the shares, you must purchase them in the open market for $170 per share and immediately deliver them to the holder, receiving $120/per share. You'd immediately realize a $50/share loss in this case. If you don't have the capital to fulfill this obligation, your broker will perform it on your behalf and give you a margin call. So as you can see, getting an early assignment is never fun. But you're in luck because it could be better for option holders to exercise their options early. In most cases, it makes far more sense for the holders to sell the opportunities in the options market, as exercising early means you lose out on any extrinsic value in the options market. In other words, exercising options early almost always loses you money. But there is one situation where the risk of early assignment increases considerably: when the option is deep in the capital, and the ex-dividend date is near the expiration date. This is because deep-in-the-money options have very little if any, extrinsic value as it is. So exercising early costs the holder little, but it allows them to capture the dividend. How To Avoid Early Assignment The best way to avoid early assignments is never to sell deep-in-the-money options. This is easy, as it rarely makes sense to do this as it is because, as an options seller, you're looking for options with high extrinsic value--this is the premium you collect as a seller. If there's no extrinsic value, you give someone free optionality. Outside of some very specific edge-case, options traders don't sell deep ITM options, so you don't have to worry about missing out on anything. There's rarely a case where it makes sense. What is Cash Settlement in Options Trading? Cash-settled options pay out the cash value of your choice at expiration instead of delivering shares or a physical commodity. Most exchange-traded opportunities are settled physically nowadays, as the burden of physical delivery, for, say, the S&P 500 index, would be too cumbersome, as it'd involve delivering the correct ratio of 500 different shares of stock. That burden multiplies when it comes to physical commodities like oil. The only liquid options that still settle physically are US equity options, as delivering shares is relatively simple, as it’s just ones and zeros on a computer. Let’s look at an example. You own one SPX (S&P 500 index) call at 3600. The index settles at 3650 at expiration. You’d receive $5,000 in cash at expiration, making your profit $5,000 minus the premium you paid for the option. The proliferation of cash settlement in options trading has enabled the options market to become far more liquid and available to traders, speculators, and hedgers. We have the primary difference between American and European options: their distinct settlement rules. Related articles How Index Options Settlement Works Can Options Assignment Cause Margin Call? Assignment Risks To Avoid The Right To Exercise An Option? Options Expiration: 6 Things To Know Early Exercise: Call Options Expiration Surprises To Avoid Assignment And Exercise: The Mental Block Should You Close Short Options On Expiration Friday? Fear Of Options Assignment Day Before Expiration Trading Accurate Expiration Counting Expiration Short Strategies
  9. Last week
  10. Pat Crawley

    Pros and Cons of Weekly Options

    They get a bad name because of their short-term nature, but at their core, they're just options with a shorter lifespan. All of the same principles of options apply to them, so if you can get past the stigma associated with them, there are plenty of trading opportunities present. As Euan Sinclair once said about this subject, “the house cat and tiger have more similarities than differences.” And by the way, for those associating weekly options with gambling, you should know that most major financial institutions nowadays are significant players in weeklies. Just ask Roni Israelov, the former manager of options strategies at AQR, who told the FT, "If I have monthly options, I get 12 independent bets per year. If I have weekly, I get 52 bets per year. Daily gives me 252. If you're generating trading strategies, the ability to have more 'at bats' and more diversification by taking more independent trades can be useful." Increased Capital Turnover Suppose you're a mechanical options trader who routinely sells options in 45-60 DTE expirations with high implied volatilities. Take your profits at 50% of max profit. And you could hold your average trade for a few weeks before reaching your desired profit level. If we take the same assumptions but with shorter, 10-15 day expirations, you'll be holding your average trade for just a few days. You're turning over your capital several times quicker, and assuming you can select trades with a similar expected value, you're able to generate higher returns, increasing your sample size and, in theory, decreasing the variance of your portfolio. I'm simplifying in a big way. Short-dated options have different properties in the form of market dynamics and Greeks that'll affect this equation considerably. However, the concept is that getting more "at-bats," to use Israelov's word from the intro of this piece, is typically better, assuming you can keep the rest of the variables relatively constant. Volatility is More… Volatile in Weekly Options (“Vol-of-Vol”) As a principle, shorter-dated (i.e., weekly options) have less vega than longer-dated options. To note, vega is an option's sensitivity to changes in implied volatility. Just like delta, theta, and gamma, the consequences of an option's vega are straightforward to calculate. For each one-point increase in implied volatility, the option price should change by its vega. For instance, let's take an SPX call option worth $10.00 with an implied volatility of 18 and a vega of .20. Should the implied volatility of the chances increase to 19, the option's price would increase to $10.20. This works in both directions. Because short-dated options typically have low vega, many traders mistakenly assume that weekly options are relatively unaffected by vega, i.e., the risk of implied volatility increasing or decreasing. But that would be incorrect. While short-dated options have low vega on the face, the implied volatility on short-dated possibilities is much more volatile. In other words, volatility is more… volatile. The effects of short-term volatility dampen with time. Without referencing actual numbers, think about the difference in how the value of a 1-year LEAP and a 1-day weekly option would respond to a 10% change in the underlying price. Sure, both values are affected, but with a whole year until expiration, that 10% one-day change is almost a blip on the radar as far as where the underlying will be a year out. So short-term implied volatility needs to account not only for these "black swan" type risks but also for business-as-usual, which is realized volatility being below implied. The sellers of these options aren’t naive and need to be compensated for taking on this wide range of risks, so they demand a higher variance premium. So this property of short-dated options can both help and harm you, depending on which side of the trade you’re on and what type of risks you prefer to take. Volatility is Sometimes Too High (Or Low) In the previous section, we discussed how the implied volatility on short-dated options is more volatile than the IVs on longer-dated options. This is because, with so little time to expiration, a slight short-term aberration like order flow or a piece of news can dramatically affect where the underlying trades are at expiration. With more time to expiration, these factors sort themselves and volatility tends to remain closer to a longer-term average With volatility being more volatile in these options, you can sometimes identify periods in which the market overreacts and you deem volatility too high or low, allowing you to swoop in and make a good trade quickly. Theta Decay is Different in Weekly Options Longer-dated options benefit from significantly positive theta, giving a trader who sells longer-dated options a positive carry from theta decay. Throughout the life of the option, theta decay occurs at a non-linear rate. Here's a chart for an intuitive sense: One of the most common arguments in favor of longer-dated options, specifically in the range of 30-45 days to expiration, is that these options not only have much theta, but they're right at the sweet spot where the rate of theta decay begins to accelerate. Indeed a strong argument. And proponents of this philosophy are right. The absolute level of theta for longer-dated options is indeed higher. The theta decay per day as a percentage of the option price is much higher in shorter-dated options. Let’s compare the same strike in two different expirations. A $SPY .30 delta call expiring in five days is trading for $1.21 with a theta of -0.21, representing a -17% rate of decay daily, while a .32 delta call expiring in 37 days is trading for $4.10 with a theta of -0.11, which is a -2.61% rate of daily decay. Of course, the rate of theta decay will accelerate in the longer-dated option as expiration nears. So you have two options, both of which are inherently correct. You can go with the longer-dated option at the "sweet spot" of the theta decay curve and ride it for a few weeks, or you can churn and burn weekly options, turning your capital over and moving on from trades very quickly. Weekly Options Have Very High Gamma If you recall, gamma is the rate of change of delta. The higher the gamma, the more dramatically a tick in the underlying will affect the delta. As a rule, the closer options get to expiration, the higher their gamma is, especially for near-the-money options. But why is this? As expiration nears, options that aren't in the money expire worthless. This makes the value of near-the-money options highly suspect and subject to massive price swings, which is the intuitive definition of gamma. There's an increased uncertainty as to which options will expire worthless, so each tick in the underlying creates more significant swings in the delta as you get closer to expiration. This is a gift and a curse. If you're on the right side of the market, you see significant gains quickly, but getting caught on the other side means your fortune quickly wanes. Bottom Line Weekly options to monthly options as day trading are swing trading. Fortunes are won and lost more rapidly in weekly options, and they favor the bolder, faster-acting trader over the analytical "dot the i's and cross the t's" type of trader. Plenty of successful traders trade weekly options, those that trade longer-dated options, and many that trade both. Options trading is very much about trade-offs, and said trade-offs often come down to temperament or personal preference. One sure thing is that if you trade weekly options, you have to become much more active as a trader, which is a cost in itself. Related articles: The Use And The Abuse Of The Weekly Options The Risks Of Weekly Credit Spreads Should You Trade Weekly Options? Make 10% Per Week With Weeklys? Are Weekly Options A Form Of Gambling?
  11. Pat Crawley

    Iron Condor Vs. Short Strangle

    It's a core tenant of how options are priced, and it's often the trader with the most accurate volatility forecast who wins in the long term. Whether you like it or not, you're taking an inherent view on volatility anytime you buy or sell an option. By purchasing an option, you're saying that volatility (or how much the options market thinks the underlying will move until expiration) is cheap, and vice versa. With volatility as a cornerstone, some traders prefer to do away with forecasting price directionality entirely and instead trade based on the ebbs and flows of volatility in a market-neutral fashion. Several option spreads enable such market-neutral trading, with strangles and straddles being the building blocks of volatility trading. But even though straddles and strangles are the standards, they sometimes leave something to be desired for traders who want to express a more nuanced market view or limit their exposure. For this reason, spreads like iron condors and butterflies exist, letting traders bet on changes in options market volatility with modified risk parameters. Today, we’ll be talking about the iron condor, one of the most misunderstood options spreads, and the situations where a trader may want to use an iron condor in favor of the short strangle. What is a Short Strangle? Before we expand on the iron condor and what makes it tick, let's start by going over the short strangle, a short-volatility strategy that many view as the building blocks for an iron condor. An iron condor is essentially just a hedged short strangle, so it's worth understanding them. A strangle comprises an out-of-the-money put and an OTM call, both in the same expiration. A long strangle involves buying these two options, while a short strangle involves selling them. The goal of the trade is to make a bet on changes in volatility without taking an outright view on price direction. As said, strangles and straddles are the building blocks for options volatility trading. More complex spreads are constructed using a combination of strangles, straddles, and "wings," which we'll explore later in the article. Here’s an example of a textbook short strangle: The goal for this trade is for the underlying to trade within the 395-405 range. Should this occur, both options expire worthless, and you pocket the entire credit you collected when you opened the trade. However, as you can see, you begin to rack up losses as the market strays outside of that shaded gray area. You can easily calculate your break-even level by adding the credit of the trade to each of your strikes. In this case, you collect $10.46 for opening this trade, so your break-even levels are 415.46 and 384.54. But here's where the potential issue arises. As you can see, the possible loss in this trade is undefined. Should the underlying go haywire, there's no telling where it could be by expiration. And you'd be on the hook for all of those losses. For this reason, some traders look to spreads like the iron condor, which lets you bet on volatility in a market-neutral fashion while defining your maximum risk on the trade. Iron Condors Are Strangles With “Wings” Iron condors are market-neutral options spreads used to bet on changes in volatility. A key advantage of iron condors is their defined-risk property compared with strangles or straddles. The unlimited risk of selling strangles or straddles is Iron condors are excellent alternatives for traders who don't have the temperament or margin to sell straddles or strangles. The spread is made up of four contracts; two calls and two puts. To simplify, let's create a hypothetical. Our underlying SPY is at 400. Perhaps we think implied volatility is too high and want to sell some options to take advantage of this. We can start by constructing a 0.30 delta straddle for this underlying. Let's use the same example: selling the 412 calls and the 388 puts. We're presented with the same payoff diagram as above. We like that we're collecting some hefty premiums, but we don't like that undefined risk. Without putting labels on anything, what would be the easiest way to cap the risk of this straddle? A put and a call that is both deeper out-of-the-money than our straddle. That's pretty easy. We can just buy further out-of-the-money options. This is all an iron condor is, a straddle with "wings." Another way of looking at iron condors is that you’re constructing two vertical credit spreads. After all, if we cut the payoff diagram of an iron condor in half, it’s identical to a vertical spread: Here’s what a standard iron condor might look like when the underlying price is at 400: ● BUY 375 put ● SELL 388 put ● SELL 412 call ● BUY 425 call The payoff diagram looks like this: The Decision To Use Iron Condors vs. Short Strangles Ever wonder why the majority of professional options traders tend to be net sellers of options, even when on the face of things, it looks like you can make huge home runs buying options? Many natural customers in the options market use them to hedge the downside in their portfolios, whether that involves buying puts or calls. They essentially use options as a form of insurance, just like a homeowner in Florida buys hurricane insurance not because it's a profitable bet but because they're willing to overpay a bit for the peace of mind that their life won't be turned upside down by a hurricane. Many option buyers (not all!) operate similarly. They buy puts on the S&P 500 to protect their equity portfolio, and they hope the puts expire worthless, just as the Florida homeowner prays they never have actually to use their hurricane insurance. This behavioral bias in the options market results from a market anomaly known as the volatility risk premium. All that means is implied volatility tends to be higher than realized volatility. And hence, net sellers of options can strategically make trades to exploit and profit from this anomaly. There's a caveat, however. Any source of returns that exists has some drawback, a return profile that perhaps isn't ideal in exchange for earning a return over your benchmark. With selling options, the risk profile scares people away from harvesting these returns. As you know, selling options has theoretically unlimited risk. It's critical to remember that when selling a call, you're selling someone else the right to buy the underlying stock at the strike price. A stock can go up to infinity, and you're on the hook to fulfill your side of the deal no matter how high it goes. So while there can be a positive expected value way to trade from the short side, many aren’t willing to take that massive, undefined risk. And that's where spreads like the Iron Condor come in. The additional out-of-the-money puts and calls, often referred to as 'wings,' cap your losses, allowing you to short volatility without the potential for catastrophe. But it's not a free lunch. You're sacrificing potential profits to assure safety from catastrophic loss by purchasing those two OTM options. And for many traders, this is too high a cost to harvest the VRP. In nearly any, backtest or simulation, short strangles come up as the clear winner because hedging is generally -EV. For instance, take this CBOE index that tracks the performance of a portfolio of one-month .15/.05 delta iron condors on SPX since 1986: Furthermore, there's the consideration of commissions. Iron condors are made up of four contracts, two puts, and two calls. This means that iron condor commissions are double that of short strangles under most options trading commission models. With the entry-rate retail options trading commission hovering around $0.60/per contract, that’s $4.80 to open and close an iron condor. This is quite an obstacle, as most iron condors have pretty low max profits, meaning that commissions can often exceed 5% of max profit, which has a big effect on your bottom line expected value. Ultimately, it costs you in terms of expected value and additional commissions to put on iron condors. So you should have a compelling reason to trade iron condors in favor of short strangles. Bottom Line Too many traders get stuck in the mindset of "I'm an iron condor income trader" when the market is far too chaotic and dynamic for such a static approach. The reality is that there's an ideal strategy for risk tolerance at a given time, in a given underlying. Sometimes the overall market regime calls for a short-volatility strategy, while others call for more nuanced approaches like a calendar spread. There are times when it makes sense to trade iron condors when implied volatility is extremely high, for instance. High enough that any short-vol strategy will print money, but too high to be naked short options. Likewise, there are times when iron condors are far from the ideal spread to trade. Related articles Selling Naked Strangles: The Math Selling Short Strangles And Straddles - Does It Work? Trading An Iron Condor: The Basics Low Premium Iron Condors Why Iron Condors Are NOT An ATM Machine Can You Really Make 10% Per Month With Iron Condors? Comparing Iron Condor And Iron Butterfly Butterfly Spread Strategy - The Basics
  12. Earlier
  13. princessvioletta

    Member of the Month

    My best congratulations!
  14. princessvioletta

    Equity Margin Test - Urgent!

    Thanks for explanations. That was very informative for me.
  15. t'pee

    Member of the Month

    This is much appreciated. Being recognized on this forum is really an honor, I continue to be humbled by the collective intellect on display here on a regular basis, thanks everyone & here is to another successful & above all steady year!
  16. Ringandpinion

    Member of the Month

    @t'pee All us peons here at SISP salute you, oh Fearless Leader. May we continue to bask in your benevolence. And, of course, thanks for all your trades and input.
  17. mccoyb53

    Member of the Month

    Well done @t'pee. Well deserved. I have certainly benefitted from your trade ideas and trade insights.
  18. rasar

    Member of the Month

    Good choice. @t'pee brings the right things to the table - sharing knowledge and experiences, and a good trading attitude.
  19. Kim

    Member of the Month

    Member of the month award for January goes to @t'pee This member became one of the key contributors of our community with a lot of trading ideas and valuable commentary, and recently graduated to a the Founding Member of SISP 😀. Well done!
  20. Pat Crawley

    Short Gamma vs. Long Gamma

    Those are: Delta Theta Vega Gamma Today, we're talking about gamma, which is often described as the "delta of delta." We know that delta measures an option's sensitivity to price changes in the underlying - a $1.00 move in the underlying results in a $0.30 move in a chance with a delta of 0.30. Simple enough. Gamma works similarly. Gamma measures the delta's sensitivity to a price change in the underlying. An option with a delta of 0.30 and gamma of 0.03 would have a delta of 0.33 following a $1.00 move in the underlying. The Importance of Gamma Without proper context, gamma might seem like an exciting metric like those hyper-specific statistics announcers love citing when you're watching football. This quarterback throws interceptions twice as often when targeting defensive backs whose last name starts with a 'B.' Interesting, but does that mean anything? The gamma of an options position has substantial implications for how the P & L will play out over the life of the position. Positions with positive gamma have very different characteristics than those with negative traits. To provide a bit of context, Goldman Sachs said this about gamma: Gamma – the potential delta-hedging of options positions – is one of the more prominent sources of non-fundamental economic activity in global markets. Market makers who delta-hedge their option positions are economically driven to trade substantial amounts of underlying shares or futures strictly as a result of the price of the underlying itself changing, not as a result of fundamental news and without regard to the liquidity available. As a result, gamma can cause markets to overreact to essential news ("short gamma") or under-react to crucial information ("long gamma"). Sometimes gamma can play a huge role in an options position, and other times it's a relative non-factor. Understanding gamma and how it interplays with the other Greeks is vital to knowing when your P&L is driven by gamma. Just like delta, you can have a positive or negative gamma position. A favorable gamma position is often referred to as "long gamma," as negative gamma is "short gamma." What is a Long Gamma Options Position? A trader is a long gamma when his options position has positive gamma. This involves being net-long options. Most non-professional options traders live in the positive gamma arena. Positions like outright long calls or puts and vertical debit spreads are typical examples of long gamma trades. As a rule of thumb, long gamma positions are frequently short theta, meaning they suffer from the negative carry of theta decay. As a result, long gamma positions benefit significantly from strong trending markets, whereas you'll see a slow withering of your P&L in a sideways, range-bound market due to theta decay. Unlike short gamma positions, your total exposure in a long gamma position increases when you're right on the trade. If you're long a call (a favorable gamma position), your deltas will increase as you're correct on the trade. This component of long gamma positions makes them far easier to manage than short gamma positions. It's psychologically easy to work positions when your exposure only grows if you're making money already. So long as you size your positions correctly, you don't have to worry about positions getting out of control. And when you're right, you get paid big time. Short Gamma Suppose you've been around online options trading discussions like Twitter and Reddit in the last few years. In that case, you're probably already familiar with short gamma positioning, which is responsible for the almighty 'gamma squeeze.' A short gamma is a net-short option that carries all of the benefits and drawbacks of selling options. Namely: Benefits from low volatility and sideways price action Exposure grows in the wrong direction (your position gets more prominent when you're wrong) Generally concave payoff profiles (limited gain for potentially more considerable loss) Vulnerable to "gamma squeezes." Benefits from theta decay What is a Gamma Squeeze? A gamma squeeze is an entirely separate subject from identifying the pros and cons of the gamma level in your options positions, but explaining it can illustrate the power of gamma. A gamma squeeze occurs when too many traders, mostly market makers, get caught in a short gamma position when volatility suddenly comes into a market. Market makers are forced to quickly adjust their delta hedges which further fuels the rally, creating a feedback loop. Essentially, options traders deduced two things about option market makers: They’re frequently short gamma They systematically delta hedge The logical follow-up here is that if a rapid price move occurs while market makers are very short gamma, their hedging response will create a feedback loop, continually pushing the price in the trend's direction. Here’s how that theoretically works. Market makers are generally short gamma and short options because customers tend to be long options for hedging and speculation purposes. This gets exaggerated in stocks loved by retail traders who love OTM calls, which have high gamma, forcing market makers to get very short gamma. So you already have a hot pot, and a catalyst comes into the market, creating a frenzy of call buying. The quick price moves in the underlying forces market makers to adjust their delta hedges, which fuels the rally even further, creating a feedback loop. Final Thoughts The example of a gamma squeeze, even if they might be a bit overhyped nowadays, perfectly illustrates the importance of understanding gamma in options trading. It's a real-life example showing the power of gamma and the type of market moves it can fuel. Related articles Options Trading Greeks: Gamma For Speed Why You Should Not Ignore Negative Gamma Estimating Gamma For Calls Or Puts What Is Gamma Hedging And Why Is Everyone Talking About It? Market Neutral Strategies: Long Or Short Gamma?
  21. t'pee

    volatilityhq.com Official Thread

    @Djtux Could yoou confirm or check, I am not getting META in the results from the scanner (I tried updating the filters)?
  22. TrustyJules

    Trading biotech / pharma events using options

    nope - the stock in fact tends to be rather stable - up down and back to the middle - slight upwards trending An IV spike doesnt take 3-6 months in fact in the analysis we did on the boards of SO its closer to a few weeks In the experience we gathered before those are indeed good triggers as well as various PDUFAs What you mention in terms of liquidity is relevant - some strategies like double call/put ratios dont work because there is too much spread on many small bio stocks. Some others it can work though SGEN for example is quite nice. The event, the strategy, the timing - it is all quite bespoke and requires a bit of information sharing and reflection. Ideally at least a month or so before things start going down, that way one can prepare.
  23. biotechpr@yahoo.com

    Trading biotech / pharma events using options

    Hi, TrustyJules, thanks for your reply. I do get paid to watch these stock every, that's the basic premise I am interested. And all your insights are quite right. Here's how it works. There are around 500+ US listed biotech, not sure how many optionable and you would probably need to look at $300m+ in market cap to avoid nanostocks and zombie biotechs. You also need to avoid large biotechs and pharma (for this strategy specifically, I am interested in big ones as well, but that is a different game). In order for the IV to spike decently, you need a clean story and a major catalyst. In other words, a drug that so far has a good R&D story, no skeletons in the closet and the upcoming catalyst is make it or break it for the drug or even the company. Typically, that is a small mid cap biotech with a proof of concept Phase II trial (mid-stage, c 40% probability of success) or even Phase III (final stage, c 60% of success, very rough, probabilities vary depending on therapeutic class and indications). Going into PDUFA dates (FDA approval), the R&D tends to be derisked (ie 90% of prob of success), but there are exceptions (like when the FDA decided to call an advisory committee, but these are low volume events). I am interested most in Phase II/III trials, as that's where you can generate volume with decent R&D risk still remaining (as that's what creates uncertainty). You need volume because you would not want to put more 2-3% max into one position (much more less preferably), so you need consistently be exposed to 10+ events (which would still leave you with lots of cash, but presumptions is that portfolio level return would still be attractive). That is where the first challenge from fundamental perspective comes into play. It is impossible to digest scientific data for that many drugs all the time and get some sort of insight whether there is chance this drug works or not. But to be honest, even if you have perfect understanding of all the data behind the drug, I do not think you could consistently call clinical trial win or loss (I am pretty sure about that actually). I think that is what you are referring to. However, that is not what is needed. You need to identify a clean, significant catalyst story. And this is easier if you have the right tools and skills. I think that by now I could relatively quickly assess whether the catalyst is genuine enough to cause IV spike. When it does, you often see the underlying appreciating. Fundamentally, I don't think I've seen stock selling off ahead of a genuine catalyst. The opposite, it tends to trend up 6-3 months in advance of the clinical trial read out. There could be profit taking ahead of the catalyst if the stock went up a lot. But as a part of this strategy, I would not be willing to hold into the clinical trial readout anyway. Not sure if it is possible at all to play an unknown direction large stock move and a collapse in IV. So, identify a genuine catalyst within time horizon of 3-6 months and play stock remaining flat or rising, massive IV spike, then close the position ahead of the catalyst. I talked about fundamental challenge one above (identify a genuine catalyst). Challenge 2 is the right timing to close the position. Certainly before the catalyst, but they usually are guided quite roughly, eg Q1 or early 2023. Still, by that time assuming the position is profitable it should be possible to navigate. Biopharmacatalyst.com was great (I think it was started by one guy). They sold it to big guys, so now paywalled. I have other tools for that. But the key is for me to judge whether it is a genuine catalyst and have sufficient volume to make the portfolio work from risk perspective. What I don't think I can do on my own just yet, figure out the best setups.
  24. TrustyJules

    Trading biotech / pharma events using options

    Funny you should ask this question today, I was just revisiting some work I did at two intervals on bio-tech events. I used biopharmcatalyst.com to follow the biotech events. A strategy is to find biotech events that have a very binary outcome. These tend to cause IV rises in the run up to them in the same manner as earnings do with stocks. Such predictable unknows then allow you to make several strategies that profit from the rise in IV, either by having a position that plays both sides of the outcome and profits simply because the IV makes the options (rather than the stock) more expensive or like a reverse iron condor. A riskier strategy is to hold a position through an announcement and see the implosion of the IV as a way to make money if the event was overpriced into the options price. I hear you when you say you want to trade the fundamentals and there is some sense in that, however it would be unwise to believe you know more than people who are paid to do nothing but that all day every day. Therefore the understanding of biotech must be combined with options strategies that find a way to have a low cost exposure to your directional market understanding or a strategy that anticipates option behaviour based on your understanding of the timing of announcements and their relative importance.
  25. biotechpr@yahoo.com

    Trading biotech / pharma events using options

    Hello, This a high level question just to understand whether anyone in this community has experience (or at least interest) in trading options around biotech / pharma events. As a fundamental equity analyst specialising in healthcare I know everything there is to know about about drug development (that is from an outsider perspective who covered pharma / biotech for 10+ years). I don't have practical experience in using options (it's a pain to go past compliance), but have decent theoretical understanding after years of interest in options. I have never had time to actually come up with a strategy and implement it, but have more time now and a few ideas I would like to explore how this could work. SO strategies would not work for me, unfortunately (I am a former subscriber). I like to have a good understanding about the underlying, upcoming catalysts, etc. Also, I think trading around biopharma events would go beyond directionless strategies (which is SO's comfort zone I believe), as both the underlying and IV can make huge moves. This is where fundamental knowledge comes into play in order to time the events. At least that's my thinking. After searching this forum (public one, don't have access to paywalled one), I only found one topic from 2013, but fairly short one. So again, this is a fairly high level question whether there are people here who would like to explore this topic? Thanks
  26. 1. Understand Your Goals And Risk Tolerance The first thing you should do when taking your investments to the next level is to understand your goals and risk tolerance. Everyone has different goals and risk tolerances, so it's important to identify yours before making any major decisions. For example, some people may be comfortable with a higher degree of risk, while others may prefer more conservative investments. Once you know your goals and how much risk you're willing to take, you can begin creating an investment plan that aligns with those objectives. 2. Diversify Your Portfolio Once you have identified your goals and risk tolerance, the next step is to diversify your portfolio. This means investing in different asset classes, such as stocks, bonds, real estate, and commodities. Diversifying allows you to spread out the risks associated with each asset class while providing access to potential returns. When constructing a diversified portfolio, it's important to consider both short-term needs and long-term goals. Understanding the difference between the two can help ensure that your investments are aligned with your overall financial objectives. 3. Analyze Asset Allocation In addition to diversifying your portfolio, it's also important to analyze asset allocation. This means understanding how much money you should allocate toward each asset class based on its expected return and risk profile compared to your overall investment strategy and goals. For example, if one asset class has a lower expected return but also less volatility than another asset class. Then it might make sense for you to allocate more money towards that particular asset class, given its lower risk profile relative to other assets in your portfolio. 4. Utilize Tax Advantages When taking your investments to the next level, you should also consider how to utilize tax advantages. Tax-efficient investing can help reduce the amount of taxes you owe on any gains from your investments over time. There are many strategies you can utilize to ensure that your investments are as tax efficient as possible. Tax advantages vary from country to country, so it's important to consult a qualified tax professional to ensure that you are taking advantage of all the benefits available to you. 5. Rebalance Regularly Rebalancing your portfolio is another important step to take when looking to take your investments to the next level. Rebalancing allows you to ensure that your portfolio stays in line with your goals and risk tolerance by periodically adjusting the mix of assets within it. To rebalance, you'll need to decide which assets should make up the majority of your portfolio and then periodically adjust it so that those assets remain in line with your goals. For example, if stocks have been performing particularly well in a given year, they may now represent a larger percentage of your overall portfolio than when you first set it up. Rebalancing can help you reduce that percentage so that your portfolio remains in line with your desired mix of assets. 6. Keep Your Funds Protected When taking your investments to the next level, it's important to ensure that your funds are protected. This may involve setting up a trust or incorporating a company to help safeguard your investments from potential liabilities and taxes. In addition, you may also want to do your research on things like how do I apply for an EIN for a trust if you're looking to set one up. Ensuring your funds are protected is an important step to take when taking your investments to the next level because it will help ensure that your hard earned money is safe and secure for the long term. 7. Stay Up-To-Date On Market Conditions Finally, staying up-to-date on market conditions is important when taking your investments to the next level. Keeping an eye on economic and political news can help you understand how certain events may affect different asset classes. In addition, understanding how changes in interest rates and other economic indicators may impact the overall market can also give you a better idea of where to allocate your funds for maximum returns. Market conditions can change quickly, so it's vital that when you're investing significant funds, you're aware of any changes as they occur. Final Thoughts Taking your investments to the next level isn't something that happens overnight. It requires a lot of research and effort to ensure that you're making informed decisions and aligning your portfolio with your goals. By following these seven steps, you can take your investments to the next level in terms of returns, security, and tax efficiency. This will help ensure that your portfolio is as strong as possible for years to come. This is a contributed post.
  27. Kim

    SteadyOptions Hall of Fame

    Luck is not only a perfectly acceptable path to successful trading, it can easily be described in such a fashion that others get the mistaken impression that it was intentional. @Ringandpinion
  28. Kim

    2022 Year End Performance By Trade Type

    This is your interpretation..
  29. project

    2022 Year End Performance By Trade Type

    Thanks for your response. So the Lorintine Capital who were managing the SS before in 2021 (and offer Managed Accounts) were not qualified for performing in bull market and your new manager is more experienced in stock picking. In this case, let the bull market come.
  30. Kim

    2022 Year End Performance By Trade Type

    Not sure why you are posting here. this is SO topic not SS. Anyway, SS has a new manager since the beginning of 2022, and we revised the stock selection and the risk management. I'm sure SS will have an amazing performance when the next bull market comes, but it already saved the members tons of money during the bear market of 2022.
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