tjlocke99

Marco the bid/ask spread and actual fills is an EXCELLENT point. That .10 loss due (.05 in and .05 out) to slippage is probably an optimistic number. The loss would likely be greater. I have traded Amazon a few times on other trade types and the execution was definitely off the mid. I can go back and look at my numbers if there is interest. This may not be a great time to trade AAPL because it is on a run. Some say its because of the iPhone 5 release info in Sept, iTV or something else. I don't know, but whatever it is AAPL is on a tear and breaking through any resistance it had. What are the most liquid stock options out there? What about doing this with RUT or one of the other European style indeces? R

Hello again Chris. Would you mind sharing this list of liquid options? Also, is there anything I may help with? I noted that I am not on a terminal much of the day, so it would have to be an "offline" activity. Thanks. Richard

I think the returns on AAPL are distorted today because the stock went ~ 1.8% today alone. That is not a typical Friday.

What strikes did you use for Amazon? If the Thurs opening price was in between strikes, like I think Amazon was, then would you just do an IC with the inner short strangle at 5 points apart?

I do have time, just not during the day when its needed. Sorry. Chris, would you be willing to share a larger list of the most liquid options and how you determined they were so liquid? Did you use volume, OI, or something else and where did you get that info in a format where you could screen for it? Thanks!

Chris, I'd love to help, but I am rarely at a terminal in the morning, and if I am lucky I can get on once a day. Also, given my schedule I do not think this trade would work for me. Why did everyone decide to test by monitoring live versus backtesting using TOS OnDemand or something similar?

DW, What company is Jeff selling his advisory services out of now? Thanks. Richard

Could anyone tell me how we could get a list of all underlyings with liquid options? Thanks! Richard

Is this backtesting assuming you could enter at the mid? That could be tough and losing $.05 or so on the bid/ask on both ends of the trade would not help profitability either. Good discussion everyone. Thanks.

Regarding the 2nd trade, why not use a straddle, trade fewer contracts and thereby reduce your commission costs, reduce you bid/ask loss, AND not worry about being short potentially ITM contracts on a $600+ dollar stock! I know you all are fearless, but the mid short position is a -2 for each spread. If did 5 positions on the spread you are short 10 contracts (1000 shares worth) of AAPL a few hours before you can't trade it anymore! That sounds like a recipe for having your account cleaned up by some assignment and weird market event. What if you lose your Internet connection at Friday at 3 PM ET. I do NOT think this is a beginner of even mid-level option trader strategy. This seems like its for the experts.

I have read several of Jeff Augen's books. (Next to Kim of course) He is one of my heroes. However, what I get from Jeff Augen is not "a trade" but a few key concepts: 1. You can inexpensively build your own robust option analytic tools 2. Option strategies come and go and you have to be able to use a strategy while it will work. Strategies do not generally remain effective forever because once a strategy becomes known and is used the market clears up that anomaly. I think Chris probably has implemented this idea from the posts that he makes. So Jeff gives examples of trades that could work in many of his books, HOWEVER I think many of them are ones that many of us on this forum would hesitate to trade. For example in his book on trading options at expiration he talks alot about doing ratio trades where several of your positions are naked. If you read some of Jeff Augen's articles on SFO mag he has also indicated the volatility trades that are done here are not really effective anymore. However I think this group would disagree. These option pre-earnings IV trade concepts appear in Jeff's book on volatility BUT Kim has tuned those strategies to make them effective. I think Kim can give us alot of incite here. Additionally Jeff does not account for trading costs which reduce profitability. That being said I think the man is a genius and just understanding his line of thinking seems to be well worth reading his books. He is definitely one of my heroes

I don't get this. This is a short butterfly opened on the calls that expire 17 Aug? I thought Jeff's strategy was to do this on the last 3 hours on the 17th, so how would this trade make sense?

If this isn't done as a ratio trade, doesn't the position have a large risk if GLD drops in value?

No the value of the spread is actual below what I purchased it for and thus I am currently showing a loss. Also I thought this behavior maybe for-shadowing some news.

I own the subject calendar. Something odd happened yesterday. AAPL was up a few points, but the Oct 640 Call dropped in value approx 10%. HOWEVER the Sept 640 call gained a few % in value. The IB IV indicated that IV dropped on both calls but actually the IV drop in Sept was greater. I can't go back and look at historic IV now or the historic price. I just found this odd, and I was wondering if it was signaling something I didn't know about like some major positive announcement in Sept and negative announcement in Oct? Is this type of behavior common?

Thanks Kim. Here is what I mean. Up front, I know this is not realistic due to extrinsic value, but this is to illustrate the point. I also know you can just sell the option. Let's say I own an AAPL call at 550. I exercise it when the stock is at 620 with the thought I will sell the 100 shares immediately and realize the gain. IF I exercise the 550 when do the 100 shares show up in my account? The following morning? At that point the stock could be at 540, and I lose out. Thank you VERY much!

This is great information Kim! If someone exercise their long call at 10:30 in the morning then don't they get the price at the time they exercised their option? If I am assigned before 0930 ET the next day then what price is used for the underlying? What price would I have to sell AAPL at in this example? You mean you can make moves in the pre-market to secure yourself? However you can't sell the spread itself right and be out of the position? At what point will you have that -100 shares of AAPL? Thank you very much!

I guess my point is if I am not able to reach a terminal more than once at most during the trading hours and the following happens I could be completely screwed right? Let's take a hypothetical example: I own this AAPL RIC: 595/605/635/645 AAPL is at 620 AAPL has a flash crash and the following happens: at 1030 AAPL rises briefly from 620 to 730 and then at 1045 AAPL is back 630. When AAPL hits 690 mark I am exercised on my short 645 CALL position and I end up short 100 shares of AAPL and get paid $64,500 in cash. I can't cover the margin requirements of being short 100 shares of AAPL so my broker within 10 minutes is liquidating my positions sequentially. I believe IB has told me that they don't liquidate in any particular order so this could make it worse. By the time IB starts liquidating my 100 short position the stock has now climbed to 720. I am therefore buying back the stock at $72,000. So here is where I am: I have $64,500 in cash from the purchase of the short call I owned I paid $72,000 to buy back my short. I am out $7500 on a ONE position RIC! Oh but you say I have that long 635 call. Well I am not on my terminal all day, so by the time I am back to my terminal AAPL is back to 635. My call is worth close to what I paid for it. I also don't have a short covering it, so I am directional. I know I got paid some money for the 645 Call too but the point is this is ONE position, and I've lost a ton. Now imagine we have a terrorist attack like Sept 11 and all your short options tank! Isn't this a situation where you go bankrupt and lose it all? I'd love some feedback on this. Thanks! Richard

Kim, I am in no way criticizing you. I read Jeff Augen talk about how he thought he would trade and have a full time job! He basically said he found that was impossible and the rest is history! I think I am learning that myself. The bottom line is unless you are at a terminal alot, making these earnings trades may not be easy or work. HOWEVER there are probably 100 variations of ways to make them work, you just may end up overpaying at times. However you can overpay and still make money

I have not logged this, but I believe we do miss most profitable trades this way. If you get in at a lower price does anyone have data that those trades have on average been profitable? I'm thinking the solution could be limit orders set before the open, noting that you could overpay this way (one way this can happen because the bid/ask could actually open lower and you'll overpay). Also you could end up delta positive or negative.

Good afternoon. After reading Chris's post on options and reverse stock splits, it made me think of 2 MAJOR potential risks to being short an option even when it is covered: 1. There is a "flash crash" or "short squeeze" type of move in an individual stock you have a short option on. In this case couldn't you be exercised on the short at some major loss and your long option still be open? Then the stock quickly comes down to earth and you have a MAJOR loss on your hands. 2. There is a major event that causes the whole market to move up or done ALOT. You can have the same issue as #1. Anyone electronically trading options around Sept 11, 2001 with some shorts who can share their experience or the flash crash from last year? Thanks! Richard

chemfire, Welcome. I am not sure what trading platform you use, but some of the popular broker's tools will calculate your portfolio delta. I know thinkorswim and IB have tools to do it. For IB (Interactive Brokers) if you use the Webtrader and go to the Risk Navigator you can get the greeks on your entire portfolio. Best, Richard

my big picture bet is the economy is going to crash sometime in 2013 or 2014. its post election so all the "stimulus" measures to stay elected will be over. printing fiat money and debasing a currency has never been a long term path to success.

Thank you. I do not see an orange button? Is it in the Analyze -> thinkback section?

Hello. I have a few questions/comments about backtesting in TOS. 1. If you select that you entered a trade in TOS using the thinkback tool, is the price you enter supposed to be based on the opening price for legs in the options spread for that day? 2. When you close the trade does thinkback assume you are getting the mid of closing price for the legs in the options spread that date? 3. Is it the closing price for the underlying that day? I always assumed it was based on closing prices, but I just wanted to check. Also, I see this as a major issue with backtesting in TOS, you can only base it on whatever open/close condition it uses. Thank you! Richard