Thaze

Price has backed off, anyone else thinking about taking this?

Nice find, wish I would have followed you in with it.

Thanks for the response Kim, I hate to keep asking questions as I feel like I'm overcomplicating things and just bothering you. I understand how you compare the current IM to historical move and can use that to judge if the price is reasonable and has a high chance of profitability, but I still don't understand how you decide if there is potential for an IV increase of each option. Considering the IV of these stocks change on a quarter to quarter basis, how do you define an acceptable IV range and decide if there is upside IV room? CSCO was a little more predictable than others since it has hovered in the same price range recently (so we can assume the IV will be somewhat similar to previous trades), but a lot of the stocks we play have historically moved quite a bit more. If I could figure out how to find an acceptable IV range to predict then I could use that range to compare against the required theta/vega ratio to see if the gain required is feasible.

I agree, a move is a move, whether it be IV or underlying. Both are profitable if they follow trend so both should be taken into consideration. In relation to your second paragraph, I also need to take this into consideration. One of my major questions I have though in relation to backtesting is how Kim / Chris / others come to an "acceptable" IV range and price for each play. For example, in the CSCO trade earlier yesterday Kim made the comment "The August 17 straddle trading around 1.12 implying 6.5% move, with IV around 49%. Seems pretty cheap. Backtesting showing good results. I will be looking to enter in the next 1-2 days, will be definitely in if the price dips below 1.10.". How did he decide that an IV of 49% is acceptable and that there is potentially room for increase? I understand you can look and see if there is a trend of increasing volatility on the weeklies, but how can you verify the current cycle IV has room to increase? The volatility of the underlying stock often drastically varies between each cycle so it's not like you can just take an average low/high IV to expect. This is my major issue, as if I could understand how to predict an IV range to expect, I would be able to better understand what I'm willing to pay for the trade. Also, how did he come to the conclusion that 1.10 was a good price? I understand you can compare the implied move to the historical move and since this was lower than historical that it had a good probabilty to gain value, but I feel as if there is something else that I may be overlooking here. Why not enter at 1.09 or 1.11? I know this may seem like a stupid question, but it can cause big differences in potential future gains. Just curious as to how they come to this "chosen" number. If for example the IV is much lower than normal, how do you decide how much more you will be willing to pay for the higher odds of a larger IV gain based on the historical values? I may be overcomplicating the entire process, but I'm just really curious as to how they take all these factors into consideration when reaching a price goal.

Thanks for the response Marco, I'll start doing the same for my future plays to help get a better idea. I would still love to hear back from Kim or Chris on how they go about the process. I know its quite a bit to ask, but I'm sure the community as a whole would greatly appreciate a more detailed description or guide as to how they undergo the backtesting process. Thanks in advance.

Can you explain a bit more? I know you look at the implied move vs historical move, but how do you decide if there is room for IV increase above the current prices to justify the purchases of plays? The IV is constantly changing each cycle, so how do you come to the conclusion that each play has upside potential?

I'm still trying to get a better understanding of backtesting through TOS, so my question is pretty simple. Are you just taking the average IV of each stock "x" number of days out for each trade and taking the average moves of each weekly to get an estimated IV move prediction? Example: ANF 5/10/2012 IV = 92.19 5/15/2012 IV = 147.94 Difference = 55.75 55.75 / 5 = 11.15% IV move per day on average (for this cycle). Then just rinse and repeat for previous cycles to get an average of the averages (hope that makes sense)?

I agree that I should have browsed the threads a bit more before placing the positive bid, but I just assumed it was a "glitch". I just assumed their incompetent technicians would have programmed this in correctly so that users would not have to deal with negative numbers. Oh well, lesson learned.

Did this myself on the RUT condor trade. Did the exact same thing myself, except it hit me ALOT harder. Put a bid in for 4.90 (positive) on two condors and they both filled for an average of -3.05 each, so I'm definitely going to be regretting this one. Wish I would've known about this in advance. Hopefully we'll make enough that I can break even and adjust accordingly next time.

Have been looking over the demo version while waiting for the account to be approved and it seems quite overwhelming. I'm used to much more user-friendly UI's and this is definitely not one from what I've experienced so far. Wish someone could come out with a UI as user friendly as OH with the fill capacity of IB. Looks like I've got a lot to learn before I even consider trading with this account.

Thanks guys. I'll see what I can come up with and let ya know how it turns out. Appreciate the help. Edit: Finally initiated the ACH transfer to begin the process, I'll try to keep this up to date on the process for anyone else interested in potentially switching.

Im at the exact same area. I went into account management and selected "finish an application" and now I'm currently on the 3rd step, funding. Which option did you select? I was just going to do the ACAT service option. I have enough liquid cash in my account to meet the minimum deposit amount, but I dont want to go through the issues with my stocks and other positions being in complete limbo in the mean time. Is there a way to do the micro deposits before I undergo the ACAT? I'd like to go ahead and get that stuff out of the way if there is. If not, I'll have to liquidate my positions before transferring for peace of mind.

How do I innitiate the micro deposits before the ACAT transfer? I'm stuck on the funding section (part 3) of the application and it wont let me precede until I select a method of payment, which I had planned on being the ACAT. I can't find a way around it all and would hate to transfer it while I still have positions open. Think I might just wait and close them out for peace of mind rather than just getting over-excited and rushing things. If you know a way to do the micro-deposits before the funding step to get the initial approval though, I'm all ears.

Thanks for the fast responses guys, I really appreciate the help. Looks like I'll be switcing soon . Edit: I'll probably just liquidate my positions on Monday and buy them again after transferring the cash (hopefully they won't increase too much).

I had a question relating to IB if you guys (IB users) don't mind to clarify. In addition to playing the earnings trades, I currently hold stocks and do my trades through OH. I was considering doing an ACAT transfer and transferring my whole account to IB. The issue I'm running into is when using the flat rate fee I've noticed that their fee is .005 per share with a minimum order of $1.00, therefor requiring a minimum purchase of 200 shares. On an account my size, I cannot afford to always buy 200 shares of the stocks I like to invest in (AAPL etc) in addition to my earnings plays. Is it possible to order smaller amounts of shares and they just charge a flat fee for those shares or do they just dis-allow the purchase? I would just transfer a portion of my account but then I lose margin on both which is quite annoying. I would like to move to IB, but I'm not sure if I'm ready to go into earnings plays 100% and lose the one section I feel more comfortable with, the stock purchases. I'm just stuck in a messy situation due to OH's horrible fills / more expensive commission (on trades my size) and I'm unsure where to go to from this point forward. Any advice would be greatly appreciated. Thanks, Thaze

That was misphrased a little, sorry for the misunderstanding. I'm not looking for additional information in each trade post, rather just an explanation I could use to better understand the use of the greeks. The part I'm struggling with is the process of how you use each of the greeks to rationalize the actual trade. I understand that it is important to be as close to delta neutral as possible. I also understand how to calculate the theta/vega ratio to see the IV increase required to offset the theta, but my major stumbling block was trying to figure out how you predict the increased volatility of the underlying stock? Just by looking at previous IV through optionistics and hoping it follows trend? Thanks ---------------------------------------------------------------------- - Edit : Question was answered in my other post related to placing earnings plays ( http://steadyoptions...earnings-plays/ ) Thanks Kim

If it would not be too much hassle, I would also love to see something like this. I think this information would be very useful for the new traders trying to learn how to implement these trading strategies, such as ammarmalhas and myself. I'm new to these trading strategies and seeing your thought process and reasoning behind the trades would greatly help me understand the logic and improve my knowledge base. Thank you.