mks212

I tried to enter this trade and saw the margin requirement is in fact just under $1,700 as srf335 said. I just got off of the phone with TOS. Their rationale is that because the price of VIX options can get so "away" from one another, in a way that simply doesn't happen with regular equity options, the margin requirement is as though you are simply selling one short option. In this case, the Feb. The Apr does not cover it in their eyes. This obviously makes the trade unattractive so I will have to pass.

Kind of a broad question. How do we decide which of these range bound trades are the best to execute? I've noticed very few vertical spreads (I want to say none, but am not 100% sure) on this forum. I could go into specifics on certain trades we've done, and also some that I have in mind, but I'd like to leave it broad to understand how people approach this. Thanks.

On the note of backtesting, I have begun using the OnDemand feature in TOS. In order to see it, you must be in live trading, not paper. It is in the upper right in an orange box. It seems to be pretty robust. It essentially replays any given trading day for the past 3-4 years. I find it helpful for testing intraday strategies. For example, in one of Jeff Augen's books, Day Trading Options, he discusses the weekly Petroleum Status Report that comes out on Wed mornings at 10:30. I wanted to see if a straddle bought at 9:45 on Wed AM would produce a profit (it doesn't). I was able to test using this feature. However, one huge problem, is that it is SLOW. Really slow. It took me about 90 minutes to pull 24 data points, most of that time spent waiting while the software "buffered." Is there another way to get this historical market data? Maybe in csv/excel format? For what it is worth, Jeff Augen seems to have based all of his books and trading strategies off historical data such as this. Here is the data I pulled. I didn't complete the whole table since it was such a slow process. I'm sorry the data is hard to read, is there an easy way to paste tables into the forum? 9:45 10:15 10:45 11:15 Delta Neutral Strategy Price IV Price IV Price IV Price IV 9/5/2012 40 Straddle $1.85 26% $1.75 27% $1.80 27% $1.75 26% 9/12/2012 42 Straddle $1.30 22% $1.20 22% $1.20 23% $1.15 22% 9/19/2012 42 Straddle $0.90 26% $0.75 26% $0.70 25% $0.70 26% 9/26/2012 40 Straddle $2.20 25% $2.00 25% $1.95 25% $2.00 25% 10/3/2012 10/10/2012 40/41 Strangle $0.50 27%/32% $0.35 27%/32% $0.35 25%/31% $0.35 25%/30% 10/17/2012 10/24/2012 10/31/2012 11/7/2012 11/14/2012 11/21/2012 11/28/2012 12/5/2012 39 Straddle $1.55 22% $1.40 22% $1.55 24% $1.55 24% [/CODE]

Let me ask a different question. There has been plenty of educational articles on straddles/strangles on Seeking Alpha and other sites and books (some of the best being Kim's). Is there any equivalent on calendars and/or butterflies? Thank you. Mike

I like the idea of selling IV due to your point. For example, Jeff Augen suggests many times to sell straddles/strangles to take advantage of overpriced volatility. My concern is that the the one black swan comes along and knocks out all of your profits from the trades done during normal times. A very real example is the DIA ETF I bought in March 2003. I followed that trade for months before and got in just above the final market bottom. Best trade of my life and I rode it and felt good about it until 2008...We all know what happened there. You may very well have, I'm pretty new here and probably missed the post. Mike

I have been thinking a lot about calendars lately and why they make me uncomfortable. At a basic level, you are betting that the underlying's price will not move, or not move much. Ever since 1998 when LTCM crashed, the frequency of large, unpredictable moves in the market has increased. This is even more pronounced in the post 2008 world (think May 2010 flash crash). What I like about straddles/strangles, is that we are playing a solid strategy of getting paid off big if IV spikes as we hope, and we don't really lose too much if the spike doesn't really occur. The straddles also have a HUGE added bonus. If the stock moves big, either way, we also win. As a very recent example, the first JOY straddle opened a few days ago provided about an 8% return the very next day as the stock jumped to right around $57.50. Now, back to the calendars, if an underlying has a big move, for ANY reason, you lose. While I cannot prove it, I would be surprised if the positive vega of the calendar can outweigh the large move from a crash. And with all of the program/high frequency trading going on, and the fact that nobody really knows how they interact with one and another, the risk of these types of crashes is higher. For this reason, I get nervous when I see a calendar spread. You can do all of the correct research in the world, and then some unexpected problem comes up, and boom, you lose.

Hi Jim, What you want to do sounds pretty straightforward actually. I think you DO want to transfer the money into an IRA at Schwab, Fidelity, TD Ameritrade or any other traditional broker. IRAs don't have limited investment options in the way a 401k plan does. You should be able to buy any stock, mutual fund, CD or ETF that you'd like. Also, many options strategies are also permitted, though any that require a margin balance will not be. So, long straddles/strangles should be fine. The long and short of it is when you move the money to the IRA, it will come over as cash and will look and feel very much like your normal brokerage/trading account. Please be careful that the 50% you are referring to can in fact be rolled over and is not a loan. Many 401k plans allow loans which you then pay interest on. To be complete with this answer, the LLC you are referring to may apply if you want to hold certain hard assets in the IRA, such as real estate or coins. Those are generally not allowed in an IRA so loopholes are used to get around it. Mike

Let's assume for the sake of argument that you can. I don't really know for sure, if I had to guess there are probably futures available on it. To quote from the book: I am going through the data and cherry picked the point that was most above the trendline, 7/14/05, with XAU at $91.26 and GLD at $41.90. The GLD/XAU ratio was 0.46. The trendline indicated that XAU should have been at $94.50, so it was underpriced by $3.24. The trade I modeled was to short GLD and go long XAU. According to the trendline, XAU then became overvalued by $0.20 on 7/29/05. The short GLD/Long XAU trade could have been closed on that day for a profit of 2.7%. I will look at a few other points on the line and also compile the trades in a spreadsheet a little bit later. I need to run at the moment but didn't want to take any longer to respond.

I have read 3 of Jeff's books recently and find them very informative. However, I find some of it to be very hard to put into practice and also some of it to be very backwards looking. One very notable exception is the volatility trades that we do here prior to earnings. That advice works out well and is applicable. One example I'd like to understand is mentioned in two of his books, The Volatility Edge in Options Trading on page 253 and Microsoft Excel for Stock and Option Traders on page 21. The idea is comparing the ratio of GLD/XAU to the price of XAU. I have recreated the data and spreadsheets but can't figure out how to actually trade this info. Can anyone shed some light? For example, using the first period (5/13/05-10/7/05) that shows a strong relationship, can you point out a potential trade? Jeff's argument is that because the R Squared between the ratio and the price of XAU is high during this time, it can be used to structure trades. The spreadsheet can be downloaded here: https://docs.google.com/open?id=0B4xAKSwsHiEBQzJaWXZBR19uVEk. I tried to upload it to this post, however, the forum will not allow excel files to be uploaded directly. Thanks.

Thanks for sharing.

Thank you Marco and cwerdna. My biggest issue with TOS is when entering trades that cross expirations (calendar spreads for example). I have found it a little bit to easy to select the wrong option. Reading the posts you mentioned, I'm going to stick with TOS for now since I at least know their system the best. I'll revisit in a month. In the meantime, I will give them a call and see about reducing rates for the options trades that I am starting to do as I will be trading for real starting in Dec, not just using the paper system.

I am curious as to what people are paying per trade at their respective brokers? If I am going to start doing more of these option trades I'd like to take a hard look at what I am paying, obviously. I am paying about $10 per trade at TD Ameritrade and am thinking that this is too much. Interactive Brokers seem to be cheaper. Also, I don't love entering trades on Think Or Swim, I find it a bit confusing and very easy to select the incorrect contract. Is the Interactive Brokers technology better/easier to use? Also, I am sure I am not the first person to ask this, but I searched the forum and didn't see a post regarding brokers. If there is one, kindly paste the link here and I will read there. Thank you.

Will do. Thanks Kim.

I have been a member for about a month. Why didn't FOSL qualify as a good candidate for an earnings play at the beginning of Nov? It passes muster based on the size of the move that we look for. And since it has now passed, looking at how a straddle would have performed, it would have been an excellent trade. As far as why I am honing in on this one stock, some of my family members trade the stock, so it comes up in conversation fairly regularly. Thank you.