| Author |
Message |
     alpine_dragon
Member
Username: alpine_dragon
Post Number: 2
Registered: 09-2002Rating: N/A
Votes: 0
|
| | Sunday, March 14, 2004 - 05:45 pm: |  
|
I've been monitoring these forums for quite some time now. And read various posts in here. In particular, I've had an interest read through Bundy's posts.
Over the past two years, I have been following the markets on and off. In particular I've looked at the various vehicles such as options, CFD's etc and I've had a good look into Technical Analysis
One thing that has escaped me, is how do you tie in Technical Analysis with Options trading? First of all, It seems the application of Technical Analysis for Options is at least slightly different to that of Straight stocks?
Since we are talking about a short time frame. It's easy enough to say trade with the trend. But quite often, even though the general trend of the share price is up, I've seen situations where there will always be jitters that make the stock price fall temporary, quite possibly triggering your stop prematurely.
It has been recommended by some of the more experienced options traders, that if we are actually buying straight calls and puts, that we buy at least two months out from expiry, quite often however is that it seems liquidity is rather low for several stocks, and for me, trying to negotiating the bid ask spread has been a bit of a nightmare during the time where I was actually dipping my toes in for the first time and doing a few small test trades to see how things went.
Off the track a bit, Is it possible to trade options and actually keep your day job as well? ie come back in the evening and set things up for the coming day (Order entry, stops etc) or is it necessary to constantly monitor the market during the day?
|
bundy
Member
Username: bundy
Post Number: 237
Registered: 03-2003Rating: N/A
Votes: 0
|
| | Monday, March 15, 2004 - 05:08 pm: |
|
You don't trade the option - you trade the stock.
You make all your buy decisions based on the stock price and movement - then you take into account the additional considerations set out in the various threads on this Forum on actually buying the option.
So, it's a two-step process in effect - even if you decide to trade the stock, the conditions in the options market may be such that you end up not entering an options trade.
It happens - I got onto the move in NCP last week for a few days - wanted to get back in today to ride it the other way - but the options were overpriced - so that while it was a good trade of the stock - it was not - for me at least - a viable options trade.
One of the considerations whether to buy will be liquidity.
Not just Open Interest - as some people have mistakenly assumed - but the actual trades in the options themselves.
Sure - you need good open interest - but in itself, that is not enough - it's not much good being in a profitable trade and you can't get out because there are no other traders - only market makers playing at the time.
For this reason, I reviewed my watchlist the other day and dropped off a few stock - they are ok when they are topical - but really not tradable as a run-of-the-mill optionable stock.
In relation to working and trading - I don't think I could do it - not with options - certainly not without a lot of aggravation and angst.
If I am in a trade, the absolute minimum for me is to monitor the first hour or so and then the last hour - with a quick check just after lunch - and maybe in between - depends on the trade.
I will almost exclusively buy on the close and, if the move is satisfactory, sell on the mad opening rush - or towards the close - I believe I need to be there, so to speak - to make the best decision.
Having said that - I dare say if I had to work and trade - I would find some way around it and learn to live with the situation.
A number of places offer sms and email price alerts - maybe you can make use of them. I'm not aware of anyone offering option alerts - I've tried to encourage Sanford - but it has been a fruitless endeavor for over 2 years - I've given up on them.
---
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.
|
moleman
Member
Username: moleman
Post Number: 24
Registered: 10-2003Rating: N/A
Votes: 0
|
| | Monday, March 15, 2004 - 06:56 pm: |
|
Hi Bundy
I've almost finished reading David Caplan's "The new options advantage" that you recommended a couple of months ago. Just wanted to say thanks. Great book! I got the same feeling when reading it as I did when first reading "Come into my trading room" by Dr Alexander Elder. I'm sure I'll read it many times.
I've been writing covered calls for about 15 months now and would now like to move on to debit spreads. Can I ask you where you get your info on implied and historical volatility etc. And can you recommend a broker for spreads. Are there any where I can place these orders online?
thanks
moleman
|
bert
Member
Username: bert
Post Number: 2
Registered: 02-2004Rating: N/A
Votes: 0
|
| | Monday, March 15, 2004 - 11:03 pm: |
|
Hi Bundy
I watch this forum every day for Options posts and find yours very interesting. I started live trading options in November 2003 and had good results until my last 3 trades, made a big dent in my small bank. I had some success staying in the trade past my loss limit until the trade came back into profit. This bad habit has resulted in my recent poor results.
I subscribe to an elert service for options http://www.elert.com.au/default.aspx
which gives you a choice of how you want to get your elert:- bid, ask, last price, middle of spread
it cost approx. $100/year with x number of sms or email elerts included, you can buy additional elerts.
I also use Orange Pocketwatch which gives you real time options prices, approx. $100/month
bert
|
bundy
Member
Username: bundy
Post Number: 240
Registered: 03-2003Rating: N/A
Votes: 0
|
| | Tuesday, March 16, 2004 - 12:05 am: |
|
Bert,
Thanks for that - elert sounds like a handy service - especially if I want to go bushwalking during the week - provided I can get a *(^%* signal.
Your experience with allowing losses to run in the hope they wil turn around is a too familiar story in the options game. 
I've done it myself - once - and I really did know better at the time.
If it works when we first do it - we think we are great traders - not realising we basically lucked it - and when it doesn't work for us the reality hits us.
If you have learnt something for the experience - it has not been wasted - just an expensive lesson learnt.
---
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.
|
bundy
Member
Username: bundy
Post Number: 241
Registered: 03-2003Rating: N/A
Votes: 0
|
| | Tuesday, March 16, 2004 - 12:27 am: |
|
Moleman,
Caplan's a real eye opener, isn't he!
I'm in the process of re-reading parts of it again - probably for the fourth time now - I never tire of it and it is a good re-inforcement for my trading.
The problem is that there are plenty of forums on TA - but very little knowledgeable talk about the mechanics of options trading.
I frequent some of the USA Forums - especially the options section - and the traders over there basically use software to tell them when to trade - they have no real understanding of the basics of options trading - it can get very frustrating talking to them.
Caplan has some real good stuff on the right options strategy in various market conditions.
( BTW - I see some smart bunny today did a great calander spread on AWC - wish it were me. )
I think I posted a fair bit of info about IV and HV in a separate thread somewhere on here - there has been quite a detailed discussion in the past.
You can get IV from ASX or some of the free option calculators around - do a search - I don't have any links handy at the moment.
HV I get from Amibroker.
Metastock can do the same - if you have it - or the ASX site also has it in their monthly volatility/dividends table.
---
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.
|
moleman
Member
Username: moleman
Post Number: 25
Registered: 10-2003Rating: N/A
Votes: 0
|
| | Tuesday, March 16, 2004 - 02:45 pm: |
|
Hi Bundy
I also bought "The new option secret - volatility" by David Caplan and am looking forward to reading this also. His work is simply on the next level compared to other books I've read. Great book!
I'm aware of the ASX site and calculators but was hoping you'd tell me about a complete package you were using for working out your volatility calculations and choice of options. I guess I had expectations after looking at some of the US sites. But there doesn't seem to be any software available for Aus.
Have you looked at www.poweropt.com? They have a 14 day free trial. I was using their smartSearchXL program to scan for calander spreads but you can scan for pretty much any type of strategy you want using around 40 criteria for the search. For example I scanned for calander spreads with at least 10% downside protection, at least 1 billion market cap, 1000 open interest for the sell and the sell implied volatility/ historical all divided by the buy implied volatility/historical >= 1.5. This gave me around 15 to 20 stocks many where the short term sell was overvalued by 50% (and even up to 110%!)and the long term buy marginally undervalued. I then checked these against my IC indicators.
It would be great if we had something like this software for Aus. The closest I've found is Peter Hoadley's options analyser at www.hoadley.net. It doesn't do searches but does historical volatility graphs. Since the source is provided, maybe this could be modified to graph implied volatility as well. But yeah, there doesn't seem to be much out there for easily finding trades where you have the edge. I guess I'll pick this up with experience. If you have the time, I'd certainly appreciate hearing about the mechanics of how you go about identifying these sorts of trades.
cheers
moleman
|
bundy
Member
Username: bundy
Post Number: 243
Registered: 03-2003Rating: N/A
Votes: 0
|
| | Wednesday, March 17, 2004 - 09:32 am: |
|
Moleman
Optionvue can be used in Australia - or so I am led to believe.
I trialed it about a year or 18 months ago - when they first started making claims about it for Australia - but the ASX side of the data had not been sorted out properly and it simply didn't work out.
Having said that - I really can't see any justification for spending big bickies on an expensive software package and associated data feed for our market.
If I were trading the US market - I doubt I would trade without it - unless i was simply buying calls or puts - but that would be a real waste of opportunities - I think I'd be focusing on delta-neutral trading.
But for our small market - once you decide on the appropriate trade on the 20 or so optionable stock with sufficient liquidity - the option selection pretty well takes care of itself.
I find Bourse invaluable in this regard. and I think it makes it easier having a good package like that - it comprises a live stock prices feed and options feed - every bid, offer, sale, market depth, etc etc is all laid out for you to make your decision.
But yes - it does take a bit of experience and experimenting with Hoadley's or the like.
It's St Patricks day today and O'Bundy is now off to join some Irish mates down at Finnians Irish Tavern for a bit of celebration.
---
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.
|
bundy
Member
Username: bundy
Post Number: 244
Registered: 03-2003Rating: 
Votes: 19
|
| | Wednesday, March 17, 2004 - 01:18 pm: |
|
This is my last post in the Forum - thank you Colin and Robin for providing undoubtedly the best trading forum ANYWHERE!
Most of what I have to contribute on the topic of options trading is scattered in various posts in the Forum.
I've never bothered to save or consolidate these posts - although one of the members recently did a pretty good job of drawing various threads together into a quasi-set of trading rules.
I'll use this final post to try to summarize some of my ideas and guidelines, for what they're worth, for trading options.
* I have a written set of trading rules - for trade entry, trade management and option selection - and follow them absolutely.
* My primary consideration is preservation of my trading capital - profits will look after themselves - and to do this I;
a. only trade stock with high liquidity - I want to see decent levels of open interest and a healthy level of trades during the day (only about 20 stock meet that criteria)
b. minimizing my time in the market - if the stock is not doing anything - get out
c. following some simple entry rules - trade with the trend
d. appropriate option selection - only buy fair priced options
e. careful trade management - cut my losses and don't be greedy taking profits
f. do not overtrade
* My primary and bread-and-butter entry is simple - I trade with the trend after a pullback and confirmation of the continuation of the trend. Nothing startling - simple and conventional.
* I want a strong entry signal - a totally unequivocal signal to go long or short - if in doubt I stay out - and I want this entry signal to be confirmed by volume.
* I also trade channels - but I always wait for confirmation of the turn - I don't anticipate the turn.
* I trade counter trends IF I get the correct setup - which, simplified, involves a reversal candlestick formation ACCOMPANIED by volume confirmation - volume spikes are a strong confirmation.
* I buy as near to the close of the market as possible.
* I get out at when I am at 20% loss - REGARDLESS!
* If I am at less than 30% profit the next day (day1) - it is a case by case scenario - if the trend looks like it is weakening - I get out of the trade - else I let it run to day two.
* If I am at less than 30% profit on day two - I get out on day 2.
* If I am at 30% profit or more on day two - then again it is a case by case scenario - if the trend looks like it is weakening - I get out - else I let it run - but I need a strong signal to stay in past day 2.
* If the stock does basically nothing for two days - I get out on the close of day two.
* If I am at more than 50% profit on day 1 - I get out of the trade.
* As my principal trade is trading with the trend - long and short - I prefer to buy options rather than sell them - primarily for the greater profit potential and limited liability.
* The option must be fairly priced..
* The IV should be no more than the 20 day Historical Volatility (HV) and the 50 day HV - both of which must be under the 90 day HV level.
* If the above conditions for buying cannot be met - then I consider alternatives of selling/spreads/etc in accordance with my options selection plan - the primary considerations of which are determined by the market outlook and IV.
* By way of illustration from my option selection plan - for the most common scenario - a bullish market with low IV - the preferred trades in order are;
1. buy naked call
2. bull vertical spread
(i) buy ATM call/sell OTM call
(ii) buy ATM put/sell ITM put
3. buy OTM (ITM) call (put) calender spread
The rational for all this has been explained before in the Forum - although I appreciate that the matter of relative pricing of options and IV/HV still causes some confusion.
I guess another way to explain it is to recognise that - setting aside directional considerations and time decay for the purposes of the explanation - the value of an option will tend to move towards fair value over the life of the option. So, for example, if you were to buy a 30 day option that was 20% overpriced - it would depreciate 20% over the next 30 days - possibly more - depending on movements in volatility of the underlying. So, even if you get the directional bias correct - the shift in volatility will probably turn the trade into a losing trade - unless the price shift in your favor is substantial.
If, on the other hand, you buy undervalued options - they will naturally tend to appreciate over the life of the option. Additionally, if the short term HV of the underlying is below the long term HV level - there will be the potential for additional profits as the short term HV tends to move towards the long term HV level and oscillate around it and the option IV responds accordingly.
---
Bundy
Good judgment is gained through experience.
Experience is gained through poor judgment.
|
scalper
Member
Username: scalper
Post Number: 54
Registered: 03-2003Rating: N/A
Votes: 0
|
| | Wednesday, March 17, 2004 - 04:24 pm: |
|
Bundy
Terrific post, can't say you left the best to the last as all your posts have been of the highest standard.
Your knowledge will certainly be missed by this trader.
You gave this forum a lot of credibility.
Cheers
Scalper
|
kathyb
Member
Username: kathyb
Post Number: 69
Registered: 08-2003Rating: N/A
Votes: 0
|
| | Thursday, March 18, 2004 - 12:42 am: |
| | |
Auto-Fit Trendlines