Guru1000's Derivatives Trading Thread

[guru1000]

Disclaimer: If you invest into naked calls or puts, be prepared to lose your whole investment.

Instead of hijacking others' threads, this thread will serve as the blueprint for my naked call and put executions.

Naked call and put buying is an extremely high-risk trading strategy that should be avoided by newbies, and even highly-experienced traders should allocate only a very small percentage of their portfolio into such plays.

I like naked call and put buying, as it's simple, straightforward with superior returns, not saddled by convoluted risk/reward analyses like my other more conservative strategies (selling iron condors, double diagonals, and butterflies).

I will also discuss life elements as ideas arise out of trading wins and losses, as here, in this life, everything is interconnected.

The Nasdaq as a whole took a dump today over 100 points. Moreover, Apple, which support and resistance levels normally trade between $125-130, also took a dump, following a positive earning report two weeks ago, down to $114. It's conventional trading wisdom that when a stock breaks support levels ($125), its subsequent trading pattern is sketchy, as its temporal track record is lost. Such as we have here with Apple down at $114.

Nonetheless, Guru puts a green light to buy naked Apple calls at this level. Today I bought out-of-the-money Sept 15 (43 days to expiration) Apple calls with Strike Price (SP) 125 @ .93.

I will sell if and when Apple trades closer to 125 over the next 30 days.

 

[Wen]

"Today I bought out-of-the-money Sept 15 (43 days to expiration) Apple calls with Strike Price (SP) 125 @ .93."

hope you sell it on monday, if not bumper.

I brought some put on early monday, it went up a few bucks, sold it too early today and made 12%, could had made 200%, but profit is better than losing.

 

[Wen]

Brought the following today. expect baba to go up for earning and aapl to recoup.

SYMB type qty Exp Date Strike Premium Call Cost

aapl call 4 8/15 $114.00 $1.53 $612.00
baba call 1 8/21 $78.00 $2.66 $266.00

 

[guru1000]

I was up over 70% yesterday; I didn't sell. I bought Apple calls 43 days to expiration as I want to see a price of $125 or better in the next 30 days. I am not selling until and if we get close to 125. I'll let expire worthless if necessary.

I also sold (credit) NDX iron condors in the 4400 range in my larger positions (here I have trading stratagem that I won't outline); so if market dips, I keep premiums there, and lose on Apple which is only 1-2% of total portfolio. So no biggie. If NDX and Apple trade up, I net on both, as I have a way to liquidate the NDX iron condor profitably in a "volatile" up market as well.

 

[Wen]

bummer,

well, my baba become worthless, appl call got wipe out this morning and bounce back to near cost.

who is your broker? the iron condors strategy must cost a lot for commission.

 

[guru1000]

Wen, casinos make money by the margin of a few percentage points in their favor. Lots of money.

When you buy such near-to-expiration naked calls or puts, you are literally flipping a coin, 50/50. There is no way really to know the direction of the market/stock over a couple days. If, however, you bet one-two months out, sure, the option is pricier, but you can bet in that time frame there will be a point where the stock will make a move in that direction, assuming you are buying calls at lows and puts at highs. You increase probability in your favor accordingly.

I have a plethora of brokerages, mainly OptionsXpress. I negotiated .50 per contract and a nominal ticket charge.

One of the reasons I play NDX is that the iron condors I sell are expensive. For example, one iron condor contract (buy call, sell call, buy put, sell put) nets $47 or $4,700 in credit premium. So I don't need to buy hundreds of contracts, thus minimizing commissions. That's the beauty of playing indices and the key to staying profitable: saving tens of thousands (or more) in commissions.

 

[Wen]

Wen, casinos make money by the margin of a few percentage points in their favor. Lots of money.

When you buy such near-to-expiration naked calls or puts, you are literally flipping a coin, 50/50. There is no way really to know the direction of the market/stock over a couple days. If, however, you bet one-two months out, sure, the option is pricier, but you can bet in that time frame there will be a point where the stock will make a move in that direction, assuming you are buying calls at lows and puts at highs. You increase probability in your favor accordingly.

True, for me, I like day trading the weekly, i am not a patient man, plus, the reward is higher for the higher risk. lol

I have a plethora of brokerages, mainly OptionsXpress. I negotiated .50 per contract and a nominal ticket charge.

I used to use optionhouse (called trademonster now) when it was $9+ $0.15 per contract, but I just recently changed to eoption b/c it is $3+ $0.15 per contract. you did save a lot when trading a lot of contracts. only thing is you have to pay for the streaming service and it is pretty slow. I just use my option house streamer.

One of the reasons I play NDX is that the iron condors I sell are expensive. For example, one iron condor contract (buy call, sell call, buy put, sell put) nets $47 or $4,700 in credit premium. So I don't need to buy hundreds of contracts, thus minimizing commissions. That's the beauty of playing indices and the key to staying profitable: saving tens of thousands (or more) in commissions.

I like option strategies too, but I don't have enough on my account for it if it didn't go as planned and getting out is the hard part.

 

[Wen]

I closed out my aapl at $2.14 with gain of 38.69% .

 

[guru1000]

The market has crashed. I did great with my NDX iron condors, but poorly with my Apple calls.

Apple today is trading at 108.27 down from 133 five weeks ago.

Before light, comes darkness. Opportunity can arise from any mishap if you look for and act on it. Accordingly, today I bought an equal dollar amount as my previous Apple call position as follows:

Apple call: Strike Price 110, expiration 28 days @ $3.9.

I expect a huge turnaround over the next two weeks in both the market and Apple, as the temporal machination of the "crashing global growth" subsides.

 

[Wen]

The market has crashed. I did great with my NDX iron condors, but poorly with my Apple calls.

Apple today is trading at 108.27 down from 133 five weeks ago.

Before light, comes darkness. Opportunity can arise from any mishap if you look for and act on it. Accordingly, today I bought an equal dollar amount as my previous Apple call position as follows:

Apple call: Strike Price 110, expiration 28 days @ $3.9.

I expect a huge turnaround over the next two weeks in both the market and Apple, as the temporal machination of the "crashing global growth" subsides.

yeap, Apple crashed badly this week, I was almost on the action (PUT), could had made 1200% but had to do something on that day, oh well, always next time.

by the way, people are hyping of apple collapsing in the news lately so be careful.

do you mind telling me more about how you can liquidate your iron condor if it it goes south and how far out do you buy it from the stock price? I want to learn more before trying it myself. do you sell high strike price from the stock price??

I understand the concept, but with limited profit, the risk of it being exercise or buying it back at a higher premium is a turn off for me. I assume you can sell more quantities but with that comes greater risk.

as always, an exact example would be great.

 

[Bible_Belt]

Accordingly, today I bought an equal dollar amount as my previous Apple call position

Doubling down on a losing position and marrying yourself to one bad trade is a recipe for disaster. I have seen a lot of traders wiped out that way.

I'd look for a fib retracement of any big move in one direction like this, about a third or so of a dead cat bounce and offer out everything at well under that level to get you rid of this bad position and start over.

Good luck with it. I hope you do well.

 

[guru1000]

Bible, you are correct in the context of traders who directionally trade up or down only (in size instead of balance), as if the market is crashing, there is no telling where the bottom lands. However, I play both sides of the market. I sell call spreads and iron condors that become very profitable in down markets.

So far, the futures show the market opening much lower tomorrow.

Wen, I sell iron condors a few hundred points below the market with a 3/47 risk/reward ratio. So if the market trades down, I profit nicely. If the market stays flat, depending on the time I liquidate, I might break even or lose a bit. The question is how do I profit (adjust the trade) in a lower-strike price iron condor if the market trades up? This is my trademark.

 

[guru1000]

Crash, crash, crash!

I'm suing one of my brokerages for tying up my NDX iron condor liquidation order for 20 minutes this morning while the NDX recovered over 200 points. Cost me lots of profits.

Lesson learned: Keep your larger positions with larger clearing houses.

BTW: Perfect environment to be long straddles on practically any stock or index.

 

[guru1000]

Sold the Apple calls SP 110 that I bought at $3.9 @ 6.2 for a 59% profit. Since I had my initial position (first post in this thread) expire worthless, between both call trades, I took a net loss of 41% plus commissions.

Notwithstanding the above, this is the first net loss I have taken in over 10 naked call trades. Not bad considering a crashing market.

I will wait till Apple cements its new support and resistance levels before engaging in naked call buying again.

 

[synergy1]

I expect a huge turnaround over the next two weeks in both the market and Apple, as the temporal machination of the "crashing global growth" subsides.

The fed holding off the hike indicates a global contraction for the time being. Some believe the hike won't happen until 2016. Until than, It seems that volatility will remain high. We have not had too many draw downs in the past 5 years >8%, and I believe the most recent one has been 10%. Going forward, it wouldn't be unreasonable to assume similar moves in 2015.

I have just gotten started with condors and option trading. I am doing virtual trades though before committing any real money. While one can construct a "low risk" trade, it still seems foolish to jump in without some training/ practice.

Question for you: What would be a recommended minimum to start trading with? It seems a few bad trades and commissions would be bad news for a beginner.

Thanks in advance!

 

[IASGame]

Guru, I'm a buy and hold investor looking to retire in around 20 or 30 years.
I never tried calls or puts and didn't know what iron condors were until reading it here.

I've seen some studies backed up by data that actively trading on the long-term ends up under-performing the market on average. What do you think of that?