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  • #31
    Originally posted by BCBiker View Post

    There are situations where they have very technical people working to “minimize” risk in large institutions who blow up. Long Term Capital Management was the biggest one.

    Now they are not beholden to linear models and really bad assumptions. They also probably make sure no one person is using same strategy in same equity.

    Many brokers have web services for trading so anyone with some fairly basic programming skills could start a quant trading system. If I was not otherwise occupied I would give it a try.
    Yea many offer API services to make a bot. Infact there are premade bots out there you could tweak. I had something a few years back at lending club, as you said, preoccupied with other things...

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    • #32
      Originally posted by BCBiker View Post
      This is good thread to introduce concepts. I think the more you do this the more clever you become.

      The key is to never be on the wrong side of a trade that is convex (limited upside, and unlimited downside)

      Buying naked call options is being on the right side of convexity if you can buy the contract at a low price.
      This is the most important part here, cannot be over stressed. Never be the holder of convex tail risk. You will win most of the time for a long time and then get wiped out all at once.

      As far as covered calls and cash secured puts, they sound great but mostly arent and you'll likely regret it if you're not doing something quite purposeful with rules on when/how. Tesla, is great for it right now, and not being able to 100x your calls and such is exactly right, the IV is high (meaning even if correct they dont pay out necessarily).

      For covered calls make sure not only would actually be happy letting go of shares at that price (you most likely wont be) make sure you are getting paid for it. For the most part, selling far otm calls just doesnt generate enough money to make that true.

      For puts its even worse. You sell it thinking you'd "own it at that price" however when it blows through it you neither want it and you've missed out on tons of premium.

      You do these things trying to collect money, and hoping the premium is enough for the risk, and you dang sure do not want them to hit. Its rare you're selling it into a mania or ramp up, etc...Was lucky last week to do that.

      Most of everyone including those of us that trade options should stay away, they're entirely unnecessary.

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      • #33
        Originally posted by Panscan View Post

        To the bold, if these bets the people are making are so bad, why don't institutions/ giant hedge funds/traders with huge money snatch these up?

        It seems like people usually don't turn down sweet deals and the more money/experience/knowledge you have the easier it would be to identify a sweet deal

        This is something that I know nothing about and it's interesting to learn about so thanks to both of you guys for going over some basics.
        They do and dont. These premiums and regimes are not always in favor, most of the time these things lose money. TSLA rn is almost guaranteed not to pay out due to extremely high premiums on both sides (deserved ofc).

        If you feel like dipping your toes first try to learn some basic stuffs like delta, gamma, vega, and theta, how much each component makes up the price and what your position, ie, long/short, put/call, spread/ratio/butterfly/etc...is and isnt. Are you long delta, short theta. etc...? Whats your directional assumptions and time frame and what makes you lose? When to cut?

        Most will lose money, way faster than they can appreciate. Paper trade to convince yourself not to do it. Covered calls can be fine, but everything is a trade off.

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        • #34
          Originally posted by Zaphod View Post

          This is the most important part here, cannot be over stressed. Never be the holder of convex tail risk. You will win most of the time for a long time and then get wiped out all at once.
          If anyone is confused on this point I suggest reading the very entertaining books by Nassim Taleb. I personally like Antifragile but the most digestible version is Fooled by Randomness. If you take Taleb seriously and ignore every hack preaching their skills in probability theory and “risk”, you will do well in options.

          I personally don’t think about greeks too much but I also really only buy options on a few stocks and 95% of it has been Tesla in last year.

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          • #35
            Originally posted by Panscan View Post

            To the bold, if these bets the people are making are so bad, why don't institutions/ giant hedge funds/traders with huge money snatch these up?

            It seems like people usually don't turn down sweet deals and the more money/experience/knowledge you have the easier it would be to identify a sweet deal

            This is something that I know nothing about and it's interesting to learn about so thanks to both of you guys for going over some basics.
            Actually you can buy an ETFs that do nothing other than buy shares with your money and pays a 9-12% dividend in monthly chunks.

            It is a very robust strategy, taking advantage of hedging strategies and hope from traders by selling covered calls. If there is anything close to printing money on a small scale this is probably it.

            Of course not everyone does it because if everyone did then call option prices would be too low and then buying calls would be way to go.

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            • #36
              Originally posted by BCBiker View Post

              Actually you can buy an ETFs that do nothing other than buy shares with your money and pays a 9-12% dividend in monthly chunks.

              It is a very robust strategy, taking advantage of hedging strategies and hope from traders by selling covered calls. If there is anything close to printing money on a small scale this is probably it.

              Of course not everyone does it because if everyone did then call option prices would be too low and then buying calls would be way to go.
              ? so sell covered calls on your ETF?

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              • #37
                Originally posted by formerly_cn View Post

                ? so sell covered calls on your ETF?
                No etf that does it for you and sends you dividend.

                ticker qyld is largest one.

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                • #38
                  Originally posted by formerly_cn View Post
                  ...if someone is really bold OTM call option year out on company you believe in probably gets you great ROI. Or at least thats my understanding so far. But yea akin to lottery...
                  Not akin to the lottery.

                  Not good ROI to sell long term calls... much better month to month. Buying them long term is fine if you get them cheap and want to roll the dice (but again, not many ppl will sell long term on growers/volatile, so prices might be unavailable or high). Price is key. Also pay attention to QE dates when you buy or sell... and divi dates (but most paying divi aren't worth selling/buying options on).

                  Originally posted by Zaphod View Post
                  ...For covered calls make sure not only would actually be happy letting go of shares at that price (you most likely wont be) make sure you are getting paid for it. For the most part, selling far otm calls just doesnt generate enough money to make that true.

                  For puts its even worse. You sell it thinking you'd "own it at that price" however when it blows through it you neither want it and you've missed out on tons of premium...
                  ^^^Concur completely. This is why limiting the term is key. I can lose (err, fail to gain) a bit on an index covered call 3 weeks out, but I can get DESTROYED on one 3 months out. Not only that, but selling the 3wk call four times pays me a lot more than the 3mo one.

                  The low volatility stuff won't be worth much/any short term. High volatility stuff is worth selling on and can pay... but that's since there is a real chance it (and that gets exponentially higher the longer term you sell the call for). It is a very bad feeling to have a call you sold deep ITM... and the worst part is that money is tied up until the duration is over also. Again... avoid long term calls over ~1month except on very low volatility stuff (utilities, dividend cows, etc)

                  ...In the end, >80% of options expire worthless, but when they do, you feel like a fool and leave a lot of money on the table (calls) or lose a ton of cash (puts)... or you might pay to buy the option back. It's not for everybody. I think the OP will have a much different stance on selling long term calls on a volatile one like TSLA in 6 months. Everything works until it doesn't.
                  Last edited by Max Power; 01-14-2021, 11:30 AM.

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                  • #39
                    Originally posted by Max Power View Post

                    ...In the end, >80% of options expire worthless, but when they do, you feel like a fool and leave a lot of money on the table (calls) or lose a ton of cash (puts)... or you might pay to buy the option back. It's not for everybody. I think the OP will have a much different stance on selling long term calls on a volatile one like TSLA in 6 months. Everything works until it doesn't.
                    I think you misunderstood what I said at some point, but I sell calls and spreads 30-45 dte. The comment you replied to, I was selling 25-45% OTM on monthlies.

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                    • #40
                      Originally posted by Nysoz View Post
                      ...I was selling 25-45% OTM on monthlies.
                      There is no action on that for 99.99% of stocks traded.

                      The few that have it are ones with pretty shaky valuation that you'd be almost be better day/week flip trading. If it stabilizes (becomes a profitable company), the margins will disappear and there will be no action on far OTM unless it's long term (like any regular stock).

                      GL though.... again, works until it doesn't.

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                      • #41
                        Originally posted by Max Power View Post
                        Again... avoid long term calls over ~1month except on very low volatility stuff (utilities, dividend cows, etc)
                        I think LEAPs have a space in a portfolio. Takes advantage of leverage and having to use less capital, while essentially moving in line with the underlying stock (assuming delta > 0.9). IMO there are 2 types of stocks which leaps work best for: rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon), and higher growth stocks where you want to take advantage of leverage for greater returns (Paypal, Square, Twilio).

                        Buying leaps on very volatile stocks like Tesla is risky, because of both the very high premium and IV, and the risk of large dips. But of course the reward is huge, if it works out.

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                        • #42
                          Originally posted by xraygoggles View Post

                          I think LEAPs have a space in a portfolio. Takes advantage of leverage and having to use less capital, while essentially moving in line with the underlying stock (assuming delta > 0.9). IMO there are 2 types of stocks which leaps work best for: rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon), and higher growth stocks where you want to take advantage of leverage for greater returns (Paypal, Square, Twilio).

                          Buying leaps on very volatile stocks like Tesla is risky, because of both the very high premium and IV, and the risk of large dips. But of course the reward is huge, if it works out.
                          All true, and leaps tend to be cheaper, as noted in the other post, its cheaper to buy same strike moneyness for 1m than 1x/wk for 4wks.

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                          • #43
                            Originally posted by xraygoggles View Post
                            ...rock solid, large cap, steady growth companies which may be cost-prohibitive for some to buy 100 shares due to the large share price (Apple, Nvidia, Amazon)...
                            If one can't afford even one single contract of GOOG, AMZN, AAPL, BABA, TSLA, QQQ, SPY, etc... then one clearly shouldn't be doing options on them (and probably not options on anything at all). LEAPs are fine, but you pay a fee rolled-in for it... just like leveraged index funds, etc.

                            A popular one among new traders trying to "go pro" and do options on was RIG (maybe still is?)... since the share price was cheap and it was volatile. Then, they'd graduate to Intel and Tesla (when it was semi-affordable). Buying something simply because of high volatility and good options chain or simply since you can afford 100 doesn't always end too well. It's as if they start playing casino games due to the highest top prize amount... not the ones with best odds. If you are looking at share price at all or checking volatility more than company strength, options probably aren't a good idea. JMO

                            In the end, options aren't any different than buy-and-hold. A decent trader owns and sells calls on stuff they like and/or want dividends on anyways (yet they sell assuming option prices show someone else and Mr Market likes it irrationally so). Likewise, puts should be on stuff one wouldn't mind buying. That foundational skill often gets lost in being eager. I don't think trading options is particularly difficult, but a lot of people lose their butt - and/or miss out on gains. The way to end up bag holding always was and always will be to buy for reasons other than a high quality company at a relatively good price.

                            To me, Tesla is junk and will be junk unless they can make consistent profit. I wouldn't even do a 500 or even 200 put on it (and this is from a guy who used to own and follow it circa 2012-14). I don't want my money tied up on crap. Will elec cars be a thing? Sure. Will Tesla win the electric cars race? Maybe.... but they are priced as if they already won it (when they are consistently showing minimal or no profit on their QEs and have strong competition all around them - for cars and otherwise). How are Tesla roofs and cyber trucks selling? Lol. It would be a lot smarter and have less downside to buy TAN or similar tech/energy ETF and sell calls on that (if you believe in that sector), but to each their own. There is something for everyone.

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                            • #44
                              Originally posted by Max Power View Post

                              In the end, options aren't any different than buy-and-hold.
                              On the contrary options have embedded leverage depending on the tenor and delta. It allows one to get leverage should you wish for a fixed (doesnt mean cheap) price without risking getting margin called or something of that nature.

                              I dont think these are necessary anymore personally as one can just buy a 2-3x etf for cheap, but it does make sense.

                              I'll buy LEAPS for their embedded leverage if I think we're going higher and I expect to make more than what I paid for them. I have (a small amount) LEAPS on four major indices at the moment. Likely to hold for a while.

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                              • #45
                                Originally posted by Max Power View Post
                                If one can't afford even one single contract of GOOG, AMZN, AAPL, BABA, TSLA, QQQ, SPY, etc... then one clearly shouldn't be doing options on them (and probably not options on anything at all). LEAPs are fine, but you pay a fee rolled-in for it... just like leveraged index funds, etc.

                                A popular one among new traders trying to "go pro" and do options on was RIG (maybe still is?)... since the share price was cheap and it was volatile. Then, they'd graduate to Intel and Tesla (when it was semi-affordable). Buying something simply because of high volatility and good options chain or simply since you can afford 100 doesn't always end too well. It's as if they start playing casino games due to the highest top prize amount... not the ones with best odds. If you are looking at share price at all or checking volatility more than company strength, options probably aren't a good idea. JMO

                                In the end, options aren't any different than buy-and-hold. A decent trader owns and sells calls on stuff they like and/or want dividends on anyways (yet they sell assuming option prices show someone else and Mr Market likes it irrationally so). Likewise, puts should be on stuff one wouldn't mind buying. That foundational skill often gets lost in being eager. I don't think trading options is particularly difficult, but a lot of people lose their butt - and/or miss out on gains. The way to end up bag holding always was and always will be to buy for reasons other than a high quality company at a relatively good price.

                                To me, Tesla is junk and will be junk unless they can make consistent profit. I wouldn't even do a 500 or even 200 put on it (and this is from a guy who used to own and follow it circa 2012-14). I don't want my money tied up on crap. Will elec cars be a thing? Sure. Will Tesla win the electric cars race? Maybe.... but they are priced as if they already won it (when they are consistently showing minimal or no profit on their QEs and have strong competition all around them - for cars and otherwise). How are Tesla roofs and cyber trucks selling? Lol. It would be a lot smarter and have less downside to buy TAN or similar tech/energy ETF and sell calls on that (if you believe in that sector), but to each their own. There is something for everyone.
                                I didn't mean literally can't afford 100 shares, but more in the vein of not wanting to use a lot of your free cash on 100 shares vs getting a leap for 60% less, for example. Management of liquidity and free capital, to use in other plays. Are you referring to extrinsic value (theta) when you mention a fee rolled in for it? Or something else?

                                For leaps, yes, its the same thing as buy and hold the underlying shares of the company. But most option strategies are not buy and hold, at least when you are purchasing them. For ex, last year, when we had the massive bull run in tech, I bought some Zoom calls at 300 strike, and my timing paid off, since it took off soon after, and when I thought it was really into bubble territory, I unloaded them for a big gain. If I had held those till today, would be a whole different story, and would have lost a lot of the winnings (both from time value and intrinsic value losses). However, when selling options, of course you hold and hope they don't go in the money.

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