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Am I missing something?
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Created: by brags Attachments:4

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Am I missing something?

  #11 (permalink)
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brags View Post
Ya...I see how it would complicate things...I'm starting to get the hang of it now.



I hear ya Actually, I follow the strategies ok...straddles, strangles, collars etc....I just kept getting hung up on the terminology...but now I see it has its purposes.

Sorry brags...i was thinking you were new to Option Trading, but it is just the Terminology that is confusing to you.

I posted some Charts before this post thinking i could help you Understand your First post....Sorry if i misunderstand what you were asking.
It seems after your last post you are just confused with the Terminology.


Last edited by sandptrader; October 4th, 2015 at 05:11 PM.
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  #12 (permalink)
Trading Apprentice
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Arms Index [ChartSchool]


"Notice that the range is narrower with overbought above 1.20 and oversold below 0.80. "

I believe this is backwards. Oversold is above 1.20 as the graphic indicates, and overbought is below 0.80 since TRIMs move inverse to the market?


Last edited by brags; October 7th, 2015 at 08:10 AM.
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  #13 (permalink)
Market Wizard
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brags View Post
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Arms Index [ChartSchool]


"Notice that the range is narrower with overbought above 1.20 and oversold below 0.80. "

This is backwards right? Oversold is above 1.20 and overbought it 0.80 ? Usually oversold is on the bottom dips...but TRIMS are inverse charts.

TRIN is the inverse of what you normally see: a low value corresponds to highs in price and vice-versa.

The formula is the ratio of the number of advancing/declining stocks compared to the ratio of the volume of advancing stocks to the volume of declining stocks.

So if the volume ratio is higher than the number of stocks ratio, the overall indicator value is lower (higher denominator). That means that volume is going disproportionately into rising stocks compared to their number, so the balance is toward rising volume. The opposite is true when TRIN is high: the volume ratio is proportionately lower than the number of stocks ratio, so the balance is toward stocks with more declining volume.

The idea is that if the reading is particularly high, selling has gone on too far and a change is due; if it is particularly low, buying has gone too far. Note that "overbought" and "oversold" are conditions that can last a long time, not pinpoint signals.

Often the indicator scale is inverted, so the plot looks like a normal indicator.

Don't get too hung up on indicators, by the way. You don't get an edge from something that everyone knows about. An edge can come from your own interpretation of what is happening, but not from a number on a chart....

Bob.

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  #14 (permalink)
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ok thanks Bob...just wanted to confirm the contradiction in the tutorial so I can get it right. I appreciate the advice...right now I just want to get a general understanding of all aspects of the market.


Last edited by brags; October 7th, 2015 at 08:51 AM.
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  #15 (permalink)
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sandptrader View Post
hello brags...Option Trading will take a bit more time to Understand, as well as the many ways they can be used.
I am posting a Chart of AMZN and the 540 Call Option Chart next to it for this Example.
The Notes on the Chart Describe the Important information, as the October 540 Call is OTM, as it has yet to Rise above that 540 Strike Level.

If someone would Actually Buy the 540 Call or Pay the Premium of 8.75 or $875...They would have 10 more Trading days to see if the Value would Increase for More than the $875 Paid for it, and then Sell it.
This is the Main Idea behind Directional Option Buying of Calls and Puts.
But there are Many more Strategies in Options Trading that i will Not get into, because it would be off Topic.
I Hope you can see the Chart well enough to see the details...if not try Clicking it a second time to see if it will Magnify more.

This is a Final Update of that OCT 540 Call Trade that was posted on 10-2-15.....I am late on posting this..... the Charts show what happened up until the Expiration with Closing Price of the 540 Call.
On 10-2-15 paid $875 for 540 Call.
On Expiration it was worth $3,092
The Option was as low as $275 on 9-29-15
Also as Low as $345 on 10-8-15
It Closed ITM-In the Money on 10-16-15.

Attached Thumbnails
Am I missing something?-amzn-oct-540-call-close.png  
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  #16 (permalink)
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Thanks for following up on this. It's all making more sense to me now...even the terminology
...calling away stock and putting protection

So looking at the charts...amazon really had a good run there...normally 10 days left to expiry for an otm would not be the best of strategies correct? Especially considering it was prior to an earnings report where it was expected that amzn was going to miss their target. Unless one was just trying to capitalize on a short term bullish trend and the object was to get out before the earnings report. Would the price of the option at the time of purchase reflect the missed earnings expectations? If one were bullish on amzn regardless of the speculation, then it would have been better to get an option with a later expiry, since the stock really jumped up after amzn reported better than expected earnings. The NOV 540 option is currently $6,640...not sure what it was selling for back on Oct.2....but a 607.50 November 2015 with 26 days to expiry is $1,230

I am currently reading the following book that was recommended by an options tutorial provided by my bank.

http://www.amazon.ca/Options-Strategic-Investment-Lawrence-McMillan/dp/073520465...RID=0KP7SEXA9NH5A9Y0GAEX


Last edited by brags; October 25th, 2015 at 12:17 PM.
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  #17 (permalink)
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brags View Post
Thanks for following up on this. It's all making more sense to me now...even the terminology
...calling away stock and putting protection

So looking at the charts...amazon really had a good run there...normally 10 days left to expiry for an otm would not be the best of strategies correct? Correct...This would be High Risk....But it was Good Explanation for OTM Option.Especially considering it was prior to an earnings report where it was expected that amzn was going to miss their target. Unless one was just trying to capitalize on a short term bullish trend and the object was to get out before the earnings report. Yes that would have been the Idea to Capitalize on the Short term Bullish trend. Would the price of the option at the time of purchase reflect the missed earnings expectations? In that Scenario the Oct 540 Call would Not be Bought with that in mind.
If one were bullish on amzn regardless of the speculation, then it would have been better to get an option with a later expiry, since the stock really jumped up after amzn reported better than expected earnings. Yes...that would be what would be Best...Actually Buying the Weekly Options would be the way to go in that case, as the life span is only a week, and although they are High Risk with little time till their Expiration they are used for very short term anticipated moves.The NOV 540 option is currently $6,640...not sure what it was selling for back on Oct.2....but a 607.50 November 2015 with 26 days to expiry is $1,230.....

I am currently reading the following book that was recommended by an options tutorial provided by my bank.

Options as a Strategic Investment: Lawrence G. McMillan: 9780735204652: Books - Amazon.ca

Attaching Chart of November 540 Call. Anytime you are using a Short term Instrument such as Weekly Options you are taking Risk of Losing All of the Premium you Paid for the Option...there is no time for a recovery,So make Sure you are willing to take that Chance if using that Strategy.
.

Attached Thumbnails
Am I missing something?-amzn151120c540.png  

Last edited by sandptrader; October 26th, 2015 at 12:04 AM. Reason: Adding
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  #18 (permalink)
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brags View Post
Thanks for following up on this. It's all making more sense to me now...even the terminology
...calling away stock and putting protection

So looking at the charts...amazon really had a good run there...normally 10 days left to expiry for an otm would not be the best of strategies correct? Especially considering it was prior to an earnings report where it was expected that amzn was going to miss their target. Unless one was just trying to capitalize on a short term bullish trend and the object was to get out before the earnings report. Would the price of the option at the time of purchase reflect the missed earnings expectations? If one were bullish on amzn regardless of the speculation, then it would have been better to get an option with a later expiry, since the stock really jumped up after amzn reported better than expected earnings. The NOV 540 option is currently $6,640...not sure what it was selling for back on Oct.2....but a 607.50 November 2015 with 26 days to expiry is $1,230

I am currently reading the following book that was recommended by an options tutorial provided by my bank.

Options as a Strategic Investment: Lawrence G. McMillan: 9780735204652: Books - Amazon.ca

Since selling options over earnings exposes the sellers to large risk, i.e. the stock can make large moves as witnessed by AMZN, implied volatility (IV) increases as the earnings date gets closer. Thus, the price of the option increases in order to compensate the sellers for the additional risk. I may be wrong, but I believe the options with expiries closest to the earnings date will have higher IV than those with expiries further away (never tested this and don't do earnings plays). After earnings, the IV usually collapses and if the stock does not make a large enough move, then the value of the option decreases. Thus, you can lose money even if you get the direction right.

Not sure if the price of the option will reflect the expectation of a missed earnings report. IV on both calls and puts would be higher due to the known catalyst (earnings date) and the IV on the put options would probably be higher than that of the calls (after 1987 insurance coverage became more expensive). Keeping the aforementioned in mind, you can compare IVs across a range of options to determine whether the expectation of a missed earnings report is "priced in".

Whether or not it is better to buy an option with more time to expiry depends on your strategy and your plan with the trade. Just remember that time value decreases quite rapidly once the time to expiry is less than 30 days and OTM options will lose a lot of their value really fast.

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