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Option R:R vs. probabilities
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Option R:R vs. probabilities

  #11 (permalink)
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Ges update and new trade:

even with the short put at the money, the spread is slightly ahead (about $180) I've decided to hold as opposed to cover as there is alot of premium left on the short 25 put and with just over 2 weeks, time decay is on my side.

Note the vol crush after the earnings announcement:

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GMCR has had rising vol going into earnings. I may have made a mistake as earnings are after this expiration cycle so volatility may continue to rise which will hurt the spread. Regardless It appears there is less than a 20% chance of either long option getting hit, so I am playing that as opposed to an earnings direction:

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Is anyone else out there playing a similar game and have any advice on what I'm trying to do?

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  #12 (permalink)
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I am working out a few things on the SIM as well, but my positions are mostly two legged positions. I have to do a bit more research on Condors...

What are the strike prices for your GMCR trade?

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  #13 (permalink)
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Bermudan Option View Post
I am working out a few things on the SIM as well, but my positions are mostly two legged positions. I have to do a bit more research on Condors...

What are the strike prices for your GMCR trade?

Long 65 call
Short 62.5 call

stock at time of putting on position: 57.40

short 52.5 put
long 50.00 put

Here is a better shot of the positions with the contract description column widened:
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Today was a blood bath in the underlying, didn't see any news, position against me $292.00

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  #14 (permalink)
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payday!!!

the GES and GMCR positions expired worthless about 10 minutes ago. Will show p&l after settlement on my statement over the weekend:

So far 3 postions, 3 winners. no emotion, just probabilities.

New position today:

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This position will be a good test. Appears to be in a minor downtrend, but approaching previous resistance, meaning possible new support. regardless, probabilities are approx 25% or less that one of my short strikes is in the money at expiration. Earnings next week might put me at a small loss, but that is the name of the game.


Last edited by lrfsdad; April 19th, 2013 at 05:19 PM. Reason: added content
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  #15 (permalink)
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lrfsdad View Post
Will show p&l after settlement on my statement over the weekend:

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1158.80 profit on both spreads 3341.2 Risk. 34.6% ROI

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  #16 (permalink)
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ouch!! Why I don't like short naked stock options.

Akam beat expectations by .04 and this means a 20% rise in the stock today: I have been using a tgt about 10% away from current prices (short strike) for the purpose of this exercise.

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I wanted to have one or two positions go full against me like this in my practice acct before I start this in a live acct. "felt" good enough about it that I put on a very similar spread in my IRA, oops

It's easy to react to a situation like this by trying to play a reversal. Although if wrong, I'm adding to the total loss. I will sit tight for the time being as i've seen these reactions wear out after a few days. Time will tell


Last edited by lrfsdad; April 25th, 2013 at 04:57 PM. Reason: forgot to mention....
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  #17 (permalink)
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I was wondering whether you are actively trading these strategies still and what kind of success you are having?

I myself have been trading weekly credit spreads in futures(ZN, EUR, & ES) when they are next to support or resistance. I have also performed credit spreads in the indices(RUT), but I am interested in expanding into some of the weekly stock options.

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  #18 (permalink)
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bryanzim View Post
I was wondering whether you are actively trading these strategies still and what kind of success you are having?

I myself have been trading weekly credit spreads in futures(ZN, EUR, & ES) when they are next to support or resistance. I have also performed credit spreads in the indices(RUT), but I am interested in expanding into some of the weekly stock options.

I've found that the event causing the high volatility (like earnings) throws probabilities out the window. Since I started this thread, my business has been occupying more of my time. IB doesn't appear to allow market scans after hours, so I'm unable to work this strategy at this time.

So far it seems that if you can trade an option with high vol, but expires before the event, that is the best way to go. Usually this would be in stocks that have weekly options.

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  #19 (permalink)
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As to the original question, there's no such thing as a "good" risk vs reward in that there's no edge in option pricing. If/when 'edge' appears, the computers at Goldman Sachs pick it up and it gets traded out of existence.


And probabilities are only useful if combined with a time frame - which is usually expiration. So unless you intend to carry your trade to expiration, with no trade management, probability doesn't mean anything.

Choose a risk/reward that you're comfortable having, and then manage the trade from there.

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  #20 (permalink)
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lrfsdad View Post
I've found that the event causing the high volatility (like earnings) throws probabilities out the window. Since I started this thread, my business has been occupying more of my time. IB doesn't appear to allow market scans after hours, so I'm unable to work this strategy at this time.

So far it seems that if you can trade an option with high vol, but expires before the event, that is the best way to go. Usually this would be in stocks that have weekly options.

What does IB's market scan allow you to do? I have been researching free web-based market scanning tools and some of them might do a decent job but I'm still definitely a newb.

So this one is kind of rudimentary:
Free Stock Screener ? MarketWatch

This one at Google is worse actually:
https://www.google.com/finance/stockscreener

This one from Yahoo seems the best so far. It is the only one that lets you search on some form of volatility:
Stock Screener - Yahoo! Finance

WSJ.com seems to have a somewhat sophisticate one. One thing I'm looking for is to find a screener with moving average crossovers. This only lets you screen stocks that are over or underperforming various moving averages.
Stock Screener - WSJ.com

StockFetcher.com seemed to have a pretty full capability. Not free though--$8.95 a month.

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