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iPhone release on Verizon!! Urgent!!
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iPhone release on Verizon!! Urgent!!

  #61 (permalink)
 Vendor: www.traderwerks.com 
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Fat Tails View Post

Standard options models - for example Black-Scholes - only can be used for approximate options evaulation. As far as I know, they cannot explain the volatility smile. So I am incapable of following any systematic approach in options trading.

So the nly way to trade them is to apply some technical rules. Buy options if they are cheap, i.e. that implied volatility is low, sell them if they are expensive and you have reason to believe that implied volatility will drop back to normal levels. But this is not trading, it is like walking in a foggy forest during night. Won't touch that stuff until I understand what I am doing.

Actually buying cheap and selling expensive volatility is option trading Option trading is more multidimensional. You may get the price direction right but you were wrong on the implied volatility and the amount of time it takes to get to a price ( or not get to a price ) and still lose money.

That is the beauty of options. You have your opinion on what the market/stock will do and you find a way to express it using option.

As for the volatility smile, it is natural. I think it is just that people tend to sell the near the money and buy further out to cover. There is a saying "sell the meat, buy the wings".

I learned option trading by trading and from exchange members. I look in horror how places like Optionetics teach people to trade options. Follow people like that and you will lose money.

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  #62 (permalink)
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traderwerks View Post
I learned option trading by trading and from exchange members. I look in horror how places like Optionetics teach people to trade options. Follow people like that and you will lose money.

I opened up an account with OptionsXpress. Have your heard any news about these guys?

... of course I was hit up with the $2K trading coach course within a couple of days. I'm told them perhaps

interesting "guarantee" , however....

Thanks for all the help, gang!!


AJ
Nashville, Tennessee


"Life On The Edge of SR"
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  #63 (permalink)
Market Wizard
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many books on options but start with this easy to understand Options For The Stock Investor: How Any Investor Can Use Options to Enhance and Protect their Return by james Bittman
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  #64 (permalink)
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I never exercise and my trades last a few days only. As long as you buy and not write; you basically have the right, but not the obligation to buy/sell the shares.. which means you just risk your premium as long as you long calls/puts.. nothing more..

there are so many ways to slice and dice the cat with options.. and I am simplifying things a lot... I mean, a flavor for everyone to the point it can get so complex that it will bore the hell out of you.... IMO, start out small and only buy(never write, and if writing, dont do go naked) until you learn to do more complex trades with more legs(condors/butterflies/strangles/etc)..

that was my approach, and it worked for me... doesnt mean it will work for you, so just grab what you think will work.

I added writing calls against my portfolio for income about 4 years ago, but I have not held equities outright on my account for close to 2 years now, so I dont really write unless as part of a strategy.. if writing, ensure you always protect yourself but there is still risk, and one never knows.. so ensure you define and accept the risk clearly.


tderrick View Post
No... You didn't misunderstand. I was willing to enter this trade blind, but now I'm not so sure.
I have been educating myself all day... I'll check out the link.

I have a question about risk. When the strike price is reached on my long call what happens if the trade goes sharply
against me. Do I need stop losses like my futures trading? I'm I responsible for the underlying equity?

thanks so much...


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  #65 (permalink)
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sam028 View Post
Dear @tderrick, as you're not (already) an option expert, my very humble advice will be: don't trade stock options with stocks quoting more than $50.
An option is the right 100 shares, so the option price is directly related to the share value. So choosing AAPL or GOOG as an underlying is not a good choice if you want, to try options without risking too much.

I second @sam028 advice... stay away from stuff over $50... and unless you have $250K+, stay away from appl/goog... risk and money management rules still apply to options trading...

there are plenty of opportunities on the $10-$30 range .. just use NT7 to do the market scan for the parameters that will work for you..

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  #66 (permalink)
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sysot1t View Post
I second @sam028 advice... stay away from stuff over $50... and unless you have $250K+, stay away from appl/goog... risk and money management rules still apply to options trading...

there are plenty of opportunities on the $10-$30 range .. just use NT7 to do the market scan for the parameters that will work for you..


I didn't even think of using NT!! I thought a place geared more towards options would be better...

I haven't purchased anything yet (or lost any money!!! lol )

so I'm still open to the best method...


AJ
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  #67 (permalink)
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cory View Post
many books on options but start with this easy to understand Options For The Stock Investor: How Any Investor Can Use Options to Enhance and Protect their Return by james Bittman
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That book is from one of the instructors of the CBOE Options Institute. You can buy it for less than USD 7.00 from Amazon. Some time ago the text could be downloaded for free.

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  #68 (permalink)
Market Wizard
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one more
Getting Started in Options by Michael C. Thomsett
Amazon.com: Getting Started in Options (Getting Started In.....) (9780470480038): Michael C. Thomsett: Books

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  #69 (permalink)
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The two standards on options are

Lawrence McMillan: Options as a Strategic Investment
Sheldon Natenberg: Option Volatility and Pricing


I have both of them and you do not need a PhD to read them, as there is little or no mathematics.

Amazon.com: Options as a Strategic Investment (9780735201972): Lawrence G. McMillan: Books

Amazon.com: Option Volatility & Pricing: Advanced Trading Strategies and Techniques (9781557384867): Sheldon Natenberg: Books

You will also find both books recommended on the CBOE website (scroll down to books):

CBOE - Learning Center


Last edited by Fat Tails; January 13th, 2011 at 02:09 AM.
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  #70 (permalink)
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You guys are the best...


AJ
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"Life On The Edge of SR"
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