Question About Long/Short Strategy With Options

racer2 · 2012-05-25T05:52:56.860144+00:00

The way you are talking about doing it, no it's not really possible. The time decay is just one of the problems. The main complication is that options "control" 100 shares of the underlying stock so it's hard to get the right balance longs to shorts. You can't just buy 100 dollars of calls on MCD and buy 100 dollars of puts on YUM.

What you really need to do is get a good understanding of option greeks. Delta Gamma and Theta. It's pretty complicated but essentially you want to establish two positions that offset each others delta and ideally you want to do so with positive theta, or in other words, where you benefit from time decay. The challenge with this approach is that delta will change as a stock fluctuates, unless you are dealing with deep in the money options. For this reason it's best to manage your portfolio as a whole, weighting your individual position greeks to a index or ETF like SPY. This webcast from ThinkOrSwim talks a lot about managing your portfolio in this manner.

I'd go deeper into it but it's late and I've probably already confused the hell out of you!

RetroYouth · 1 day

GLD tracks the commodity, XAU tracks companies that mine the commodity. XAU also has companies that mine silver.

IAU and SGOL are the only other ETFs I am aware of that track gold prices. GDX is another etf that tracks gold/silver miners.

ttg314 · 1 day

Many are listed on an exchange just like the regular shares, and trade just the same. Others are only traded over the counter or on the private market.

throwaway50k · 3 days

The ThinkOrSwim platform. Other brokers may offer it as well. An option's delta will also give you the aproximate probability of expiring in the money. For example, call with a delta of .15 has roughly a 15% chance of expiring ITM.

Joe_12265 · 3 days

Cool - It's funny how, every now and then, our mistakes turn out to be our best trades! :)

Joe_12265 · 3 days

You could spread it out by selling puts. The strike price would depend on your risk tolerance and the number of puts you bought. Personally, if I had made this mistake I would be selling the June 120 put.

throwaway50k · 3 days

The whole point of selling calls is to reduce the cost basis of the underlying stock. By my calculations, the cost basis of your original 100 shares is ~95 and your cost basis on the other 400 is about 98.5. Being called away at $97.5 would make the overall position a wash and likely still a profit considering the dividends you have collected.

Now take in the odds...There is less then 12% chance MCD touches 97.5 prior to June expiration and just a 5% chance is closes over 97.5.

Going back a bit, you should have been lowered your strike price for the April and May expirations as numerous people have told you to do. As you've already said, you got lazy. Not only by not diversifying but by refusing to do the homework required to implement the strategy properly. You've messed this strategy up from the start. Initially by selling in-the-money calls, then by throwing all your eggs in one basket and now over the last few months by not lowering your strike price as your underlying dropped.

I'm not trying to piss on your parade, but this just isn't the right way to manage this position.

rickraus · 3 days

Options come out May 29th.

throwaway50k · 3 days

You really should have sold the 97.5 or 95 calls. At this point collecting a $7.5 isn't worth the risk of the stock being called away.

StockJock-e · 5 days

the bid/ask size quoted is the number of round lots. A round lot = 100 shares so yeah, you can add 2 zeros. :)

StockJock-e · 6 days

Yup, except size is the number of round lots. One round lot = 100 shares.

Also NBBO is the National Best Bid and Offer, not an exchange.

imustbehated · 6 days

T and VZ are both nice dividend plays which make them defensive positions. In a down trending market they are expected to hold their value or at least go down less then the rest of the market. Utilities and some health care stocks act in a similar way.

StockJock-e · 6 days

Not exactly...Bid is on the left, ask on the right. It's also just looking at one exchange, ARCA. It's not listing the bids/asks from other exchanges like NYSE, CBOE and the countless others.

From the top down, NBBO stands for National Best Bid and Offer, or in other words, the "best" price in the market on both sides of the trade. The 99,999 is the the size of the NBBO and the 67K from arca is is included in that count.. The size of the NBBO is likely much higher then 100K when orders from all the other exchanges are included but the system is limited to 5 digits for the size, or so I assuming.

BehindEnemyLines · 8 days

Yeah - it takes a while to catch on to the lingo. It can pretty useful for day traders tho - It can help to get the overall market vibe just from listening to the tone of the guys voice.

For those that haven't heard it, check out the Squawk of the Flash Crash

BehindEnemyLines · 9 days

tradersaudio.com - The ThinkOrSwim platform also has the feed available for free.

rdudejr · 11 days

Saying your strategy is "proven" is close to guaranteeing results which is certainly illegal.

Also, it's not illegal but pimping your site is usually frowned upon in this subreddit.

sage_joch · 14 days

Vanguard site should have a history of all its funds distributions.

usuallyskeptical · 17 days

I was trading that day. Bids across the market simply disappeared. I personally believe it was an act of domestic terrorism coordinated by the fed and carried out by all the big banks and black boxes. All I know is that somebody made a lot of money that day.

I made a nice chunk of change myself because as the panic really started setting in, I said to myself "This is Bullshit" and proceed to throw out orders well under the market, several of which got filled. I distinctly remember one order that got filled and by the time I looked at it on my position sheet, I was already up almost 10%.

ggk1 · 17 days

You pay interest to them on stock that you borrow.

I not 100% sure of the mechanics of it but I think that they don't actually own it, they are borrowing it from another customer. If that customer wants to sell, they will force you to cover unless they can find other shares to "borrow." If they do own it, they have it hedged.

ggk1 · 17 days

In addition to a margin call, the broker can also force you to cover if the person/institution you borrowed the stock from wants it back.

ar01 · 18 days

Sounds like a pairs trade which are very common especially among hedge funds. It's a great way to neutralize underlying market action and profit from one asset out-performing another. Of course it's not without it's risks. The worse case scenario is the asset you short goes up and the one you are long drops.

Not sure what you mean by UST ansd ESY ...An example I'd offer is if you think the S&P 500 will out-perform the Nasdaq you could buy $5000 in SPY and short $5000 in QQQ. It won't really matter what the market does day to day, as long as SPY out-performs QQQ you'll make a profit.

Fuck_my_username · 22 days

You could argue that a cup and handle is forming but it is not a completed pattern until it comes back to the $3 level. A breakout above the $3 level would then confirm it as a valid pattern.

NYZ93 · 22 days

A single option contract that is quoted at $0.50 with a $5 dollar commission has a total risk of $55. That single option "controls" 100 shares of the underlying stock.

The way you worded the question, it sounds like you are asking about 100 option contracts which is a pretty big trade - 100 contracts would control 10,000 shares and the total cost/risk would be $5000+commissions.

awgeez_awgeez · 23 days

Really? Who starts a 401K and then leaves it all in cash? Your only gains are from employer matches. 25K in retirement assets and not a penny invested? I'm dumbfounded... </rant>

My advice is to start ASAP - You don't have to invest it all at once but set a goal of investing $2500 a week or whatever feels right. There are plenty of resources in the sidebar to get you started. Best of luck.

awgeez_awgeez · 23 days

I assume your accounts are already invested in something and not just sitting in cash right?

Regardless, leave it as is until you have a plan.

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