Journey to a Million with Options Trading - Page 2

On September 21 2015 23:40 Spitfiree wrote: Isn't option trading the hardest market and the one with biggest swings having only the top guys actually profit ( and they profit big ) Also what amount of money would be decent to start out with ? Like having a 10k bankroll seems small for such activity considering I doubt you can win more than 10-15% on top without taking huge risks - which would be laughable as 10k br in poker would mean you crush 100nl probably reg 200 and bumhunt 400 relatively speaking which would turn into much bigger profits than 1.5k

We play poker an ultra high variance game, I think the best option in general for us is high-risk high-reward investment, thats what you are experienced in, let old couples invest in low variance crap

Sorry if I come across that way. Just thought I'd find people interested in derivatives trading as well. Tired of stock forums where there seems to be too much focus on Fundamental or Technical - not to say they aren't important...

Will read those recommended threads.

I'm indifferent to platforms - I currently use etrade and interactive brokers. And I've never claimed that 'options trading' would bring excessive % returns. You actually have to be realistic and benchmark it against your alternative returns.
I'm not a 'star' poker player, so I need to benchmark it vs other things such as interest rate on my loans.

Until you've actually invested sometime into learning and understanding the domain, I don't think you should discount it. How often have you come across people telling you that poker is gambling, and that you can't make a living off it?
Poker is game of skills, emotions and probability... so is options.

Anyway, lets cover off on some basics (I don't profess to know everything - so feel free to correct me). Most people understand that you need to take risk to make money. The same thing holds true for Options. There are a number of risks that you can take to make money, but for this purpose, lets consider Delta, Theta & Vega.

Delta
It is hard to predict direction - the random walk theory. A stock can go up, a stock can go down and a stock can go sideways. Delta is the change in the option price at that instant for every dollar change in the underlying.
e.g If the delta on option XYZ at strike $30 is 0.50, then if XYZ stock went up to $31, then the option price on XYZ would move by $0.50. So in other words, your risk is driven by the directional movement of the underlying stock.

Theta
The longer the period till the options expiry date, the more the option is worth. As each day passes, the option is worth less and less - this is considered Theta Decay. Theta represents the decline in the options value as each day passes at that instant in time. Consider an insurance policy for 1 year vs an insurance policy for 6 months - as the cover period decreases, there is less risk and the policy is worth less.

Vega
The greater the expected move in the underlying the more expensive the option price. Consider the season... in regions where the weather is more volatile - tornado, flood, fire etc the higher the insurance cover will be vs a region which has predictable and calm weather.

How does this help me to make money?
You need to take on risk to make money. However, unlike in stock where 'Delta' Risk (directional risk) is the predominant driver in price, in options you can choose to minimise delta and take other risks to make money, such as Theta risk (time) and Vega risk (volatility). The theory says that the market is "efficient" and therefore everything should be zero sum game. But in reality, there are always irregularities. The purpose is not to pin point exactly when these occur, but to trade in the environment where these "irregularities" occur most.

Anyway, so if you wanted to 'minimise' directional risk - so rather than betting that a stock/index would go up or down, you can choose to bet a range. i.e I think stock XYZ at $30, will stay between $25-$35 for the next 45 days (so you would sell a combination of options to represent this). So as each day passes, the contract that you sell would be worth less and less, and you can then choose to buy it back at a lower price (cashing in the difference between what you sold it for, and what you bought it back for). In essence you are profiting from Theta Decay.

Lets consider another instance. It is chaotic, lets say the 'flash crash' that happened 24th Aug this year. Lets say that you were confident enough to bet that XYZ @ $30 would not be below $25 45 days later. Lets assume a few weeks later, the stock is still at $30 and now the market is all calm. In essence, volatility has decreased, so what you sold the contract for a few weeks ago is now considerably worth less (sure theta decay played a part) but also because volatility significantly decreased.

The theory is, that it can be better to take risk in 'Theta' (Time) and collapse in 'Vega' (volatility) while managing/minimising 'Delta' (directional) risk. Anyway, I'll leave this as a food for thought, and something you guys can research in your own time.

On September 22 2015 05:56 Baalim wrote: The wording he uses is so scammy.: "I have no skills, no knowledge and Im a dumb housewife but I made 25,000 last month! click here!" Just an observation not a judgement at all. I remember back in 2007 when I was reading Rekrul posts about making thousands In online poker I thought it was some sort of scam lol

lol yeah it's tough to convince people esp LP bros. That's why I want to convince just one to take a look at trading. Just no forex that thing is death.
One guy here who beats 50nl now consistently checks this out and learns in 6 months the proper way, please come back here and give this thread a bump OK?

^ LP'er who beats 50nl consistently? That will only be one or two people.

You are now probably thinking, right it is easier said than done.

Irregularities are impossible to identify... ?

Think about your poker stats tracker, where you have a small set of data that you refer to, things such as VPIP, preflop raise, cbet turn etc When anyone of these are too low OR too high you would adjust your strategy to exploit these flaws to increase your probability of profit but sure, you will get the suck outs here and there.

Same in options. There are basic things that you can look at such as underlying price (is it near highs, is it near lows), Volatility (is it too high, is it too low) in reference to say a period of 1 year period or you can get more complex and look at correlations between products such as Gold & Silver, Soy beans & Corn, Market Index & Bonds - if divergence/convergence is too narrow or wide, then you may choose to buy one & sell the other.

But there is always the chance of a suck out. So you trade small, but often. And you want to go into a trade with a higher probability of success, like it poker, how you'd want to go into a hand with playable/decent hole cards.

What is an example? - multiply dollar amounts by 100, as that is the amount of underlying you control for each option in the U.S market in most cases

Let's consider China stock market, represented by FXI (a tradeable ETF) in the U.S market. It's been as high as the $52.50 mark and in last few months has been driven down as low as $32.50 now currently at $36. Considering the yearly range, it is currently the 18 percentile of the trading range. At this point, you may decide, hey you want to trade it, because you think it as at the low end of its range, and you believe that it will go up.

How can you benefit?
- You can buy the ETF for $36, but you only have a 50/50 chance that the stock will go up and your maximum loss is $36 (if china's whole stock market goes bankrupt).
- You can cap your gain to $0.55 and sell a Put option with 38 days to expiry with a strike price of $32.50 with a 80% probability (meaning that as long as the stock is above $31.95, you will make a profit) and your maximum loss is $31.95 (if china's whole stock market goes bankrupt)
- You can pay $0.91 to buy a call option and hope that within the 38 days, the ETF will move above $38.41 with a 32% probability of profit (meaning that the stock will need to go above $38.41, and you will make a profit).

So what was the difference between the two trades?
Stock
- Your break-even point is $36. The ETF must trade above $36 and you must close out position to make a gain
- 50% chance of winning
- capital intensive
- max loss $36
- max gain is unlimited (it might sound fantastic, but realistically ETFs don't just "sky rocket".
- holding period - unknown.

Sell Put Option
- Your break-even point is $31.95. You will make the full $0.55 if the stock stays above strike of $32.50, otherwise the $0.55 will slowly decline and get to zero at $31.95 (i.e stock can go up, sideways or down, just not past $31.95).
- 80% chance of wining
- leveraged
- max loss $31.95
- max gain is $0.55
- holding period 38 days.

Buy Call Option - A BIG NO NO, but only as an example - It is like playing a 72o and trying to flop a monster
- Your break-even point is $38.41. Stock must go up and past $38.41 before you start making money.
- $0.91 fixed premium cost to control 100 stock, if it goes above $37.50
- max loss of $0.91
- max gain is unlimited (it might sound fantastic, but realistically ETFs don't just "sky rocket", and it needs to trade above $38.41 before you start making money).
- you are racing against time, and all of the above needs to happen within 38 days or you lose money.

Sure there are other things that you will need to consider when entering trades such as Volatility, up coming dividends, binary events etc, but the above is only meant to give an an illustration.
And of course, there are many different strategies that you would use depending upon what you are trying to exploit.

Anyway, do your research and have a look into it, if it fascinates you people.

On September 23 2015 07:49 lucky331 wrote: ^ LP'er who beats 50nl consistently? That will only be one or two people.

lol

I am sorry, but I cannot recommend this to anyone. Your own personal financial decisions are your own, but it is in my opinion that you should not trade options unless you really know what you are doing. It does not seem like you know what you are doing.

Did u read about that " EX-TRADER" guy, who bought some hiv medicines.
And raised the cost price of those pills from 8 $ to 400+ $ .

Hope we won'te turn into such douches :D

On September 23 2015 12:34 Zalfor wrote: I am sorry, but I cannot recommend this to anyone. Your own personal financial decisions are your own, but it is in my opinion that you should not trade options unless you really know what you are doing. It does not seem like you know what you are doing.

Trading/Investing is very personal, much like Poker. Jealousy, greed, fear and despair is still there. I really don't know anything about options and nothing is ever easy otherwise everybody would be rich. For me Commodities in my small part of the world is easier to learn and I know people belonging to a wide range of industries. So far my worst trading habits was to trade so frequently and I now see it with my other trader friends. Patience, discipline is so vital and as long as your Bankroll is not wrecked so far down you will be ok.

Full Ring players who can fold kings preflop are great candidates, you people know who you are Nits who know when to be aggressive typically will find it easier to deal with trading stocks. They don't give too much premium to ego and are as patient and disciplined as monks.

On September 23 2015 12:48 Siz123 wrote: Did u read about that " EX-TRADER" guy, who bought some hiv medicines. And raised the cost price of those pills from 8 $ to 400+ $ . Hope we won'te turn into such douches :D

What he did was buy the patent and he raised the price from 17.50$ per pill to 750$, because " the company wasn't profiting ". Sure I d get if someone created a HIV pills company that was working in loss, but I doubt it was that huge of a loss

Personally Poker was 100% money for me, I never enjoyed it but I loved the brotherhood and community that came with it. The game itself is fun but luck has so much to do with it. In trading, getting "lucky" can make you money to last a year, if you're smart, a set over set situation does not wipe you out, but if you've got a "lock" hand the rewards are ENDLESS. Poker does not give us that luxury, thus this is where the misery sets in.
I have lost more in a day in trading than I have in a months worth of Poker playing, but it's sooooo easy to recover psychologically because the things you learn from it keeps you from making the same terrible mistakes. You also have time to relax during weekends so even if you itched for a "weekend session" because all the fish are there, you can't do it. As I've said I'm a very undisciplined, weak minded person but I've handled trading surprisingly well, even in huge losses. I might lose money this year, I've gained 50% so far though but who knows right(I've lost -30% of my BR in june anyway)? I can be smart and keep the 50% or be greedy and go for the 400% or more- the freedom is like that, but I've become a better trader because of it adn when the markets turn around I'll be rewarded 100%. Learn to control entitlements with regards to paper losses, I never learned that in poker unlike most of you guys, but here it is so easy to accept.

Im turning 43 years old next year with a wife, 3 kids and my youngest has autism so its hard for me to balance everything, but im sure there's still time for me to make a good living out of this, im thinking you guys are probably averaging around 20s-to 30s, jesus christ time is so much on your side

Whamm what do u think is the % chance ur just high on life for being up 50% this year and actually a negligible winner at trading?

On September 24 2015 06:38 Smuft wrote: Whamm what do u think is the % chance ur just high on life for being up 50% this year and actually a negligible winner at trading?

this!
I am wondering as well. Looks like after NewbSaibot, everyone feels like risking big.

Your swings are too large Whamm, be careful. At the moment, my one max ~4-5% which is still too large also. Working on getting it down to 1-2% per trade.

gambling in the stock market. let's place our bets.

On September 24 2015 06:55 inde wrote: Show nested quote + On September 24 2015 06:38 Smuft wrote: Whamm what do u think is the % chance ur just high on life for being up 50% this year and actually a negligible winner at trading? this! I am wondering as well. Looks like after NewbSaibot, everyone feels like risking big.

What happened?

I think all of you being avid poker players should understand that trading isn't just like betting everything in roulette and let chance decide your fate. It's a zero sum game (imho), just like poker and it takes a certain strategy to "win" money consistently. What that strategy/style is would depend on what works for you. Again, very similar to poker in that sense.

I dabbled with it every now and then, and it's a good skill to try to learn and master.

I'll consider giving this a second thought again after someone explains thoroughly why it is they are able to make money trading the way they do. All i read is bla bla bla. Hooked on the forex scammy trading via technical analysis? good for you. There is no such thing as free money.

God have mercy on the soul who jumps in and tries to prove these disciples wrong. Thankfully time will do it for us. Please report back every quarter and let us know how you are doing.

Reference to similar threads - gold is a whopping 1153$ at the time of posting. bitcoins are 208$.

Bitcoins are at 232$ right now actually.

edit: https://bitcoinwisdom.com/