Getting close to a key spot (as posted a few weeks ago, forgot which thread)

I do have the weekly chart that I posted way back when.

quote:

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Originally posted by BBJ

Hi Tony, Jim

I'm beginning to learn about options, and have never traded an option contract.
Could you tell me for education purposes, the spy put strike price you bought, (the expiration date), and at what premium ?
How will you manage this put option ?
When will you move your stop ? Do you use a stop order in case you bought a put option (since your risk is limited to the premium) ?
Want to learn the parameters you guys look at when choosing the option to trade.

I'm looking to use "longer term" spy put options to trade the coming downleg (if triggered).(long put)
Timezone March-April 2010. Any ideas about the parameters I should look at when choosing a put option for this strategy ?

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Hi BBJ,
first let me warn u about optioms if u don't understand them don't play them!ok? this is my genuine friendly advice to you.They are a different beast on their own and if u don't have a controlled plan ,things can get out of hand quickly.
But if you decide, however, to get involved with options , wich I presume U might still want to mess with, then here are reply to your questions.
I bought a boat load of sep09 100 SPY put contracts (SWGUV) @$2.54 avg premium price, these are OTM puts but trading under $3 they are priced in 0.01 increments wich reduces the bid/ask spread for better liquidity pricing compared to 0.05-0.10 for the higher priced ones.
I also have some oct dec contracts with a mix of ITM ATM srikes.
my base strategy is straightforward directional options purchases.No writting.No combos except maybe straddles/strangles.
I use KT methodology and propietary tactics for timing my futures trades.But knowing the contract strikes and premium I paid for won't reveal you why I chose those contracts over other stikes or exp months...it is dependent on my own trading plan and what works for me won't work for you. Depending on the expected initial risks, context of the trade, and initial future movement expectations, I manage my options trades with a tight stop, in this case it would be a few ticks above the friday's HOD in ES. But I also parallely traded futures for short term intraday swings with the same entry timing procedures I used on the options.I do not play options if I feel the PTA isn't significant.I would just play futures for a reaction and then maybe more if im lucky enough.Any gain on th futures trade would offset the cost of a stop loss cost in the options trade.That way I don't have to move my stop too early or too close.This buys me a decent cushion to ride out the initial heat(think nether region) and volatile trigger retests etc before it actually trends more smoothly until I can decide on a trailing stop method.
Sound complicated but it really isn't.It's a hybrid scale out I guess wich mixes options and futures together. They can count as separate trades though but in the bigger picture of my trading plan they complement each other.
I only play options when I feel a have a solid edge and and good PTA to work with.It is no garantee things will play out favorably but a rock solid trade management plan will help you have better control over your trades and hence your bottom line.Disaster looms at every corners and compound that exponentially when options are involved.
The theorical risk for options is the premium paid, ok but, reality is options are mainly used by small retail traders as a leveraged instrument rather than an asset hedging tool(unless you hold a huge stock position and don't want to a take short-term cap gains hit on your taxes).So to risk your whole premium, however cheap it may seem to you, is foolish and if it ever goes to zero then it's just stupid and somehting you should never let happen.
The price movements in the underlying issue is the main money maker for options purchases.The greeks,deltas thetas vegas gammas etc alter the options pricing a little but not in a significant enough way in the short term.So in a directional trade your trade management should focus on the timing and price action on the underlying. I personally prefer ITM, 70% or more in delta for my strike prices and enough time until expiry, back month or front month if more than 20 days til expiry.The last week before exp. must be avoided if possible because the time decay factor kicks in and may just neutralize ur reward potential.Options seem complex and all but after a while u get the concepts down and it become clear how they work.Read a few books on options, they all say the same things on how they works etc and some attempt to make it sound like easy big bucks in up or down markets or sideways etc...most of it IMO is BS. Unless you re loaded with millions in trading capital, playing volatility, calendar spreads, backspreads, butterflies condors etc or any combos will just make you bleed more money.You're better off keeping things as simple as u can because it's not worth the execution headaches.
Options are just flexibility tools for your trading plan.Playing options alone is rather difficult if you dont have a disciplined approach and trade plan that deals specifically in options trading.
There are so many theories and angles to learn about options but the in real life , practical trading, options are just an enhancing tool to your trading.Focus on having consistent timing and have a well thought out management plan.

Sorry for the long read here but I want to really stress to you the dangerous nature of options. It's like handling dynamite with the fuse lit up. ya better know what you're doing!

LEAPS are long term expiry options that can be played instead of the cash index or common stock.For my part I just rollover to next expiry until full a full exit out of a trade.If u plan to get on board the short side or maybe long side in SPX , where is your setup?where is the initial stop loss?context?is worth your risks? what do you expect out of the trade as far as price action?what time frame?etc etc...ask yourself some legit questions and plan accordingly...you must have a calculated edge!
ok, better stop here cuz I can go on and on talking about trading...
more questions? no problem.I'll answer whenever I can.

Regards,
T

BBJ
PS: I was talking about American-style options , not european-style.

another important aspect when selecting options, imo, is open interest. You don't want to buy options with low open interest.

Hi Tony,

Thank you for taking the time to share your knowledge and experience.
It's very much appreaciated.
Have been reading up on some options material I have, both basic and "advanced"/practical (options usage by the street, etc...)

Regards,

Doink! hit the goal post... Wave2 completed in globex pre-market then went swoosh!
awe$ome

Yes, T, I just commented such in Jim's Thoughts. Recall I said watch 1009-10, maybe 11, and it hit 1010.75 and swooooooosh. We got this sucker nailed, haven't we? Great work. And some still argue it's all random.

yep.Now it's cliffhanging until the feds kick the market in the nutsack. Im leaning towards wave3 action rather than CD leg right now... i can't see myself buying the dips at this stage but hey they've been so good at pumping it lately so we'll see..I like my odds on the sell side right now since Im rolling with the house's money.From where I got it, a stop out now would not hurt my bottom line one bit.Foregoing the small gains for a chance to hit bigger prize at no cost is a sweet deal to me.All or nothing kind of deal.Im letting the Puts get fat while im squeezing those juicy futures contracts intraday.I missed the pop in the DX though but that gave me early information on a turn coming up in the SP. And indeed it was useful.

Flat on the 5/3min ES ... next is DBabcd

oops this isn't the daily ES thread sorry.
btw, the DB's CD leg stopped cold right at its 1.618 ext ret area.

yes to the trendline creep.
higher timeframe chart for clarity