Jump to content
  • The fancy equity derivatives vol arb thread... a.k.a. Options trading extravaganza


    52-80

    Ladies and gentlemen, welcome to the road to degeneracy.  Without having to reinvent the wheel, and then writing a book about reinventing the wheel, i'll just sprinkle some starter yeast and, like a beautiful acid trip, we'll see where it  takes us....

    Why options trading

    • Leverage.  You can control a lot more stock for $.
    • Flexibility.  You can play any sentiment - bullish, bearish, neutral - and you can pick and choose the risk-reward!  Instead of just choosing a safe vs risky stock, for any given stock, you can choose how much you want to lever its movement.
    • Engagement.  Options have an element of time expiration in their construction, which obliges you to stay in (somewhat) active and engaged in the market.

    What are options

    • These are contracts that grants the contract holder the right (but not the obligation) to buy or sell 100 units of stock at an agreed price, before a certain date.
    • It has these elements: Strike price, Expiration date
    • Call option - contract holder can buy ABC stock from contract seller.  option buyer "calls" the shares away from sellers' account
    • Put option - contract holder can sell ABC stock to contract seller.  option buyer "puts" the shares in sellers' account.
    • Options are tradeable instruments like units of stocks.  For our practical purposes, we don't really worry about the above (yet).  We buy when cheap and sell when high.  Or sell when high and buy when cheap.

    How do you price options?  (i.e. what is cheap?)

    • If you're a nerd, you'd invoke the Black-Scholes equation.  If, like me, you failed 9th grade trig, you can think of it in more simple abstract terms:
      • options premium = Intrinsic Value + Extrinsic Value = (Strike$-Stock$)+(Volatility*Time)

    Take Apple, which is 135$ right now.  How much would you pay to have the right to purchase shares of Apple for $130/share at anytime....

    • before the end of the week?
      • At least $5/share, because this agreement already has $5 of intrinsic value (135-130), and youre paying for the chance Apple might run up higher.  This contract is at 5.25 right now
    • before the end of the month?
      • More than the above, because there is more time value (the extrinsic) in the contract.  This contract is at 7.45 right now.

    How do I profit from this information?

    • The cro-magnum approach is if you think AAPL goes up, you buy the call options for leverage, and if it does go up, you can sell it for higher profit % than trading the shares, using same cash.  (sometimes).  It requires the right conditions to be profitable.  I trade this way this sometimes.
    • The real approach is to exploit changes in extrinsic value, buying when low, and selling when high.  This is based on the fact that expected future volatility is almost always higher than actual realized volatility, meaning options often cost more than they're mathematically worth.  So I sell an option, then later buy it back when it becomes cheaper or worthless.  I trade this way all of the time.  Think of it as selling overpriced insurance.
    • As stated above there is a million ways to trade options, which is the beauty of it, but overwhelmingly i sell overpriced options, and sometimes pounce on buying underpriced options.

    Where do I trade options?

    Basically any broker will allow it.  But you first have to request permission to trade options.  They're typically bracketed into different levels of approvals which grants you more exotic strategies and ways to bankrupt yourself.  All it takes  is a quick questionnaire where you lie and tell them you have an undergrad from Booth and an MBA from Wharton.

    For my money Tastyworks is a very clean options-centric platform for active trading, but all the other guys should be good as well.


    User Feedback

    Recommended Comments



    Just ran 10 contracts on a bull call spread on the RIOT weeklies at the 48 and 60 strikes for 2.63.  Hoping for a rebound in cryptos the next few days.  We shall see.  

    Link to comment
    Share on other sites

    4 hours ago, Chapo said:

    Going back in the well, sold 3/19 RKT $17 P and 4/16 BIGC $60 P.

    I’m in on that RKT. 
     

    Rough day for everyone, but very few of my short puts breached ITM. It feels *slightly* better knowing you can wait out the market while theta going in your favor. 
     

    (would feel much better if I had spare cash to act on the dip)

     

    I’m also in on on SQ with a call debit spread aka bull call spread. Thought they would announce really healthy balance sheet with crypto marked-to-market. But that’s before crypto took a dive,,,,ans SQ apparently bought a ton at 51k. Wow. 

    Link to comment
    Share on other sites

    My options, except for Ford, are all in the red.  I did calls, and the market plunged.  All are 4/16 or later.  Have the following:

    10 4/16 ICLN $33C @ 0.43 (currently at 0.35)  

    1 4/16 IDEX $5C @ 1.02 (currently at 0.67)

    5 6/18 ADMP $4C @ 0.25 (currently at 0.20)

    5 6/18 F $13C @ 0.832 (currently at 1.01)

    Then I have a lot of UUUU plays

    5 4/16 $8C @ 0.53 (currently at 0.45)

    4 7/16 $6C @ 1.575 (currently at 1.58)

    2 7/16 $8C @ 1.20 (currently at 1.08)

    Want to close some of these, but need a market pick up.

    Previously, I had closed a couple of SNDL positions where I made a lot of $$$, but I also closed an MJ and OGI position where I lost money as I didn't get out before the bleeding.  

     

    • Hook 'Em 1
    Link to comment
    Share on other sites

    4 hours ago, Trey3216 said:

    Looks like my RIOT spread may hit max profit today

    Can you post how you accomplished that spread?  I am still learning on this front, and I am one that actually models it to understand the play.  

    Link to comment
    Share on other sites

    3 minutes ago, 52-80 said:

    Gamble with a buttload of near-expiry RIG calls almost paid off.  took crap yesterday.  working its way back now.

     

    also bought some leaps of CVS calls

    I have been looking for some leaps.  I have been contemplating a ST Workhorse play, but I am gunshy at the moment.

    Link to comment
    Share on other sites

    7 minutes ago, PenelopeWitherspoon said:

    Can you post how you accomplished that spread?  I am still learning on this front, and I am one that actually models it to understand the play.  

    When I typed that, RIOT was trading over $58 in the pre-market.  

    So the trade I made was I bought $48 strike calls for $3.51 and sold $60 strike calls for $.88.  Net cost to me was $2.63.  If RIOT were to go to 60 by friday ( it was trading in the mid 70's monday), my 48 strike calls would be worth 12 and the 60 calls would be worth 0, so my net would be $12/sh, or a 4.58x gain on my position.  

    • Like 1
    Link to comment
    Share on other sites

    1 hour ago, Chapo said:

    Just curious why you are bullish? seems like it is at the top range when looking at 3-5 yr chart

    better gross margins than walgreens.  healthy balance sheet.  pcr testing and vacc distribution.  and i need more stable symbols to balance out my meme-portfolio.

     

    LT im more bullish in semiconductors

    Link to comment
    Share on other sites

    3 hours ago, Trey3216 said:

    When I typed that, RIOT was trading over $58 in the pre-market.  

    So the trade I made was I bought $48 strike calls for $3.51 and sold $60 strike calls for $.88.  Net cost to me was $2.63.  If RIOT were to go to 60 by friday ( it was trading in the mid 70's monday), my 48 strike calls would be worth 12 and the 60 calls would be worth 0, so my net would be $12/sh, or a 4.58x gain on my position.  

    So how did you pick a company to use this strategy on?  What expectation should you have on the stock to want to implement this strategy?

    This is exactly what I want to do, multiply my investments.  

    Tweed Chanel jackets are not cheap.

    Link to comment
    Share on other sites

    3 minutes ago, PenelopeWitherspoon said:

    So how did you pick a company to use this strategy on?  What expectation should you have on the stock to want to implement this strategy?

    This is exactly what I want to do, multiply my investments.  

    Tweed Chanel jackets are not cheap.

    I like to look at companies whose stock I wouldn't mind owning, but want to own it on a cheaper basis.  I also look at momentum plays.  TLRY has several gaps that it could/should fill if there were some news to break (Virginia trying to get legislation done by this weekend for new weed laws for instance).  Then I try to find where the money works enough to give me a really nice return while also gaining some benefit from selling the higher call option.  RIOT worked in this instance because it is trading wildly with the price of BTC and other cryptos.  It traded up to $79.45 last wednesday and got abused yesterday and Monday due to the BTC pullback.   

    Link to comment
    Share on other sites

    2 minutes ago, Trey3216 said:

    I like to look at companies whose stock I wouldn't mind owning, but want to own it on a cheaper basis.  I also look at momentum plays.  TLRY has several gaps that it could/should fill if there were some news to break (Virginia trying to get legislation done by this weekend for new weed laws for instance).  Then I try to find where the money works enough to give me a really nice return while also gaining some benefit from selling the higher call option.  RIOT worked in this instance because it is trading wildly with the price of BTC and other cryptos.  It traded up to $79.45 last wednesday and got abused yesterday and Monday due to the BTC pullback.   

    So, let's use Tilray for example.  If we think that Virginia gets that legislation put together, then 3/19 calls would work.  So you would buy a call just out of the money, maybe a 27.5 or 28 call, and sell a call at what level, 50 or 60?  Or would you do even shorter term?  What am I missing? 

    Link to comment
    Share on other sites

    7 minutes ago, PenelopeWitherspoon said:

    So, let's use Tilray for example.  If we think that Virginia gets that legislation put together, then 3/19 calls would work.  So you would buy a call just out of the money, maybe a 27.5 or 28 call, and sell a call at what level, 50 or 60?  Or would you do even shorter term?  What am I missing? 

    I would buy one close to in the money or just out of the money, say a 29, and probably a 40.  But I'd buy the options for next week.  Right now, that would be a net debit of $1.40/contract.  So 10 contracts for 1400.  If it runs to 40, your position is worth $11k.  

    Link to comment
    Share on other sites

    1 hour ago, 52-80 said:

    better gross margins than walgreens.  healthy balance sheet.  pcr testing and vacc distribution.  and i need more stable symbols to balance out my meme-portfolio.

     

    LT im more bullish in semiconductors

    I hear you on the meme stocks. I'm taking penny stock profits and took the opportunity to buy OTM 2023 Leaps on AAPL and AMD. Expensive but sooner or later they will hit ATH

    Link to comment
    Share on other sites

    3 minutes ago, Trey3216 said:

    I would buy one close to in the money or just out of the money, say a 29, and probably a 40.  But I'd buy the options for next week.  Right now, that would be a net debit of $1.40/contract.  So 10 contracts for 1400.  If it runs to 40, your position is worth $11k.  

    Would you be exiting these positions or letting them expire?  And if it runs to 40, the call you sold is in the money.  Do not think someone would exercise, but...

    Link to comment
    Share on other sites

    26 minutes ago, PenelopeWitherspoon said:

    Would you be exiting these positions or letting them expire?  And if it runs to 40, the call you sold is in the money.  Do not think someone would exercise, but...

    If it runs to 40 on next friday, the call is theoretically worth 0.  It is only ITM if it's more than 40.  But your call that you own at the lower strike would be even more in the money, and by the amount that the call you sold is in the money.  so if the stock were at 40.15, then your 29 is worth 11.15 and your 40 is worth -.15.  So it's worth 11 net, which is all that matters.   

     

    I'd exit before expiry.  

     

     

    Link to comment
    Share on other sites

    Other trades from today:

    L 50 TLRY 30 strike weekly calls @ .56.  Sold at 1.10

    L 15 TLRY 29 strike weekly calls @ .41. 
    Sold at 1.26

    still holding my RIOT vertical spread.   It bounced around from being up between 80-150% today.  I think it pushes back toward $60/share by Friday and I collect max gain of $12.  
     

    still holding 10 Mar 21 TLRY 32.50 strike calls at $2.00.  Closed the session @$3.55 and the stock was pushing up nearly $2 AH.   Could open over 30 which would put this option near $6 or better.  

    Link to comment
    Share on other sites

    18 minutes ago, Hank_Hill said:

    We going all in on high IV GME calls tomorrow or wut

    I’m eyeing some.   I may try to chase some other names that could ride the wave, or I’ll just go loco and fuck around and find out with some of my TLRY crack profits

    Edited by Trey3216
    Link to comment
    Share on other sites

    1 hour ago, Hank_Hill said:

    We going all in on high IV GME calls tomorrow or wut

    correct breaking bad GIF

     

    The 800 weeklies went from .01 to 1.44 in an hour this afternoon. Nothing better than FOMO'ing in the next day after the move has been made. 

    • Hook 'Em 1
    Link to comment
    Share on other sites

    7 hours ago, Lobwedgephil said:

    correct breaking bad GIF

     

    The 800 weeklies went from .01 to 1.44 in an hour this afternoon. Nothing better than FOMO'ing in the next day after the move has been made. 

    sell the 25, 30, 35, 40, 45 puts

    if IV continues to go more nuts, it might take a while for the position to become profitable.  if it doesnt, you'll profit (by buying back the puts for cheaper) from IV deflate alone.  there is -- it should be decently clear now -- extremely low risk of the stock cratering lower than those prices

    Edited by 52-80
    • Hook 'Em 1
    • Like 1
    Link to comment
    Share on other sites

    17 minutes ago, PenelopeWitherspoon said:

    So which trading platform is the best to use?  

    The one that locks you out from trading so you don't chase positions.  Glad I sold most of my stuff yesterday afternoon, but taking it on the chin today.  

    Link to comment
    Share on other sites

    Currently staving off a completely horrendous day with some UVXY calls that I've more than doubled up on.

     

    Bought 20 5 March 8 strike calls for .81.   Currently at 1.82.  

    Still down about 20% today even with that luck.  

    Link to comment
    Share on other sites

    12 minutes ago, PenelopeWitherspoon said:

    LOL.  Yeah, my accounts look like shit again today.  Tired of this.

    Same, I am tied up in some long calls and straight stocks that are currently stonked.  

    Check out AKBA.  Buddy of mine put 90% of his very nice portfolio balance on it and fully expects to be able to "retire" by end of the year if he wanted too.   I doubt he will as he's C-suite making bank and legit experience that will keep him in the bank for a couple decades.

    Another long play is UWMC - mortgage company.  Bunch of analysts are buy.  I expect them to jump a good bit, need to hit 10.64 and stay above and I'll make a few k off it.  The feb crash has been brutal.

    Edited by Doc Holliday
    Link to comment
    Share on other sites

    1 hour ago, PenelopeWitherspoon said:

    So which trading platform is the best to use?  

    Think or Swim or Tastyworks

     

    I grabbed a bunch of Gamestop Friday 800C for ~2$.  Filled early in the morning when price was just yoyo'ing.  Flipped them for ~3 until I broke even.  Now holding on the remaining in case price goes totally retardo at close/AH and can flip them for real money tomorrow.

     

    That was the only fun of the day... rest of portfolio sucked ass.  long SQQQ and UVXY and VXX helped, but not enough

    Link to comment
    Share on other sites

    33 minutes ago, 52-80 said:

    Think or Swim or Tastyworks

     

    I grabbed a bunch of Gamestop Friday 800C for ~2$.  Filled early in the morning when price was just yoyo'ing.  Flipped them for ~3 until I broke even.  Now holding on the remaining in case price goes totally retardo at close/AH and can flip them for real money tomorrow.

     

    That was the only fun of the day... rest of portfolio sucked ass.  long SQQQ and UVXY and VXX helped, but not enough

    I tried to do that too, and could not get the fuckers filled.  Oh well.

    Link to comment
    Share on other sites

    1 hour ago, Doc Holliday said:

    Same, I am tied up in some long calls and straight stocks that are currently stonked.  

    Check out AKBA.  Buddy of mine put 90% of his very nice portfolio balance on it and fully expects to be able to "retire" by end of the year if he wanted too.   I doubt he will as he's C-suite making bank and legit experience that will keep him in the bank for a couple decades.

    Another long play is UWMC - mortgage company.  Bunch of analysts are buy.  I expect them to jump a good bit, need to hit 10.64 and stay above and I'll make a few k off it.  The feb crash has been brutal.

    Did your friend say that about AKBA before or after their earnings call today, since they missed earnings by 20 cents per share.  Interested, because I am going to do some due diligence and see if it is something I am game on doing a long term option play on.

    • Hook 'Em 1
    Link to comment
    Share on other sites

    He shared last week prior to the earnings call. 

    Yes, he's dug into the research on it.  He's a finance guy as it is and why he went so hard.  He thinks their pipeline is going to blow up at some point this year. 

    I put 100 in to watch it for a little bit and yeah, it took a hit too.

    Edited by Doc Holliday
    Link to comment
    Share on other sites

    2 hours ago, Trey3216 said:

    Currently staving off a completely horrendous day with some UVXY calls that I've more than doubled up on.

     

    Bought 20 5 March 8 strike calls for .81.   Currently at 1.82.  

    Still down about 20% today even with that luck.  

    Bought some 25 Feb $10 strike calls for .06. this morning. Sold 1/3 for .26, another 1/3 for .68  still have the last 1/3. 

    • Like 1
    Link to comment
    Share on other sites

    I was stuffed out on GME and AMC calls, which would have made me $$$ this AM.  Fuckers.

    Also, did not buy calls in Workhorse early in the day (was waffling on pulling the trigger).  Given what happened in power hour, major fuck up on my part.

    Holding the following:

    10 4/16 ICLN $33C @ 0.43

    3 4/16 IDEX $5C @ 0.68 

    5 6/18 ADMP $4C @ 0.25

    5 6/18 F $13C @ 0.832

    Then I have a lot of UUUU plays

    5 4/16 $8C @ 0.53

    4 7/16 $6C @ 1.575

    2 7/16 $8C @ 1.20 

    Want to close some of these, but need a market pick up.  Currently, everything red but Ford.  

    I am not comfortable enough with any other options at the moment, so I am sticking to buying calls until I get better at this.  

    Link to comment
    Share on other sites

    Caught the falling knife on cciv yesterday then flipped 25% this morning... doesn’t make up for the shit show else where though. Blood bath.

    Tried to time the bottom today on AAL and CCL with some 3-4 month out ITM calls, aal already hitting.

    Otherwise HEAVY action on EVFM March calls

    Link to comment
    Share on other sites

    21 minutes ago, bluto said:

    Caught the falling knife on cciv yesterday then flipped 25% this morning... doesn’t make up for the shit show else where though. Blood bath.

    Tried to time the bottom today on AAL and CCL with some 3-4 month out ITM calls, aal already hitting.

    Otherwise HEAVY action on EVFM March calls

    Yeah, I was going to go in on CCIV yesterday, but I decided to hold off until the AM to see if the fall continued.  Hind sight is ALWAYS 2020.  :(

    Link to comment
    Share on other sites

    6 hours ago, bluto said:

    Caught the falling knife on cciv yesterday then flipped 25% this morning... doesn’t make up for the shit show else where though. Blood bath.

    Tried to time the bottom today on AAL and CCL with some 3-4 month out ITM calls, aal already hitting.

    Otherwise HEAVY action on EVFM March calls

    i went short on AAL, UAL, LUV, CCL, and other travel stuff via long puts.  flipped them intra day for gains.  i think the travel sector will continue to be a bloodbath, worse than equities.  IATA forecasts are worse than expected.  airline cash burn are twice as bad as projected. etc etc etc

    Link to comment
    Share on other sites

    So, I tried the strategy I missed out on yesterday this AM with GME and AMC.  It did not go well.  Sigh.  Oh well, ST Cap Losses to offset ST Cap gains.  

    I just bought 5 135C AAPL for 3/26.  I think AAPL is cheap right now, so wanted to see if I can make a profit off of it.  

    Link to comment
    Share on other sites

    11 minutes ago, PenelopeWitherspoon said:

    So, I tried the strategy I missed out on yesterday this AM with GME and AMC.  It did not go well.  Sigh.  Oh well, ST Cap Losses to offset ST Cap gains. 

    The most important thing is, you lost money alongside your friends, and had fun doing it. 

    • Hook 'Em 1
    • Haha 1
    Link to comment
    Share on other sites

    Options noober seeking advice on a trade I made that isn't looking so smart right now. I need to practice for a few weeks in my paper trading account but I got my feet wet on a single contract. It won't kill me to get burned on it but I'd prefer to employ a halfway intelligent strategy from here. 

    I bought a 19 March CURI $15 call for $4.10. I like the stock (closed at $17.31 yesterday) and think it will go up but I'm down right now of course and I'm looking at the erosion of time decay. What would you recommend I do from here?  TIA. 

    Link to comment
    Share on other sites

    56 minutes ago, Gourmand said:

    Options noober seeking advice on a trade I made that isn't looking so smart right now. I need to practice for a few weeks in my paper trading account but I got my feet wet on a single contract. It won't kill me to get burned on it but I'd prefer to employ a halfway intelligent strategy from here. 

    I bought a 19 March CURI $15 call for $4.10. I like the stock (closed at $17.31 yesterday) and think it will go up but I'm down right now of course and I'm looking at the erosion of time decay. What would you recommend I do from here?  TIA. 

    When you long a single leg option, you take a directional view. 
     

    The only thing that matters now is the view going forward - how much you forecast the stock will be, and when. 
     

    Then you can evaluate whether your option will gain or lose value relative to today (obv what happened in past no longer matters). Delta * price change vs days * theta. (This is a simplistic approximation assuming linear relationship…you can use online options calculator to do it better)

     

    Because time erosion accelerates towards expiration, you only buy near-term options if you are very certain of the stock movement. If you want to express long term view, buy longer-term stuff  (“leaps”) where the erosion is lower and gives more time for the view to play out. 
     

    If you think stock will go down or stay flat, sell the call and cut your loss. 
     

    If you are hopefully it go will up, but don’t think it will go up that high and quickly, sell (short) a March 19 call at, say, $22.5 strike.  You effectively turn your long call into a long call spread.  The short 22.5c has offsetting effect on your long 15c. If price blasts above that, it limits your gain. If it doesn’t, it reduces your total theta loss. 

    • Hook 'Em 1
    Link to comment
    Share on other sites

    thanks, @52-80 I will probably see what the market does the next week and maybe cut my loss and sell puts on that underlying stock instead. Coincidentally, I was just reading up and watching youtube videos on vertical call spreads as well so I think that will be something I might test out in my paper trading account when the market opens Monday. Now, just for educational purposes, how smart/dumb would it be to roll over the trade to April 16 at a 17.50 strike and get a small credit thereafter? I think you traders call that "rolling until you're right"?.....

    Link to comment
    Share on other sites

    Rolling a long position is still maintaining a long position and thus, still requires that you establish a price and timing target to estimate profitability. 
     

    Receiving a (small) credit shouldn’t be the incentive/determinant to roll, because it’s sort of ofuscating/masking the fact that you will close/mark a loss on existing position. 
     

    The net effect of a roll is opening a NEW long April 17.5c. Does that in itself make sense to do? If it does based on your forecast (and it very well may), then go ahead and roll. If it doesn’t, don’t. 
     

    What happened since you bought the March 15C until now is already passed, and the effect doesn’t change whether you close it independently or “package” it in a “roll”

    Link to comment
    Share on other sites

    i went short on AAL, UAL, LUV, CCL, and other travel stuff via long puts.  flipped them intra day for gains.  i think the travel sector will continue to be a bloodbath, worse than equities.  IATA forecasts are worse than expected.  airline cash burn are twice as bad as projected. etc etc etc

    Fingers crossed this jnj vax approval provides a sentiment boost to cash in on Monday. Also back heavy on xom calls after cashing the initial batch last week.
    Link to comment
    Share on other sites




    Join the conversation

    You can post now and register later. If you have an account, sign in now to post with your account.

    Guest
    Add a comment...

    ×   Pasted as rich text.   Paste as plain text instead

      Only 75 emoji are allowed.

    ×   Your link has been automatically embedded.   Display as a link instead

    ×   Your previous content has been restored.   Clear editor

    ×   You cannot paste images directly. Upload or insert images from URL.




Ă—
Ă—
  • Create New...