6 ms·

Hi there. I buy options all the time. I make lots of money doing it. You only need a 1 to 2% change in price to make decent money when working with options[1].

by dkhenry 14y ago

Hi there. I buy options all the time. I make lots of money doing it. You only need a 1 to 2% change in price to make decent money when working with options[1]. I don't know why you quote 5-7% as that's just not true. Even if it was Stocks regularly move by that amount on a weekly basis. I know it may not be much to some, but I made over 50k doing one or two options purchases per month last year ( 2011, 25k base investment). I had to stop this year due to me needing to liquidate my portfolio to free up some cash, but what your saying is verifiably false. 1. As of 13 November 2012 GOOG dropped by ~1% a $650 put options rose in price by $1.70 had you owned just one contract you would have made $170 your outlay for that would have been $1180 a one day gain of ~15% even subtracting the trading fee of $10.00 to buy and $10.00 to sell you made $150 for a $1180 outlay or 12% in one day on one stock. This particular transaction is very risky as there is no hedge against a decrease in the put price. You can do that, but it will take more time to explain then I have right now. My napkin math tells me you could have placed a less risky trade and make a cool $100 on a 1% change with a 1K investment (i.e. 10%) on one day with minimal risk (risk is if stock isn't volatile enough or trailing stops are set wrong) .

confluence 14y ago
> a cool $100 on a 1% change with a 1K investment Don't lie - the vast majority of options expire worthless. Your argument is like saying: "Oh if you buy that piece of shit penny stock and it goes up 1 penny - you'll double your money - no cash down!". Sounds an awful lot like a scam to me. There are no free lunches. Anyone who say's otherwise - is lying.
- dkhenry 14y ago
  expiring doesn't have a thing to do with it. I bought and sold the security on the same day. Also most don't expire worthless, about half expire worthless the other half expire with marketable value
  - confluence 14y ago
    Factor in time decay and rapidly falling risk value and you'll see my point about being worthless. The intrinsic value of options is almost always an order of magnitude less than what you pay for it (at the money - most liquid). Being worth 10% what you pay for something is not marketable value.
    - dkhenry 14y ago
      Verifiably false. Look at the November 17th $600 Call option for GOOG today. Its selling for $59.40 it has an intrinsic value of 59.05 and a time value of $0.35. In this case the time value is two orders of magnitude _less_ then the intrinsic value. That's just one example to prove my point. Your whole concept of options is bad, and you should feel bad
      - confluence 14y ago
        I said at the money not deep in the money genius. That call is almost a stock. Most options are traded at the money and most of the money is made there too. My statement is true.
        dkhenry 14y ago
        So if you buy a option that by definition has _only_ time value, then by definition it will have very little intrinsic value. However contrary to your assertion most options are not traded there As of today (14 November 2012) on GOOG the at the money had the highest number of contracts traded at it ( ~350 at 660 ), but the total number of GOOG contracts traded was ~1100 so at the money was not even half of the contracts traded. I will leave these two links here one is to the google finance page so you can have a clue about what your trying to debate the second is to the definition of majority since you don't seem to know it 1.http://www.google.com/finance/option_chain?q=NASDAQ:GOOG&ei=c6-jULjeEobE0AGeCQ http://www.google.com/finance/option_chain?q=NASDAQ:GOOG&#38... 2. http://www.merriam-webster.com/dictionary/majority http://www.merriam-webster.com/dictionary/majority
astrodust 14y ago
You're playing with nuclear weapons. If you stand to make $10K profit, you're exposing yourself to a much more massive downside. Being extremely careful will only prolong the inevitable crunch. You're betting on a 1% hike that might be a 5% drop because some idiot in a bus ran over someone important. That 5% drop could clean you out. If you're betting on sure things, which means you're cheating somehow, then options are your best bet. Hey, if it works for you, you've got a good racket going, but most people will be absolutely destroyed.
- dkhenry 14y ago
  Here is the quick and dirty recipe for making money off volatility. Buy a put and a call option for the same strike price. On both options place a trailing stop at a fixed point ( <- that's where skill / statistical analysis comes in ) After one of those two orders execute cancel the second order and place a new trailing stop at a lower value to prevent additional loss. If the stock goes up you sell the put and ride the call until the price drops or you liquidate. If the stock falls you sell the call and ride the put. Your risk is total to the loss in time value of the option for the duration of your trade , and is capped at a maximum of the sum total of the two trailing limits on your initial purchase. If you would like me to run the numbers for it please give me a security and I can even tell you where to set your puts ( I have computer programs I use to calculate reasonable stops , and execute this particular strategy )
  - astrodust 14y ago
    So basically you can lose everything you put in. This is a slot-machine strategy. It's a load of crap. Anything bought on margin or of a derivative nature is like this. You can bust out hard. The thing with buying an actual security is a 5% drop is only a 5% drop in value, whereas in an option a 5% drop could translate to a gigantic liability.
    - dkhenry 14y ago
      trailing stops limit your risk to a percentage of your initial investment. Its the same thing as with purchasing a stock. That investment can also lose all its value overnight. Its less likely to happen ( less risk ) and its also less likely to really increase much ( less reward ). All options do is scale up the risk/reward.
gfodor 14y ago
Nobody is arguing about the long side of options being "oh god run for the hills nuclear weapons dangerous", they are arguing that about the short side (or certain complicated strategies that are long-short.) The long side is just a suckers bet, but it's a relatively low risk one. You buy a $1000 call -- most of the time you lose the $1000. Sometimes you break even. Rarely you make a little money. Once in a blue moon you 2 or 3x your money. (These are the instances you remember and hence you keep buying calls.) In the long run, you lose money (academic studies have shown this.) Where you can really get screwed is going (naked) short. Lets say you shorted a "modest" $1000 worth of out-of-the-money GOOG options today with a 8% spread from strike. The $600 Dec 22nd puts right now cost $2.80, so you'd sell 4 contracts for $1120. 8% is plenty of cushion, right? As long as GOOG's price doesn't go down more than 8% before expiration, you'd have $1120 in your pocket. That's a huge drop and highly unlikely. An easy $1120, right? It worked last month and the month before, so why not this time? But oops, lets say just like last time GOOG's earnings leak early because someone fat fingered an email or something, and the stock took an instant 12% haircut. That extra 4% below your strike price just cost you approximately $24 per share. You had 4 contracts, so your options were against 400 shares. You just lost $24 * 400 shares = $9600 in order to make an "easy" $1,120. Now, consider the fact that many people are going to be looking to make more than $1,000 a month when trading options. More like $5,000-$10,000. Guess what -- if the market systematically crashes by 10% over a few days because Ben Bernanke sneezed during a speech you could be in the hole for hundreds of thousands of dollars depending on what positions you've taken. Also, if you were to buy closer to-the-expiration options (say, ones expiring next week as opposed to next month), the per-contract costs go down by approx a factor of 10, so you have to sell 10x more contracts in order to get the same gain. But guess what, if your luck is particularly bad and something goes horribly wrong, you can multiply your losses above by a factor of 10. (Yes, Virginia, with options it is possible, nay, easy to have a 10,000% loss in a few minutes on a bad day.) That's how you can get fucked. You keep selling short puts on positions you can't really cover comfortably, and rake in the dough. And then on one sunny otherwise uneventful autumn afternoon something weird happens, and Vegas, er, I mean, Wall Street, takes it all back, and much more.
- confluence 14y ago
  Great comment gfodor. I like to think of it like this. Buying options is like gambling at a casino. Statistically you will just keep losing money because the house always wins - they have the edge - unless you play a game like poker with a bunch of suckers - where the casino still takes a nice chunk of your change. Selling options is like being a casino without the ability to know what the statistics of the underlying distributions or their payoffs are. Nor do you have the ability to kick a guy out if he wins too big and too often. It's a casino without the control. And a casino without control - is a casino that goes bankrupt.

by dkhenry 14y ago

confluence 14y ago

> a cool $100 on a 1% change with a 1K investment Don't lie - the vast majority of options expire worthless. Your argument is like saying: "Oh if you buy that piece of shit penny stock and it goes up 1 penny - you'll double your money - no cash down!". Sounds an awful lot like a scam to me. There are no free lunches. Anyone who say's otherwise - is lying.

dkhenry 14y ago
expiring doesn't have a thing to do with it. I bought and sold the security on the same day. Also most don't expire worthless, about half expire worthless the other half expire with marketable value
- confluence 14y ago
  Factor in time decay and rapidly falling risk value and you'll see my point about being worthless. The intrinsic value of options is almost always an order of magnitude less than what you pay for it (at the money - most liquid). Being worth 10% what you pay for something is not marketable value.
  - dkhenry 14y ago
    Verifiably false. Look at the November 17th $600 Call option for GOOG today. Its selling for $59.40 it has an intrinsic value of 59.05 and a time value of $0.35. In this case the time value is two orders of magnitude _less_ then the intrinsic value. That's just one example to prove my point. Your whole concept of options is bad, and you should feel bad
    - confluence 14y ago
      I said at the money not deep in the money genius. That call is almost a stock. Most options are traded at the money and most of the money is made there too. My statement is true.
      - dkhenry 14y ago
        So if you buy a option that by definition has _only_ time value, then by definition it will have very little intrinsic value. However contrary to your assertion most options are not traded there As of today (14 November 2012) on GOOG the at the money had the highest number of contracts traded at it ( ~350 at 660 ), but the total number of GOOG contracts traded was ~1100 so at the money was not even half of the contracts traded. I will leave these two links here one is to the google finance page so you can have a clue about what your trying to debate the second is to the definition of majority since you don't seem to know it 1.http://www.google.com/finance/option_chain?q=NASDAQ:GOOG&ei=c6-jULjeEobE0AGeCQ http://www.google.com/finance/option_chain?q=NASDAQ:GOOG&#38... 2. http://www.merriam-webster.com/dictionary/majority http://www.merriam-webster.com/dictionary/majority

astrodust 14y ago

You're playing with nuclear weapons. If you stand to make $10K profit, you're exposing yourself to a much more massive downside. Being extremely careful will only prolong the inevitable crunch. You're betting on a 1% hike that might be a 5% drop because some idiot in a bus ran over someone important. That 5% drop could clean you out. If you're betting on sure things, which means you're cheating somehow, then options are your best bet. Hey, if it works for you, you've got a good racket going, but most people will be absolutely destroyed.

dkhenry 14y ago
Here is the quick and dirty recipe for making money off volatility. Buy a put and a call option for the same strike price. On both options place a trailing stop at a fixed point ( <- that's where skill / statistical analysis comes in ) After one of those two orders execute cancel the second order and place a new trailing stop at a lower value to prevent additional loss. If the stock goes up you sell the put and ride the call until the price drops or you liquidate. If the stock falls you sell the call and ride the put. Your risk is total to the loss in time value of the option for the duration of your trade , and is capped at a maximum of the sum total of the two trailing limits on your initial purchase. If you would like me to run the numbers for it please give me a security and I can even tell you where to set your puts ( I have computer programs I use to calculate reasonable stops , and execute this particular strategy )
- astrodust 14y ago
  So basically you can lose everything you put in. This is a slot-machine strategy. It's a load of crap. Anything bought on margin or of a derivative nature is like this. You can bust out hard. The thing with buying an actual security is a 5% drop is only a 5% drop in value, whereas in an option a 5% drop could translate to a gigantic liability.
  - dkhenry 14y ago
    trailing stops limit your risk to a percentage of your initial investment. Its the same thing as with purchasing a stock. That investment can also lose all its value overnight. Its less likely to happen ( less risk ) and its also less likely to really increase much ( less reward ). All options do is scale up the risk/reward.

gfodor 14y ago

Nobody is arguing about the long side of options being "oh god run for the hills nuclear weapons dangerous", they are arguing that about the short side (or certain complicated strategies that are long-short.) The long side is just a suckers bet, but it's a relatively low risk one. You buy a $1000 call -- most of the time you lose the $1000. Sometimes you break even. Rarely you make a little money. Once in a blue moon you 2 or 3x your money. (These are the instances you remember and hence you keep buying calls.) In the long run, you lose money (academic studies have shown this.) Where you can really get screwed is going (naked) short. Lets say you shorted a "modest" $1000 worth of out-of-the-money GOOG options today with a 8% spread from strike. The $600 Dec 22nd puts right now cost $2.80, so you'd sell 4 contracts for $1120. 8% is plenty of cushion, right? As long as GOOG's price doesn't go down more than 8% before expiration, you'd have $1120 in your pocket. That's a huge drop and highly unlikely. An easy $1120, right? It worked last month and the month before, so why not this time? But oops, lets say just like last time GOOG's earnings leak early because someone fat fingered an email or something, and the stock took an instant 12% haircut. That extra 4% below your strike price just cost you approximately $24 per share. You had 4 contracts, so your options were against 400 shares. You just lost $24 * 400 shares = $9600 in order to make an "easy" $1,120. Now, consider the fact that many people are going to be looking to make more than $1,000 a month when trading options. More like $5,000-$10,000. Guess what -- if the market systematically crashes by 10% over a few days because Ben Bernanke sneezed during a speech you could be in the hole for hundreds of thousands of dollars depending on what positions you've taken. Also, if you were to buy closer to-the-expiration options (say, ones expiring next week as opposed to next month), the per-contract costs go down by approx a factor of 10, so you have to sell 10x more contracts in order to get the same gain. But guess what, if your luck is particularly bad and something goes horribly wrong, you can multiply your losses above by a factor of 10. (Yes, Virginia, with options it is possible, nay, easy to have a 10,000% loss in a few minutes on a bad day.) That's how you can get fucked. You keep selling short puts on positions you can't really cover comfortably, and rake in the dough. And then on one sunny otherwise uneventful autumn afternoon something weird happens, and Vegas, er, I mean, Wall Street, takes it all back, and much more.

confluence 14y ago
Great comment gfodor. I like to think of it like this. Buying options is like gambling at a casino. Statistically you will just keep losing money because the house always wins - they have the edge - unless you play a game like poker with a bunch of suckers - where the casino still takes a nice chunk of your change. Selling options is like being a casino without the ability to know what the statistics of the underlying distributions or their payoffs are. Nor do you have the ability to kick a guy out if he wins too big and too often. It's a casino without the control. And a casino without control - is a casino that goes bankrupt.