Understanding option spreads/ probability #2

[Anonymous No.16474675]

Second thread covering options trading, spreads, methodology, and concepts. Feel free to ask any question related to the subject matter.

[Anonymous No.16475079]

>>16474675
>Feel free to ask any question related to the subject matter.
please provide an example recent trade you like, and your logic behind the trade.

[Anonymous No.16475298]

>>16475079
I could give a simple price setup regarding IV and Delta and proper pricing, but the "logic" behind the trade is really something you have to just understand by familiarization with options. anyways...

XYZ

Vertical / Sell: June 16 495 Call / .34 Delta / 31.10% Prob.ITM
buy : June 16 500 Call

Credit : $1.65

$1.65 Should be equal to or greater than :

Spread width x Prob.ITM (31.10%) ~ 30% = 1.50 < 1.65

This spread without any adjustment based off of probability is already a winning trade, though adjustment
/ Laddering to eliminate downside and bank profits early is the real key to growing an account.

There are also a few more aspects involving picking a security that I have not just mentioned such as IV being analyzed.

[Anonymous No.16475332]

>>16475298
Ok im too dumb for this

[Anonymous No.16475362]

>>16475298
>Laddering to eliminate downside and bank profits early is the real key to growing an account.
Can you explain this.

>There are also a few more aspects involving picking a security that I have not just mentioned such as IV being analyzed.

Also a real security would be good to see that.

To collect income I would just sell naked puts on stocks I would own anyway.
My example here is MUX and the trade is sell Jan 2022 $1 put for $0.25 premium.

Could you show an example trade in this format, but selling spreads.

[Anonymous No.16475385]

>>16475332
The concepts are actually very easy to understand, it's just the way it's laid out seems a bit confused to the untrained eye. Definitely check out Project Option on youtube to understand the difference between Calls and Puts, and how a basic vertical spread works. As well as anything else you could ask. Or just ask a question here, no judging.

[Anonymous No.16475387]

>>16475362
Here is MUX IV.
tastytrade recommends selling when recent IV is higher than 1 year IV.
This chart shows 30 day IV and 200 day IV.

I think yesterday you said you sell when 200 day IV is high, is that correct?

[Anonymous No.16475505]

>>16475362
1. I can gladly explain how to go about trading options, but understanding laddering does require a small lesson. I know of good videos to watch that will explain it in its entirety if you'd like. Laddering is definitely key to limited downside.

2. Actually that spread was based off of CMG a while back. Just an example really, but the concept is what matters, not the actual security.

3. I've never purchased an option with an expiration that long.

As well, Since you are selling a put spread, you need to purchase a contract at a lower strike price than what you sold for protection (to create a put spread). Of course this will net you a lower credit due to said protection. Hope that's what you were asking.

[Anonymous No.16475581]

>>16475505
>3. I've never purchased an option with an expiration that long.
what are your typical days to expiration?
tastytrade recommends to sell 45 days to expiration and then buy back by 15 days in to collect 50% of the premium.
this maximizes time premium decay.

[Anonymous No.16475597]

>>16475581
Tastytrade does have a fair amount of "good information"

My trades are weekly/monthly trades, that's all.
If you wanna learn more about time decay, learn about Theta, the concept is more informative than the description.

[Anonymous No.16475622]

>>16475597
>Theta, the concept is more informative than the description.
I thought theta decay is time decay?

When you decide to sell a weekly rather than a monthly, why do you decide one vs the other?
Is it just about the amount of IV in that option?

[Anonymous No.16475760]

>>16475622
Regarding the security that I've found favorable, I'll assume a position regarding monthly or weekly by checking out if the spreads have a neutral or 51%+ probability of being profitable spread that I like, and of course referencing my other spreads to see how it would impact them via beta-weighting (portfolio balancing)

Really that's not even a complete answer, you'd have to check out a youtube video about that comparing the technicals and pros/cons. Which you should do.

[Anonymous No.16475791]

Excellent thread OP, I wish I had good questions right now to take advantage of a valuable resource and simultaneously make the board a better place

[Anonymous No.16475831]

>>16475791

Thank you friend, I really do appreciate your kind words, bless you. Fear not though, I'll be regularly posting these threads a couple times a week, so if you would like to know anything, just write it down for the next thread. I'll answer any questions to the best of my ability, and again thanks for stopping by.

[Anonymous No.16475860]

>>16475760
>and of course referencing my other spreads to see how it would impact them via beta-weighting (portfolio balancing)
how do you beta-weight against your other options?
I thought beta weighting was just measuring against an index like sp500.

[Anonymous No.16475931]

>>16475860
You're correct, here's further elaboration to save my hands from typing it all.

youtube.com/watch?v=A-nTVuOaAjo&t=1239s

[Anonymous No.16476064]

>>16475931
>You're correct, here's further elaboration to save my hands from typing it all.
thank you sir
I'll check through option alpha's stuff over the next few weeks to get up to speed.

[Anonymous No.16476083]

>>16476064
Honestly learning about options changed my life, I hope it does the same to you. Make sure you come back to each thread for more informative conversation.

Sorry to bail out with videos but some of these questions would murder my hands, a video is the best bet for streamlining.

(His "Answer Vault" segments really are perfect for newcomers as well friend)

[Anonymous No.16476102]

>>16474675
This may seem like a weird question but I try to keep my trading very simple so my mental framework for options boils down to the effective leverage I'm getting. I multiply the delta by the price of the underlying and that by 100 to get the dollar amount of the underlying I'm actually getting the use of then I divide that by what I'm paying. So if I'm buying SPY calls for $5 and the delta is 0.5 and SPY is trading for $300 and I'm getting 100 options then 300*0.5*100=$15,000. Then I take the 15000 and divide that by 500 which tells me out the gate I'm buying SPY with 30x leverage. So I'm buying SPY at 30x with no chance of a margin call. The only downside being there is a hard deadline to get out of the trade and the numbers decay due to time value and volatility (and interest rates to a lesser extent). I never hold to maturity and try to get out of the trade before theta has a large impact. My trades usually work. My question is do you think this is a useful model or have I just been getting lucky

[Anonymous No.16476118]

>>16474675
Keep it up with these threads OP, some of the best shit on biz recently.

[Anonymous No.16476192]

>>16476102
>I never hold to maturity and try to get out of the trade before theta has a large impact. My trades usually work. My question is do you think this is a useful model or have I just been getting lucky

How long is your hold time?
How many days to expiration do you buy?
Do you buy ATM or OTM options?

As for getting luck we have been in a 10 year bull run. So if your long biased then the trend has been your friend.

[Anonymous No.16476208]

>>16476118
>Keep it up with these threads OP, some of the best shit on biz recently.
if you want I can invite you to our biz discord, op is a member too.

VWRlc2g#4757 send me a message and I'll send you an invite.

[Anonymous No.16476211]

>>16476102
Regardless of your leverage, what's your means of direction analysis? Probability? TA? Greeks?

Really being an options buyer will always have a lower probability of success regardless of your methodology (this is a fact you can look up) so what you're doing isn't favorable in my opinion ( IF it's your only means of trading options). Regarding what you're doing, and your calculations, they're fine, you're understanding what you have standing against you and the technicals, but what's your direction analysis to give yourself an edge in the trade?

[Anonymous No.16476222]

>>16476118
I will just for you ;) Really though thank you, we're all here to help.

>>16476208
Do as he said as well.

[Anonymous No.16476280]

>>16476208
I sent you a friend request.

How long did it take for you to see a profit through options?

[Anonymous No.16476295]

>>16476192
>How long is your hold time?
I only buy options on SPY right after a significant dip to a price I presume to be a horizontal line of support. I've found these usually offer a quick bounce back up taking no more than a day to a week. This is my holding time.
>How many days to expiration do you buy?
I buy 45-60 days out giving me typically an effective leversge of 30x and enough time in my estimation for the trade to work out
>Do you buy ATM or OTM options?
I buy ATM but only because I buy quickly. I believe I could buy a few dollars OTM and get better results but have not done so.
>As for getting luck we have been in a 10 year bull run. So if your long biased then the trend has been your friend.
Yes. In a bull market everything works. My only experience with a bear has been crypto. Since January 6th 2018 I have turned $2500 into several hundred thousand trading off horizontal lines of support in various shitcoins. I thought after that success I'd lile to try traditional markets.
>>16476211
>Regardless of your leverage, what's your means of direction analysis? Probability? TA? Greeks?
I don't use any regular TA. I eyeball the chart looking for support and buy when the price action of the underlying goes to or beneath that support. My idea for options is to piggyback my success on trading the underlying but with leverage. My success rate in shitcoins is very high and so far that has been the case with the SPY, SPXL, and SOXL I have been trading.
My edge boils down to a good eye for price action and spotting imminent reversals. It could be luck but the crypto bear has been brutal and I came through pretty good.

[Anonymous No.16476340]

>>16476280
>How long did it take for you to see a profit through options?
I think some of my first trades were profitable.
I do a different strat currently than op.
I'm looking for moonshots. Biggest I had were 44x and 26x with dozens of 3x, 2x gains and 20% quick trades.

Do you do any trading now?

[Anonymous No.16476486]

>>16476280
When you say "see a profit" that's relative to your methodology of trading as >>16476340 has said.

You can either average out to a percentile with a value of 51%+ (profitable), or take a large sum of small losers with few big winner, or something in between. It's all about coming out on top with a return, your path of travel is your strategy that works for you (successfully)

[Anonymous No.16476492]

>>16476295
>Do you buy ATM or OTM options?
I buy ATM but only because I buy quickly. I believe I could buy a few dollars OTM and get better results but have not done so.
OTM option prices explode on good price action 20x up is not uncommon, so maybe test it to see if you get better results.

>I buy 45-60 days out giving me typically an effective leversge of 30x and enough time in my estimation for the trade to work out
theta decay starts to get steep here.
what are you returns on a working trade?
I use LEAP options and still made a 3x in 30 days.
If you want to try extending duration of the options you may find that more comfortable.

>I only buy options on SPY right after a significant dip to a price I presume to be a horizontal line of support. I've found these usually offer a quick bounce back up taking no more than a day to a week. This is my holding time.

I'm currently doing swing trades in SPY, UPRO and SPXU. Shorter time frames dont work for me. glad they are working for you.
Also look at https://www.armstrongeconomics.com/blog/ and https://ask-socrates.com/ the price calls and support lines are very good.

>Since January 6th 2018 I have turned $2500 into several hundred thousand trading off horizontal lines of support in various shitcoins. I thought after that success I'd lile to try traditional markets.

please join us in discord fren VWRlc2g#4757 to share your knowledge. You could look at automating part of your strat via a bot.
you can trade BTC options on ledgerx.com so you might want to do that as well.

In terms of traditional markets options are the way to go, as their prices act like shitcoins in term of the magnitude of the moves.
If you want to lock in gains you may want to use OP's income strat with part of your gains.

[Anonymous No.16476510]

>>16476295
I've never found S/R or basic TA methods to be successful in any way honestly, only TA that works in my opinion is algorithmic TA that's been back tested.

If you could somehow refine what you're doing into a series of steps and see the results, I could say your other than lucky. Tread lightly with what you do since you don't have a formula (technically)

[Anonymous No.16476970]

Bump

[Anonymous No.16477017]

Excellent thread OP. Maybe you've already answered this, but what length should my options be? 1 week out? 1 month? Longer? Less?
Does it matter and you only base them on probability of success along with analyzing historic IV?
How do you use historic IV to determine if the option is a good one?
Thanks in advance options bro

[Anonymous No.16477170]

>>16477017
Going to bed soon but there will be more threads to come.

1. Personally I only trade monthly / weekly spreads, but that's really dependent on your methodology to trading and what type of trader you are.

2. You can base trades solely off of POP and IV however you have to have a specific trading style along with that to actually even have a return, with probability trading, you have to stick to a regimen consistently over time to actually achieve whichever probability you wish to trade at (65-80%~) so you have to consider that. But really the direction of a security price movement (relative to size) impacts premium prices considerably less than IV. Not that that's the end all be all of probability trading, and remember that's just one style of method of trading options contracts.

3. Historical IV or IV Percentile both are considerable factors since they give you an understanding of where the current IV level is relative to the past. Allowing you to understand if it's actually "high, average, or low" regardless of it's current value being a "large" or "small" number.

4. Anytime, come back to the next thread friend. Thanks.

[Anonymous No.16477186]

>>16475505
>I know of good videos to watch that will explain it in its entirety if you'd like.
yes please

[Anonymous No.16477193]

>>16477186
>yes please
https://www.youtube.com/watch?v=s3vZySrSEGc

https://www.youtube.com/watch?v=5dO2crtjdJw
https://www.youtube.com/watch?v=s73jbvAICXA
https://www.youtube.com/watch?v=D_v3vpdsjdo
https://www.youtube.com/watch?v=uCvDjTF70nU

OP posted these in the discord.

[Anonymous No.16477320]

>>16477193
Thank you

[Anonymous No.16477628]

I'm going start a tasty trade account or whatever, but how much should I start with? I could do 10K hypothetically

[Anonymous No.16477661]

>>16477628
>I'm going start a tasty trade account or whatever, but how much should I start with? I could do 10K hypothetically

I would go slow.
Are there any sectors your interested in?

See my example trade
>>16475362
max loss on that trade is $100
do stuff like that to get used to trading.

[Anonymous No.16477768]

>>16474675
link to original thread?

nigger?

[Anonymous No.16477862]

>>16477768

>>16454986