Discussion Forum

I would like to try the ivolatility calculator, but what is the symbol for the FTSE 100 option? It is not clear at all. Thanks.

It’s actually the return on capital employed, Paul I’m no accountant but that is the fact of the matter- I have no wish to create any kind of illusion these are real numbers, I’m sorry you feel I am pontificating. I do not know how else to say this. There have been 6 trades-some of which were debit trades-and for example one of my own that closed today- I bought for 3 and sold for 9. Is that not a 300% return on capital employed? Time period was 3 weeks, however.I am not annualising as that would be false. I think your Dec RDSB 2000 puts were 56 and are now 34, but margin was big I think. I base trades on margin at entry and yes it is elastic but for our purposes we always assume only using 25% of an account,so a margin call is unlikely with an index. I have not traded equity options for about a decade so cannot recall the margins

I thought you had agreed that your previous statement of 15% per month return was bunkum?

It is not 15% on ROCE UNLESS both of:

the position never moves against you; AND

You allocate 100% of your available capital to the margin for the trade.

Maybe the title of this thread really does say it all, and the Boy Really Cannot Help Himsef – when overstating his returns?

Best I leave it there, I feel, and go read, pontificate and discuss options elsewhere.

Paul

Any of these trades can be done as multiples or in ratios too- a spread can have 1 long, 2 or 3 shorts. A calendar spread can use different strikes so the far month is not so costly-this is called a ‘diagonal’. When you get used to the language you will visualise the trades.
When you start to find a style that suits you, you can say goodbye to all that gut wrenching emotional nonsense from trading forex/futures/stocks. You can construct trades that suit you instead of chasing the market.
Options traders tend to keep quiet about things-very much like insurance companies-they look dull and boring-yet check out their headquarters-they do not operate in a shed. The smart money always wins. Think of yourself as the insurance company first and then the artful trader next.

Paul -we are on the same track, I had no intention of misleading anyone-I’ve been trading options profitably for 16 years. I’m not a good trader, and I’m an even worse author and proof reader,it seems. However I am passionate about options and passionate about an industry that sucks the life out of people’s accounts with bogus claims, outrageous charges for investment advice and appalling returns. Options, in my opinion, are the only trading vehicle that gives people a chance by becoming educated.This site is a stepping stone, a conduit to get people to find their own way. It sickens me that when it comes to money matters people are completely misled. Even worse they give up due to lack of information-such as prices being hidden to the public.
Thank you for commenting and showing a real trade,and yes margin can increase-I cannot find what effect the huge drop on Aug 24th 2015 had, but I think margin may have increased by up to 50%,and my broker had issued a warning about margin calls-something nobody should ever experience- I’ve never come close,thankfully. Naked selling is not for me.

But I can’t edit my reply, so that my incorrect 33p premium and subsequent calc is wrong…I was looking at the wrong price and it should be should be 56p and thus:

56 * 1000 / 20000 * 365 / 32 = 32.0%

Paul

Hmmm…..I had not realised that you were able to rewrite history so that your initial post.

In this case there is no great damage, though the statement is still not completely correct as ROCE is only as stated so long as the position does not move against you. If margin increases at any time during the life of the contract, ROCE will change. Also, given that a prudent trader will only allocate a small portion of his available margin to any single trade, then true ROCE is rather lower than that stated.

However, I have deep misgivings about a discussion forum where posters can go back and change things. You have no intention of doing so, I’m sure – but that’s not the point. The TMF “no amendments”, or the Stockopedia or LemonFool “5 minutes to correct typos” time window are much better in giving readers total confidence that all is kosher.

(For my own calcs, I use the strike price to calculate ANNUAL return, aiming for 20%+ on any single trade eg, prices from yesterday:

RDSB Dec 2000 puts. 33p. 32 days to expiry. Return =

Premium (in pence) times 1000 (shares per lot), divided by strike, times 36 (days in a year) divided by 32 (days to expiry), so

33 * 1000 / 20000 * 365 / 32 = 18.8%

This understates my potential return as it is unlikely in the extreme that RDSB will go to zero – but it works for me to throw up potential trades. And I always prefer to understate and overdeliver than the opposite.

Paul

risk to reward will be about (margin=£1200, credit from sale of options= 7+11.5 @ £10 per point=£185/£1200= 15%.

Oh, dear me NO. The above is either naive, misguided, or deliberately stated to give apparent huge returns.

MARGIN does not, in any way shape or form, equal RISK.

If the FTSE shot to 7100, the loss (unless closing out; at what cost?) would be in the order of £1800 – where then your risk reward?

Nobody has 6 out of 6 winning trades- so let’s see if the market tanks or gets the hots for Mr. Trump’s new model economic miracle. If this trade is a winner I’ll eat my hat or the calorific equivalent in beer!

Well….. today could have got about 45- >100% return- I thank you!
Seriously these are random trades and I pointed out why this was not a good trade-but it’s another chunk of evidence to suggest that even bad trades can make money with options. This is just a freaky market- I do not believe anyone is making considered trades-you cannot factor in all the unknowns,so had I taken this trade, I would have closed out for a very nice 45.

at close the trade was worth 26- I can do no wrong!

failed to look at yesterday’s prices but today after the bounce, the trade is flat at around 21-most unfortunate market action last week and hold the champagne for this week’s roller coaster. So -if you were expecting the bounce today,we may have had it and we’d close out for a small loss -commissions

In ’99 and 2000 I had a share portfolio and I was on a long journey reading the FT. It sang the praises of Invensys- a share I bought. A few days later it was less sanguine, calling it ‘troubled engineering group’ Invensys.The price plummeted.
The pundits are not idiots, they simply do not know what really goes on-so why try to board that train? It breaks my heart to hear so many sob stories about shares-we’ve probably all been there.
I was in the USA when Enron was flying high- I asked why they were selling electricity at below cost price, and nobody seemed to care, now I’m no accountant but…..

At some point in the future we will look back at these early trades and reinvent them, using the prices of the time.
We aim to show how many different ways there are to take the same view. How to optimise the trade rather than trying to optimise ‘or curve fit’ to a trading system.
We will show how you can trade with defined or undefined risk so long as you are aware of the mechanics of the trades.

We would be happy to get prices* within reason, but you can open a demo account with some brokers, like Interactivebrokers IG(spreadbet but you can take the mid price of the spread- if they quote 8-12 it’s probably around 10 in the real market). Other brokers are available Saxo, Berkeley, ADM
* I have screenshots of end of the week prices going back umpty years

Richard, welcome by the way- and you are right to question everything. I hope it is clear, I have posted the closing prices from the 2 puts at the bottom of the article.
I love options because there are so many different ways to trade- and we put these trades up for fun-and we can follow the progress-but honestly 40% profit is good,100% may be on the cards tomorrow. Please feel free to comment, we aim never ever to offend or try to humble anyone. We’ve made dumb mistakes and part of our process is sharing with others,but I will not share my real trades in case anyone gets misled. All the trades here are for fun,using real prices, no smoke or mirrors.

Please would you explain why the trade went into profit? The FTSE 100 did not go below 6946 yesterday, and VFTSE only went up to 17.0. Surely the put you bought was still out of the money? What am I missing?

This trade hit 26 on Monday 31st – a profit of 40%. Cannot seem to pick a loser…….famous last words!

Just to be clear-the above trade assumes we BUY one 6850put and SELL one 6750 put for November expiry. We do not have to stick to one lot-we could BUY five, SELL three or Seven or Ten,or Twenty.This is just a simple one for one debit spread(debit means you pay for it,you OWN it) By starting with a defined risk trade with the potential to make five times as much,we can do a number of twists and turns,including if it looks like losing money. Remember our aim is NOT to lose money.
Just for fun imagine we bought 100 of these spreads -spend £18,500 to make £100,000.
Why would you do that? Well, if you had placed that sort of trade in mid august 2015 or early June 2016……

I think historically VIX hasn’t remain so low for a quarter. The VIX cooled down after brexit and since then hasn’t crossed 17!

UK equity options have variable expiries,and US optionsalso vary-some are settled on the Saturday. FTSE options are simple and it’s easy to remember when stuff happens- it took me about4 years of playing around with equity options to figure out that trading is a process of eliminating as much rubbish as you can. And who hasn’t invested in a stock to watch it plummet the next day? We can fix that.

The UK equivalent to VIX is https://www.google.co.uk/finance?q=VFTSE&ei=IBjOVPhV59nBA4vRgIgK

It’s helpful to look back and see the relationship between market dips and volatility. Nobody seems to get scared when markets rise-this is ironic really,as the higher markets go,the more likely they are to fall. Volatility is way too low and markets are, for my money, not reflecting true conditions-but the world always wallpapers over the cracks,until the crack becomes a chasm,then it’s time to capitalise even more while the dumb money sells at the bottom.

Options are complicated but profit and loss are simple concepts- at expiry my sold (short) options are usually ±5% OTM(out of the money)- eg if FTSE= 7000, I might be short puts at 6650 or short calls at 7300 during expiry week,and sleep relatively well. ITM options- example at expiry FTSE= 7000 and I have sold a 7100 put-I would take a loss of 100 minus premium taken in. Just naked selling, however is described as picking up pennies in front of a moving steamroller.
The choices with options are staggering and knowing something of those choices,that is the key. This sets options an entire universe apart from the dreary process of buying shares,or the nerve jangling torture of forex or futures trading. Feel free to challenge that proposition!

Volatility is key to option pricing-and typically it moves opposite to the market. This combo trade will benefit if the market has a quick sharp shock and volatility spikes up in tandem with the put price increasing while the call price shrinks.

COOL STUFF

So what is the trade. What are you buying/selling?

https://www.lovemoney.com/news/56013/property-vs-pension-investment-return?source=10000277&utm_source=newsletter
pensions v property- dumb luck.
Never seen a well managed fund produce anything other than terrible results,but every property I’ve owned has made money- I got lucky with tenants, and that is a lottery

Another way to think of binaries is like a spread-you sell one option and buy another in the same product- example -buy a 6800 put for 50,sell a 6700 put for 20, you now have a binary outcome at expiry- 1. the spread hits its max value of 100(profit=100 minus premium paid,(50-20=30) so you make 70 on a cost of 30, or 2. you lose 30.
But…… we can close out or adjust any old time along the way-that is for another time.
Don’t lose sleep over this…too late, I know you will.

Delta is the rate of change relative to the underlying,and gamma is the rate of change of delta- it is NOT linear. I’m not mad about this trade but I think it will serve to illustrate some valid points -market ‘timing’, choice of weapon, time horizon, opportunity cost.
The logic is sound the choices in my mind are a bit ugly but we can get a’feel’ for how things pan out-and if the market tanks and this trade makes 100, we learn nothing

Every market pundit/commentator will talk about fear and greed-these have to be managed-and I can honestly say my first serious trade(Feb-Mar 2003) stepping into the big time, I made a four figure sum and thought I was on the right track.
My second trade- George ‘Dubya’ Bush went to war with Iraq,and within a few days my losses exceeded that first trade 3 fold. I had sold calls,very cheaply.
Worse still, I went on holiday and had not read the matra ‘buy when there is blood on the streets’. War is great for business-it’s awful I know, but instead of denouncing profits we can do good things with those profits-at no time do we have to lose sight of our humanity. We aim not to make idle boasts-it is only right that we talk about our losses,our mistakes, and fallability-so others can benefit. No question is considered ‘stupid’ here.

Margin- the money or assets that are required to be placed in your brokerage account,against which you can trade,using it as a surety.
This may blow your mind,however……
If you have upside risk like in that particular trade,you could add………downside risk and you most likely will not need to increase margin. In fact the market can only go down to zero but in theory could go up to ∞ (infinity-but no further!)
So…. if you took this one trade,and only this trade for the whole year, you’d make 11%.
Somewhat better than the 1% you’d get on deposit

By the way-what the car salesman did-that is the same as shorting a stock-you sell something you do not own. Now who would do that? Why your very own broker would rent out shares to people who wish to short a stock. Whose shares are they renting out? Why yours of course! And you thought they were lying idle……
FYI- ‘Naked shorting’ is when people have not rented the stock, but have taken a short position-this is not like an exchange traded contract which is what we trade. Naked shorting is no worse than naked longs by the way-and in the US a trader who deposits $10,000 has $20,000 buying power-effectively unfairly increasing the price of stocks, in my view.

Typically traders like to fade moves-so there would be for example a big up move,which fizzles out, then everyone goes short(sells),then when that move runs out of steam,they go long. I have read thousands of words on this type of strategy- I’m still here,where are those guys? I hope they made their fortune, but it’s just not what we do-we have massive advantages which over time will become clear

This is not a trade I would usually take, but if it goes wrong there is always the chance to roll into the next month and wait for the market to come down, and trade adjustment is something that is key to what we try to do,
so next week we’ll see how the trade has done and make plans accordingly

Good one. My trade on Friday – shorted NOV 7350 call for 22.50!

Wow! I never know one could even buy reviews of systems…

Curiously as this trade has gained from today’s movement and in light of recent reserach courtesy of Tasty Trade,this trade made 50-so if you had closed out you would have made the expected 25% return.
Thus- a trade I don’t like has shown that when the profit is there for the taking, grab it with both hands. This trade may go on to make 100, but over time these only have alimited success rate so you might be happy with 25%.