Closing Time
Today the prices for Trade 6, 6900 call 1-1.5, the 6500 put has been 0.5 for the last 2 days. We could close out for between 1-2. Yet again a great return on capital- you cannot even annualise the return- nobody makes 15% per month. It’s embarrassing.
Too Good To Be True?
I don’t recall having 6 winning trades on the trot(I have) but these are paper trades from real time real prices.
They are not a fantasy.
I’ll say again I’m not a good trader- if I was I’d have taken every one of the 6 trades myself. I didn’t. I may never reveal my own favourite strategy, but consider the following:
Each of the trades shown could be employed in any one month- you could have a short strangle for expiry week, you could have a calendar spread for when the front month looks a bit pricey relative to the far month. Sell a call when the market looks ‘toppy’ buy a put spread too-use the premium from one to pay for the other.
But That’s Not all
Remember those cheesy TV commercials where they’d give you the spiel,and then go on to say” But wait, that’s not all” ?They’d go on to throw in more cheap plastic stuff or DVDs. Well with options the only limit is ourselves. There is so much more. You could have 6 strategies for different scenarios all in one month.
Seeking The Comfort Zone
Some traders like the thrill, some like to – I won’t say chill, but some like a quiet life, or to trade a certain way, timeframe, or day of the week. Some people like to use some more tools like structuring orders-as there are many types, though I stick with limit orders good for the day.
Trading stocks? I think we said before-nothing comes close to options.
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.
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
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
“It’s actually the return on capital employed”
No. It REALLY Isn’t.
“I bought for 3 and sold for 9. Is that not a 300% return on capital employed?”
So, you capital employed was 3. Your profit was 6. That is a 200% return. Worryingly incorrect understanding of incredibly simple concept.
“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 now, by your own admission, your previous example of 15% return is exaggerated by a factor of four – even without any further caveats.
Paul H
Thanks for that Paul, as I said I’m not an accountant but I assumed if I trebled my money I was making a 300% gain-seems that’s wrong too. As regards the return on capital employed- I am talking about the amount of margin required,and the return on THAT sum of money. You can hold margin in equities bonds and so on, so while you are conceptually right, I am referring here to the amount of capital you would need as margin for one lot of that particular trade.I am trying to keep it simple. The purpose of this site is to help people understand the concepts of options trading, and to build on that understanding- anything else is just dumb luck frankly, but thank you for pointing out my accounting errors
There is sod all point in “keeping things simple” if by doing so you make utterly incorrect statements and claim them to be fact.
Please show your workings for “trebling your money” beeing the same as “a 300% gain”. If you start with 100 and end with 200.
How much is your gain?
a. 50
b. 100
c. 200
Have you:
a. doubled your money and made a 100% gain.
b. doubled your money and made a 200% gain.
c. failed year 7 maths. Again.
Regarding buffer, marin, returns, I am not “conceptually right”, but FACTUALLY correct. You are peddling 100% nonsense. If you reserve any buffer AT ALL against possible market movement against you, then that is, by definition, being used for that trade and is therefore “capital employed”. It matters not one jot how it is held. You yourself stated that your would only use 25% of available funds against a trade. So if the MARGIN for that trade is 100, then you have to have 1400 in your account and ALL of that 400 is employed. (And you CANNOT use this equity against any other trade). If you wish to base any ROCE return calculations then THAT is the figure you have to use.
But I am getting quite annoyed at your continued inability (I hope) or deliberate unwillingness (I hope not) to understand or acknowledge basic truths and I have wasted enough time here. The above should not need spelling out in such detail for someone who claims to be au fait with Greeks (which are very complex compared to the simple sums above) and experienced enough to teach others; I suggest you go back to doing what you appear to be good at – trading on your own account. If you continue to (try) to educate others here, you will lead some down a completely erroneous path which, when the sh1t hits the fan, is liable (if they believe your claims on rewards and risks) to leave them over-exposed and in deep do-do.
perhaps this is not for you as you seem to have a good overview of options. I tend not to focus on such diversions as margin,as
this site is for people taking first steps and they will be a long way from even opening an account. We will get into how margin works at some point,but I have never yet met a trader who actually uses London SPAN and gets hung up on it. As I said margin could be stocks or bonds,not simply cash so it’s a matter of personal risk profile as to how much you use-this is waaaaay beyond the steps we are discussing here-and these trades are just examples.My deeply flawed scribbles are simply that. It’s good that we are challenged,but the returns are real and way beyond most other forms of trading.You are evidently aware of this and making serious coin.
You may prefer to look at some of the excellent US sites or Taleb for a more sophisticated approach. All the best. TT.