3SOF

David, have you stopped  completely with trading futures or isn't it a good idea to do it while the markets are bearish?

Quote from: David Randolph on March 02, 2007, 02:17:08 PM

Quote from: gix330 on March 02, 2007, 01:59:09 PM
thank you dnickers and yes, I agree with you, I hope David can open an options learning thread if it is possible. 

Dnickers rules on options!

Where should I open the thread? On the Members corner? Or we'll just talk about it here, on "random trader talk"? There's more audience here, so probably we'll learn faster.

I know Samantha has a thread open somewhere, so there are some open already in the members section.  She is really passionate about talking about them, lol.

QuoteDnickers rules on options!

Well, I wish I ruled on options, but I am familiar with the basics. 

Option trading is a very risky investment tool, it's not suitable for everyone.

If you want to learn more about options, go to the following site and take the online tutorial.

http://www.cboe.com/LearnCenter/default.aspx

Hope it helps. Have a good weekend everyone.

Quote from: David Randolph on March 02, 2007, 02:17:08 PM

Quote from: gix330 on March 02, 2007, 01:59:09 PM
thank you dnickers and yes, I agree with you, I hope David can open an options learning thread if it is possible. 

Dnickers rules on options!

Where should I open the thread? On the Members corner? Or we'll just talk about it here, on "random trader talk"? There's more audience here, so probably we'll learn faster.

you both rules!!!

it is really a good idea to open a learning thread, time to learn something important since i can not do anything with only 5K. lol...

BTW...how do you think of copper, David?

The basic principles are:

- Puts go up when the stock goes down, so those are the ones you want to buy to bet on the bear case.

- Calls go up when the stock rises, calls are a leveraged way to be long stocks.

But, it is possible that if one chooses the wrong option, for example a very out of the money option that will only have value if the stock moves 80% in 5 days, you can buy them, the stock goes in your direction, yet you lose the money, even if you're right on the direction.

There's a lot more to it, but I'm just a theorist.

Generally I used them just to get some leverage on the bear run, because if that isn't the case, I'll be out of this bear market with just 20 or 30% profit. That is ok for the Main, but the Fire needs more than that.

All - Regarding options.  You really should spend some time understanding what you're getting into BEFORE you play with options.  With options you can put $5,000 in and your money can drop to $2,500 before you know it.  They can have a huge reward, but there is also a huge risk involved.  This is the one area of trading that is not best to learn while you are doing it...  trust me.

Quote from: Se7en on March 02, 2007, 02:21:09 PM
David, have you stopped  completely with trading futures or isn't it a good idea to do it while the markets are bearish?

I've traded futures for 7 long years, but I'm not doing it now. It could be a good idea, but as a medium term speculation tool, never for day trading as I did.

Futures are very liquid, have very narrow spreads, and allow leverage (that can be a problem if one can't control risk).

I made a lot of money trading futures and also lost all my account some times, in my early days. All in all I don't recommend anybody entering that game, it can eat your life.

I need to enable options for my account, I wanted to get into options a while back. Because I hear puts are much better then shorting most of the time.

David,

You'll notice there is a whole messge board in the public section on options - SamanthaStephens has been one of the few strong proponents of options there - my god she would be so happy to see 3SOF moving into options.

Tokyopua, I have been playing with options since the beginning of the year, and believe me they are VERY volatile, and hard to hold on to for any length of time - most of my options trades have resulted in gains of between 50 and 100% and often losses in excess of 100% in a matter of a couple of days.  To be honest, I had a look at all my options plays and I am about breakeven, maybe slightly down on them to date.  If you do decide to play them, I would look to lock in gains if you make a double - you can often make that and more in a single day.  And don't play with any more money than you are willing to lose ENTIRELY.  With David's GOOG puts because they are quite expensive, they would need to move about 20-30 points to make a 100% gain as they don't trade exactly according to the underlying price.  I have been playing AAPL option lately to some success, which are highly volatile and the option prices are much lower (around $2-3 for at the money near month options).  

It is also important to understand that options are time dependent, and their value decreases as they get closer to expiration, so they are good to capture short term moves, but only if you are very confident in that short term move.  Hanging on to them tends to lead to their value diminishing.

I'm not playing this GOOG trade, but i hope it goes well for those who do.  A break of David's long term trendline would surely be significant.

In the money options, as I said earlier, are less speculative.  Let's look at GOPOL real quick.  The stock is at (let me see right now...) $440.08.  Our put gives us the right to sell at $460 anytime between now and March 17th.  The inherent worth of each put (right now) is $460-440.08 = 19.92 per share X 100 shares/contract = $1992 per contract.  If we bought the GOPOL put today for $21.10, that means we paid a premium of $118 per contract, or about 5.5%.  $118 gives you essentially the right to control 100 shares of GOOG, or about $44,000 worth of stock.

Let's hope GOOG tanks 

QuoteWith David's GOOG puts because they are quite expensive, they would need to move about 20-30 points to make a 100% gain

And that would be a mere 4.5% drop in the price of GOOG...not unreasonable.

QuoteI have been playing AAPL option lately to some success, which are highly volatile and the option prices are much lower (around $2-3 for at the money near month options). 

And again here, it's not about the price per contract, it about the %gain or lost on the money invested!  The reason these GOOG puts that David bought are so expensive is because they are in the money.  At the money puts are more speculative and their value will erode much more quickly.  Compare premiums you are paying, not the price of the contract.

Quote from: floorsmall on March 02, 2007, 02:26:23 PM
All - Regarding options.  You really should spend some time understanding what you're getting into BEFORE you play with options.  With options you can put $5,000 in and your money can drop to $2,500 before you know it.  They can have a huge reward, but there is also a huge risk involved.  This is the one area of trading that is not best to learn while you are doing it...  trust me.

I agree. That is why I bought just 1 contract, putting 8.7% of the 3 Stocks on Fire Portfolio capital at risk.

I don't want to "play options", just to get exposure to the bear case in a stock which I believe is about to tank hard, due to technical and fundamental reasons.

But maybe it won't be today and the stock rebounds and I'll lose ... we'll see, anyway, risk is just 8.7% of capital.

Thanks for the good advice

And just like that, I got stopped out of my puts.

QuoteAnd again here, it's not about the price per contract, it about the %gain or lost on the money invested!  The reason these GOOG puts that David bought are so expensive is because they are in the money.  At the money puts are more speculative and their value will erode much more quickly.  Compare premiums you are paying, not the price of the contract.

Yes, they move more or less $1 for each $1 Google moves, but since I bought the put at $22, each $1 change at GOOG represents about 5% for my puts.

Quote from: dnickers on March 02, 2007, 02:43:09 PM
And just like that, I got stopped out of my puts.

Why the stop? That way any bit of intraday volatility wipes you out. Better to buy just a little and let the thing run its course. That's what I'll do.