*Official* Options trading thread: Why Alpha/Beta when you can Theta?

[jafomofo]

how do you pick your strikes? i know you do only a few stocks so i would assume you are comfortable just selecting strikes and timeframes that are optimal, etc... Do you do T/A or anything like that to select targets?

i had sworn off the idea of doing short term options through earnings but so many instances of people doing very well with those over the last few days. surprised by how commonly people are buying weeklies to gamble

[usersignup2]

how do you pick your strikes? i know you do only a few stocks so i would assume you are comfortable just selecting strikes and timeframes that are optimal, etc... Do you do T/A or anything like that to select targets?

i had sworn off the idea of doing short term options through earnings but so many instances of people doing very well with those over the last few days. surprised by how commonly people are buying weeklies to gamble

I've been scalping contracts lately on high volatility stocks so I buy weeklies. I do quite poorly on longer timeframes. At first I was choosing ATM strikes because it was easier to calculate movement/gain ratio ($1 move=$0.50 gain) but have switched to 25Delta because the payout is greater. There's a lot more to it than choosing strikes - there are a series of checks I do on whether I buy puts or calls. As much as possible I try to remove guessing from the equation, i.e. there has to be several reasons why I make my choice rather than "I think it's gonna go up or down". ALL of the reasons are technical and almost never to do with macro and my entries are based on my set of signals, exits are based on signals/profit. 

I'm constantly doing T&A, maybe 3 hours a day researching. But that's a low stress environment and I enjoy doing it. Constantly making notes and has probably tripled my win rate compared to before (a few years back) when I was buying contracts. I plot out pre-market high and low and in between those areas are generally my no-buy zones. I trade on momentum and go with it - I'm not interested in trying to catch the very top or very bottom. I will always, always try to leave money on the table. 

[TugOfPeace]

I've been scalping contracts lately on high volatility stocks so I buy weeklies. I do quite poorly on longer timeframes. At first I was choosing ATM strikes because it was easier to calculate movement/gain ratio ($1 move=$0.50 gain) but have switched to 25Delta because the payout is greater. There's a lot more to it than choosing strikes - there are a series of checks I do on whether I buy puts or calls. As much as possible I try to remove guessing from the equation, i.e. there has to be several reasons why I make my choice rather than "I think it's gonna go up or down". ALL of the reasons are technical and almost never to do with macro and my entries are based on my set of signals, exits are based on signals/profit. 

I'm constantly doing T&A, maybe 3 hours a day researching. But that's a low stress environment and I enjoy doing it. Constantly making notes and has probably tripled my win rate compared to before (a few years back) when I was buying contracts. I plot out pre-market high and low and in between those areas are generally my no-buy zones. I trade on momentum and go with it - I'm not interested in trying to catch the very top or very bottom. I will always, always try to leave money on the table. 

It's become interesting to me, I've been writing calls/puts at about 15-20 delta on weeklies, and doing a larger quantity. I've had a 93% gain/loss ratio this year, and the only reason it's not 100% is because I was stupid early on and BTO a call for UPST.

15-20 delta weeklies have been great because they are generally too far OTM for CSPs to get assigned, and even if they were to get assigned they're generally at a point where a stock has taken a 10-20% loss and at that point I can just write ATM calls and dump the position. I don't typically write CCs on my longs so I don't care if the shares I write them on get called away.

I have just been patient in regards to when I buy meaning I generally sell calls after heavy upward movement and puts after heavy downward movement. I think this is an abnormal win rate though because the market has been fairly flat; when things become more volatile I will probably have to pay more attention to TA.

I definitely like the strategy, much less stressful than active trading, and consistent.

[kusok]

^^^ unless there’s something I’m dramatically misunderstanding, the decision to roll your covered calls or to take assignment should be based on the outlook of the stock,

if I believe a stock is going to double in the next couple of months, as is the case with CLSK today it would not make sense to roll my $10 covered call, since I would be looking at a $50 profit per month or something like that, since the stock is already at about $13 and if I don’t want to take a loss I can only really roll to $10.50, it would make more sense to take assignment today and purchase new shares, which have an extremely good chance to make a lot more than $50 in profit in the next few weeks. Am I missing something?

P.s.
Speaking of Clean spark earnings, if you didn’t throw a few thousand in the premarket taking advantage of the 7 AM and 9:30 AM pop to quickly grab a 10% profit per day, you gotta look into that, this stuff is really predictable, makes me feel stupid for working. Worked hard for four hours yesterday, while this morning put in the buy order when I got up to pee at 6 AM, and a position sold by itself before breakfast, with profits significantly exceeding yesterday‘s work, this **** don’t even make sense.

[TugOfPeace]

^^^ unless there’s something I’m dramatically misunderstanding, the decision to roll your covered calls or to take assignment should be based on the outlook of the stock,

if I believe a stock is going to double in the next couple of months, as is the case with CLSK today it would not make sense to roll my $10 covered call, since I would be looking at a $50 profit per month or something like that, since the stock is already at about $13 and if I don’t want to take a loss I can only really roll to $10.50, it would make more sense to take assignment today and purchase new shares, which have an extremely good chance to make a lot more than $50 in profit in the next few weeks. Am I missing something?

P.s.
Speaking of Clean spark earnings, if you didn’t throw a few thousand in the premarket taking advantage of the 7 AM and 9:30 AM pop to quickly grab a 10% profit per day, you gotta look into that, this stuff is really predictable, makes me feel stupid for working. Worked hard for four hours yesterday, while this morning put in the buy order when I got up to pee at 6 AM, and a position sold by itself before breakfast, with profits significantly exceeding yesterday‘s work, this **** don’t even make sense.

Trading on fundamentals implies having knowledge that the brightest minds in finance do not. If it works for you, great, but I no longer speculate.

Much more practical for me to trade based on reasonable risk management and technicals.

[usersignup2]

^^^ unless there’s something I’m dramatically misunderstanding, the decision to roll your covered calls or to take assignment should be based on the outlook of the stock,

agree

[usersignup2]

bought MSTR for a trade wrote 585c weeklies. Stock mooned and my shares will be called away but will net 2400.

Out of semis for now, don't like how top heavy it is getting. Expecting a small market pullback.

TSLA puts I rolled last week for a loss gonna expire worthless. Remaining position 500ish loss.

total net for the week include swing trades 9.5k

[usersignup2]

MSTR going crazy, moving inline with bitcoin.

Bought 750C x5 near open. Closed when BTC struggled to regain 50k and market started to sell off.

5600 net.

[kusok]

MSTR going crazy, moving inline with bitcoin.

Bought 750C x5 near open. Closed when BTC struggled to regain 50k and market started to sell off.

5600 net.

Exp date?

[usersignup2]

They were for this week's expiration.

[jafomofo]

since i started mainly selling options instead of buying, the pullback today was decidedly more pleasant. closed out a couple of CCs. Heard that the price of puts is going up for the forseeable future but don't really know what that means in practical terms. Guess I'll get to googling over the weekend.

[kusok]

since i started mainly selling options instead of buying, the pullback today was decidedly more pleasant. closed out a couple of CCs. Heard that the price of puts is going up for the forseeable future but don't really know what that means in practical terms. Guess I'll get to googling over the weekend.

Well, if price of puts is going up that’s great for selling them since you’re an options seller.

[kusok]

They were for this week's expiration.

nicely done!

I was looking at MSTR yesterday’s option chain and a $685 at the money call for this Friday went from $2600 to $3200 in minutes, but I was too pussy and not enough cash to take bigger position. Was also scared since some fund (forgot the name) was selling bitcoin yesterday, spoiling the nice momentum.

Generally I would never buy options unless it’s like 2 years out with a .90 delta lol, mainly for poor mans covered call. But these short term calls are tempting when you’re sure of the upward direction.

[kusok]

Been doing this all day today:

Use ichimoku cloud on 1 minute time period to identify an uptrend. Buy MSTR weekly at the money option as soon as there is confirmation of an uptrend. Put a sell order at $100 higher, so $2300 I spent becomes $2400 my money when I sell. The computer sells it a few seconds later LOL, I guess the spread is what I’m taking advantage of.

[jafomofo]

thinking about taking out a mortgage on the house to buy 1 Apr19 put on SMCI.


not really, just shocked at those numbers.

[usersignup2]

very poor decision making this week. Started out with a good win and then A) played puts against bullish momentum on MSTR and B) played 0DTE puts on TSLA, again playing against bullish momentum. Gave back all my gains plus more for -2700 for the week.

winning streak had to come to an end sooner or later. Upcoming week I will be cautious because of holiday week - tends to be chop. Will look to work mostly CC on some recent holdings. Fear & Greed Index still showing extreme greed so I expect some more red volatility over the next few days. Therefore, will be selling slightly higher delta than usual, maybe even NTM.

[usersignup2]

Will look to work mostly CC on some recent holdings. Fear & Greed Index still showing extreme greed so I expect some more red volatility over the next few days. Therefore, will be selling slightly higher delta than usual, maybe even NTM.

this worked out well for me. Since Tuesday open was red, did not sell NTM but instead 20D.

this is what I had for the week, all weeklies:
HD 370cc
TSLA 185csp x5
TSLA 212.50cc x5
ELF 185cc
MSFT 415cc x7
MARA 33cc x10
MARA 23.50cc x30

total net just over 4500, not including stock appreciation for shares that will be called away. Stock appreciation on those total roughly 2800, held for 3 weeks or less.

Fear & Greed Index back to Extreme Greed so anticipating another volatile week. Took a small position in SQQQ and will dump on a pop. Took a position in CPNG. Will re-buy MARA on a dip.


Likely done buying options. Realistically, even though I had good entries for the most part on my scalps and very good win rate and total net, this bull run is largely responsible for the success. It's unlikely that I could duplicate it in a 'normal' market. Success on longer dated contracts was 0/5, luckily those were low dollar plays, though totalled was somewhere around 2500 in losses - losses on trades that I shouldn't have taken but did so because I thought I was 'better' than I actually was. In addition, the stress of scalping contracts is not worth it. The main goal has to remain long term viability and that is not a realistic approach. So back to the regular program of covered calls. Will still swing trade and scalp on high conviction stocks. Overall bias remains bullish for the market at least until mid-year or when rate cuts happen.

[usersignup2]

Likely done buying options.

Well that didn't last long.

NVDA calls for a day trade.

Closed my SQQQ position for small gains.

TSLA 210cc x5

Total net for the week 5k.

[jafomofo]

any downside to letting some CCs get called away? hidden fees etc...? They are .70 itm, rebuy is .5 so almost certainly will buy them back.

i assume for tax purposes I'll see 2 entries if i let them get called, sale of the stock and the premiums from the ccs.

[usersignup2]

any downside to letting some CCs get called away? hidden fees etc...? They are .70 itm, rebuy is .5 so almost certainly will buy them back.

i assume for tax purposes I'll see 2 entries if i let them get called, sale of the stock and the premiums from the ccs.

Stock could open higher next business day. Your broker may also have additional fees for assignment.

[kusok]

any downside to letting some CCs get called away? hidden fees etc...? They are .70 itm, rebuy is .5 so almost certainly will buy them back.

i assume for tax purposes I'll see 2 entries if i let them get called, sale of the stock and the premiums from the ccs.

What the poster above said, but personally I never want to let that happen unless I want out suddenly. I find that I make more money rolling up and out and waiting for mean reversion, I don’t have to roll out of money if I can’t, just roll up and out for credit or even for no credit, as long as I don’t pay.

When stock went up and is about to catch your calls, the momentum is likely to continue, so you’d be missing out as you lose your position. This happened to me before, and I learned. With growth stocks what I do is this: if my calls are in the money I immediately roll up and out, I don’t look for credit, nor do I wait, since it can become harder and harder to roll up and out as expiration date approaches. In this manner I was recently able to get both a high premium on enphase AND take advantage of stock appreciation.

I was taught to only buy the calls back when I captured 90% of the profit from them.

I know people also use a specific technique where their covered call can be very deep in the money, but they just keep rolling it up and out forever.

[usersignup2]

^ I'd say this is a good overall analysis and action plan.

It's important to have a sense of how your ticker reacts and the phases it goes through. That's why I try to only deal with high conviction stocks and have a less diversified portfolio so that I have the time to analyze. No one can deal with 20-30 stocks effectively unless it's just hodl. Most stocks will go through a repeatable trading phase in two to three cycles. That is it might run for say 40 days, take a breather and repeat. Therefore if you are rolling up and out you can potentially guestimate how long to roll out for so that you are OTM when the cycle ends. It's not an exact science but it can give you a bit of an edge so that you can retain your shares while still collecting premium.

Generally the times I get in trouble with CC are when I'm chasing premium or when my calls are ITM and I don't want to lose the premium I've already collected and opt to have them called away. As Kusok said, when the stock runs against you, it will continue to run, therefore, the hope that you can buy back in after they are called away begins to diminish rapidly.

[kusok]

I've never even considered rolling up and out, I generally always created my CCs at my stock's actual breakeven price.

That is good advice though, right now for example my cost basis on some recent shares is $15.50 but the share price is stuck at $12 or so. Premiums aren't any good past $13.50-$14.00 so I will try to sell CCs at that strike and if they become ITM, I will roll up and out. Solid advice.

Selling calls below your cost basis is dangerous, but you can use tricks like averaging down first, and being careful not to do this in strong bull markets and uptrends. Or you can do some typical “stock rescue” trick, like start selling cash secure puts on it to earn premium and lower the cost basis if you get assigned. Or go out further, sell monthly’s, or even 3 months out, sell after a squeeze, on greenest days. And also if stock goes up and your calls are ITM you may need to roll right away. The deeper the call is ITM the harder it is to roll without having to pay.

There is also a technique where you sell and buy 2 calls each, which reduces your overall cost basis and you can break even sooner and at lower price than your original cost basis. I totally forgot the formula… but it’s online. I did this before. If you bought a stock at $15 and it drops to $10, unbelievably there is a multi option order you can execute that suddenly makes your break even at $13 or so without any cost to you. I should try to find this again. It’s an order going out a few months or at least weeks, and you would use this if you want out as soon as you can without a loss.


I’d love to get usersignup2’s thoughts on this. As one of my Tesla positions in one brokerage is stuck at $245 and I’m going to do stuff with it to be able to start selling calls again., I’d love to know how you’d handle that situation.

[usersignup2]

I'm not a fan of getting too complicated with options because it goes against my general thesis of keeping things simple. I'm also not too concerend with unrealized gains.

It really comes down to conviction and your outlook on the stock as you own. IF you are red and you plan to hold then analyze where price action is and momentum. Is it going sideways, uptrend or downtrend?

If it's in a downtrend and you don't want to sell then you can do CC NTM. if it is sideways then based on RSI and Bollinger, is it moving up or moving down? Keep in mind where support and resistance is. For TSLA I think it is chopping right now with downside to 175 and resistance around gap fill at 210. Personally I would sell calls at 210-212.50 and not be too concerned about premium. Sell puts around 180-185 if you want to add. Sell calls at 10-15 delta if you want to be cautious based on market sentiment.

Fear&Greed index is at extreme greed so there will be an attack sometime this week. Don't be caught chasing premium when your stocks take a dip because more than likely they will bounce back once volatility subsides.

[usersignup2]

NVDA 890C x10 for 1600 net

[jafomofo]

closed out my 4/19 60C oxy calls today, bit premature but i was up a bit over 1K on them and I still have shares to let run a bit.

My CVE CC's got called away a day early so I wound up not being able to close those out and retain the stock which was a screw up on my part since the stocks up and likely to keep going.

Avoided getting assigned on my sofi CSPs and going to wait until tomorrow to rewrite those at 6.5.

Anyone taking shots at shorts on crypto stocks? they are too expensive for me.

[kusok]

Question:

What would be an example of “half intrinsic value, half time value” in the money leaps call option? I’m trying to make sure I understand this correctly, could you give me a hypothetical or an actual example from a stock? I used to buy a leaps deep in the money .9 Delta option to sell covered calls on a.k.a. poor man’s covered call, a couple years out, but I’m learning a different strategy and I’m having a little bit of trouble understanding the math.

And please speak as you would to a 2 year old, or to a golden retriever.

[usersignup2]

Question:

What would be an example of “half intrinsic value, half time value” in the money leaps call option? I’m trying to make sure I understand this correctly, could you give me a hypothetical or an actual example from a stock? I used to buy a leaps deep in the money .9 Delta option to sell covered calls on a.k.a. poor man’s covered call, a couple years out, but I’m learning a different strategy and I’m having a little bit of trouble understanding the math.

And please speak as you would to a 2 year old, or to a golden retriever.

I'm not familiar with the strategy but it would work out close to 60-65delta.

take the premium and divide by 2. Add the result to the strike price. That should add up close to current stock price.

half of the premium + strike price = stock price.
other half of premium = time value

ex. stock price is $500
$450 strike is trading at $100
$450 strike is $50 ITM and remaining $50 of the premium is time value.

[kusok]

I'm not familiar with the strategy but it would work out close to 60-65delta.

take the premium and divide by 2. Add the result to the strike price. That should add up close to current stock price.

half of the premium + strike price = stock price.
other half of premium = time value

ex. stock price is $500
$450 strike is trading at $100
$450 strike is $50 ITM and remaining $50 of the premium is time value.

thank you! got it.