Reddit reviews Option Volatility & Pricing: Advanced Trading Strategies and Techniques
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Look to sell options only in premium rich underlyings (IV rank > 50). Sell around 45 days until expiration. Close between 25% to 50% of max profit. Make sure to roll to defend positions (look to roll around 20 DTE). Sell the 30 delta options, and look to collect 1/3 the width of a spread. If you really want to be a big dick player, beta weight your portfolio to SPY, and keep it delta neutral.
Edit: I got a lot of PMs concerning more information to this approach. Both TastyTrade and OptionAlpha are great resources to learn, and spell out this approach further. Other, more in depth, sources to consider are Option Volatility and Pricing and Options, Futures, and Other Derivatives.
Early on, I was in nasty drawdown period and I was having trouble figuring out what was off. I made the same mistake virtually all traders make, I caved to the vast collection of trading psychology books. When the guy mentoring me found out what I was reading, he gave me the following gem: Only pikers worry about psychology, either you have an edge and you exploit it, or you don't have one and you lose and chase every other excuse.
Trading and Exchanges
Options, Futures & Other Derivatives
Option Volatility & Pricing
Volatility Trading
Dynamic Hedging
99% of finance books are garbage, but those are the ones I thought helped me in some way or another. There's also plenty of interesting research papers if you've got access to some databases.
Don't be a cheapfag and order this book. Read a chapter every night before your nightly fap session. When you've finished reading it cover to cover, read it again, and again, until you finally become straight.
> current stock's price right?
No. If you own 300 shares, you can create 3 options. Think of an option is a legal contract where, depending upon the contract, someone has a CHOICE to force the buying/selling of the underlying shares.
So, you own 300 shares. You can create up to 3 options. But you only want to create 1 option in this example, for 100 shares.
Now, when you create the option, you can choose at what price you want the option to become "in the money" which basically means the option is worth >= $0.
In this case you are SELLING someone else the choice for them to purchase shares, at or before the expiration date, at or above the strike price.
You pick the strike price when you create the option.
If the current price right now of a stock is $100. You can pick any strike price, at, below, or above $100. A strike price of say, $90 - $110 is called "around the money" for selling a call. A strike price at or below the current share price is called "in the money". A strike price above the current price is called "out of the money".
So lets say you're selling a call for a stock currently at $100. The options expiration date is 30 days out. And the strike price YOU CHOOSE is $120. That option will only execute IF the stock price, within the next 30 days, goes above $120. Since the person you are selling the option to has the OPTION to buy it at $120, they don't necessarily always execute their option to. They want to make as much money as possible. So if in 1 of the 30 days, the stock price of the option hits $120.01, technically the buyer can cash in and force you to sell your 100 shares. Netting them 1 cent per share, or a grand total of $1. However, they wont because their break even cost is the strike price ($120) + cost of trade (lets just say $5) plus the cost of the option (lets say 10%). So their break even price would be $132.05. ((strike price * 1.10) + $5/100 shares)
Now, if they don't execute the option within that time period (30 days) you get the option price (10%) netting $10/share and you keep the shares. Option prices vary wildly depending upon time to expiration (the longer the option lasts for, the more expensive, because the greater chance it has of reaching that price) as well as how deep in the money or out of the money it is. There are other factors, as we get deeper into theoretical values for instruments. Things like time decay, the fed funds rate, volatility, etc are all used for a "basic" model of calculating the theoretical value of such a contract. But thats a more advanced topic.
If you're selling far out of the money options, most likely you'll make maybe 1-3%, depending.
This is also why people on /r/wallstreetbets can yolo SPY calls/puts 3 days out for like $10. Because the chance of it reaching in the money is slim to none. But sometimes happens.
The guy that taught me options wrote a really great book called Option Pricing & Volatility. I suggest this book. The first 1-3 chapters goes over the real basics of options.
I have all his teaching materials laying around somewhere, if they're not copyrighted maybe I can scan and share.
Also just a small disclaimer, I might've gotten some of the terminology wrong. I always get the whole buy/sell put/call twisted when commenting on the fly on my phone.
https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
I would recommend Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg. I have worked on several commodities options trading desks and that is the standard text.
I did use the Hull book while studying options and derivatives at university, however. I am not as familiar with the others.
If you really understand the basics, you should be able to answer your own questions. Since you can't, I assume you don't understand the basics, so read this book. When you finish, read it 9 more times.
There is a readme that describes the mechanics of how Etheropt works, but it sounds like you want to learn more about options in general. The classic options book is Natenberg, and having read it cover to cover I do recommend it. For a quicker introduction, the Investopedia guides are pretty good.
Option Volatility and Pricing. Very detailed book. Or, you know, can just google "butterfly spread".
Check out this. (It's on the sidebar)
https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486XIt's like the Bible of options trading
Implied Volatility (IV) comes from the price people are willing to pay for the option, and so is dependant on the amount of interest by market participants in trading it. This can become inflated if a news event is coming like an earnings release after which the stock may reprice higher or lower outside of regular trading hours, thus the higher IV and higher option prices.
If you would like to dig into the underlying option pricing using the greeks Option Volatility and Pricing is a dry read on the theory.
Here are the basics of the greeks:
And yes calls and puts can have a different IV, usually based on things like interest rates and cost to borrow stock.
http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
In addition to Mr.ShortStrangles' book
This is the industry standard
You can find the pdf if you look.
Its also like 600 pages long & I gave up 250 pages in. I intended to come back to it ^eventually. Just decided to try & create a different strat right now.
https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
These two books explain everything about options and the how to play them. Like how to roll from a uncovered call option to a spread. Anyone who trades options has read these books.
Options as a Strategic Investment
Option Volatility & Pricing: Advanced Trading Strategies and Techniques
Essentially, the money value of time is baked into futures contracts. That's why futures that are further out in time are always worth more. You seem to not understand basic pricing models regarding futures if I'm reading your comments correctly, and prices of the underlying and arb opportunities won't yield any interesting conversation if you don't understand the basics first.
EDIT: Here's a great book for options, and the first part of understanding options is understanding future contracts. As such, it's in the first couple of chapters, a long with exact formulas on why the prices are the way they are, regardless of what is being traded.
Here is the mobile version of your link
Trade options, not stocks. Stocks are completely controlled by computers, and are way too fast. The last 2 years I've averaged around 250k or so in income, maybe more, although it profits/income is very choppy in this industry if you do it for yourself. Obviously much more room for both profit potential or loss.
Start reading here: http://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
Then I went and worked for a firm for 2 years, made enough money to trade on my own, and now I can do it for myself.
Once you have a good grasp of the basics take the time to learn the option greeks. Understanding the greeks is essential for anyone looking to get into the options' market. Of course I have no idea if you are contemplating a jump into options. But just in case you are I'll leave these links.
This PDF has a pretty good rundown of the greeks:
http://i.investopedia.com/inv/pdf/tutorials/OptionsGreeks.pdf
If you're very serious about options then a copy of Sheldon Natenberg's 'Option Volatility & Pricing' is a must have.
http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
And McMillan's 'Options as a Strategic Investment'.
http://www.amazon.com/Options-Strategic-Investment-Lawrence-McMillan/dp/0735201978
Well, since you have some clues....get a copy of this
https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
TSLA options strikes are at $2.5 increments, so 220, 222.5, 225, 227.5 etc. There are no strikes of 228.5 and 223.5. Base on Thursday's closing price, the most likely strikes you got would be the 227.5 calls and 225 puts.
To answer your question, no, you are doing it wrong.
Based on the price you got, the options you got were weekly options that expired today. That means you had one day for the stock to make the move you need to make some money. What you have today is pure luck, and it's not even that good a return, for you are risking 100% of the money for a 14.7% return.
It sounds like you don't even know what you don't know. For the love of God, stop doing anything with options until you read this book at least twice back to back.
I'm sitting with about the same amount of capital as you will be starting with. I'm focusing more on option trading because I can get a lot more for my money. One option contract controls 100 shares of stock and is a hell of a lot cheaper. If you know what you're doing, it also allows you to make money no matter which way the market is moving (up, down, or sideways), since most of the time the market isn't going up. It does require you to learn a lot more before you get going though... greeks, strikes, spreads, a good understanding of volitility, your rights and/or obligations, etc, etc.
I use the Think or Swim platform. It has been rated #1 by Baron's for a while now. They have the platform on their site, an extremely rich desktop app (java based, but runs on Windows, Mac, or Linux), iPhone, iPad (the best iPad app I've seen for trading), Android, BlackBerry, Windows Mobile, and a generic mobile browser web app... So pretty much everywhere. They also have a paper money account you can use to practice trading and get your skill level up before you throw your actual money into the market, so you can start now and then start trading once you build up some cash in your account.
This is pretty much the book on volatility if you are going to trade options.
Most of my learning was done via Investools. The lower level classes are good if you ignore all hype of the sell, that goes away as you move up, but it isn't cheap. Think or Swim has some classes here and there as well as some videos and talks, market wrap ups you can listen to, etc.
As for stock tips, I mostly just stick to liquid ETFs with the options. You can just trade these like stocks if you want.. they are kind of like a mutual fund, but without the bull shit fees. SPY (S&P 500), QQQQ (NASDAQ), IWM (Russell 2000), XHB (Homebuilders), etc, etc. I like these because they have good fill prices and I generally don't have to worry about earnings reports. I'll do some stocks here and there as well. There are some good tools for finding and going through them in the ToS and the Investools site also has a rich search tool as well as simplified financial analysis of the company (although I don't use that much anymore). You don't need to look at 1000 stocks every day. Get a watchlist of some things you like and then wait until an opportunity presents itself. You can add and remove things from this list at will.
Don't get emotional about trading. Develop some rules, back-test them with whatever platform you use, paper trade with them, then follow them. Don't stay in a bad trade hoping the stock will come back... you don't have to make up a loss where you lost it.. ask yourself where your money will do the most for you. The answer is never leaving it in a failing trade while you piss your account away. Always know when you are going to get out before you enter the trade. Use sell stops to protect gains in stocks while still letting the winner run.
"options volatility and pricing"
https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
Don't take investing advice from acquaintances. Don't invest in something if you can't figure out how to research it on your own.
I'm guessing your acquaintance was just trying to pretend they're smart by dropping words like 'volatility derivatives'. Nobody who is seriously involved in trading VIX options would recommend that random people start getting into it. It's kind of a specialized field.
Anyway, here are some books that can help:
http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X/ref=pd_sim_b_1
http://www.amazon.com/Volatility-Trading-CD-ROM-Wiley/dp/0470181990
http://www.amazon.com/Trading-VIX-Derivatives-Strategies-Exchange/dp/0470933089/ref=pd_sim_b_2
But if you don't already understand what the terms 'volatility derivatives' means and you're not into math, those books aren't likely to help you.
Trading and Exchanges
Options, Futures, and Other Derivatives
Option Volatility & Pricing
Option Market Making
Trading Spreads and Seasonals
Algorithmic Trading and DMA
There are more advanced and quantitative resources out there but you will need to wrap your head around these concepts before you go further. I should mention that reading these things won't guarantee to make you a profitable trader but you will "get a better understanding of the field."
Online resources:
Investopedia
Elitetrader (most popular trading forum, lots of posters... mostly bad)
Nuclearphynance (smaller but more advanced community)
This book is the most comprehensive one that I've read in covering all the basics of the options market and conventional trading strategies. It's a big step up from a basic "options for dummies" type introduction, but it also doesn't go super deep into the math or the more abstract theory of derivatives markets. For that you have to mostly look in academia.
http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X/ref=sr_1_2?s=books&ie=UTF8&qid=1380603973&sr=1-2&keywords=options
SSRN.com is a wonderful resource for academic papers on the more advanced concepts of option trading and price models that may appeal to a math person like yourself. Use the search feature to find articles on any specific questions you may have. Here's an article that I found extra interesting a few years ago and got me started down the path to my current options strategies.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=375784
Also CBOE.com is a good resource too. They have links to a surprising amount of quality information, research, and historical data.
http://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X?tag=duckduckgo-d-20
there ya go, duckduckgo'd it for ya (I have a copy, it's good stuff, and if you wanna go apeshit and try for 10 million you can give it a shot, but I'd really suggest using only a portion for 'play' trading, you never wanna have to worry about living/losing it)
Read this book
https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
Start with Options & Volatility Pricing by S Natenberg as an intro: https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
Sheldon Natenberg.
If you code, then write an option pricing calculator and play with it.
This is the standard book for new hires at most prop shops:
https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
this:
https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
Since you are into equity research. Here are some suggestions.
Write cash protect puts on stocks that you have done the research on. For example if you think Disney is a buy at $105-110. Sell a put for disney with a 35-45% delta 30-45 days out (should be around 105-110 for an Oct monthly. This is imo the most efficient way to collect that sweet sweet theta premium.
Of you can write covered calls on stocks you own. Same idea, 30-45 days out, 35-45% delta.
There two strategies would imo be the safest ones.
There are so many options strategies you can use. You mentioned that stocks rarely move beyond 2SD anyways. But I believe the tail end risk is more than what a normal distribution might suggest, so you definitely don't want to write naked puts and get wiped out. But in a bull market, you can always write monthly put spreads just outside of the 1-2SD monthly expected move depends on your risk appetite.
My favorite strategy back in Feb/March was buying weekly SPX strangles at the 1SD weekly expected move. It was quite profitable when the VIX was high.
edit: another strategy if you want to take advantage vega. Sell an ATM straddle for a stock the week of the earnings, But protect yourself with another strangle a few weeks out when the vega impact is less.
But I would read natenberg first. There are just so many strategies out there, should learn the basics first.
I worked at the CME in Chicago as a broker and the books the guys told me to get when I first started were Options Pricing and Volitility and Technical Analysis of the Financial Markets. Learn options is the best advice, you will get WAY more return for your buck plus learn to protect yourself in your various positions using various strategies.
Very dry reading but its worth it. Good luck!
Start with Natenberg . If you're not willing to put in (a lot of) time, options are not the way you want to go...
Option Volatility & Pricing-Natenberg
When you are done, read this:
http://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
no, this:
https://www.amazon.com/Option-Volatility-amp-Pricing-Strategies/dp/155738486X
still natenberg
I haven't had a chance to give either a read but I've seen it recommended enough that I'll send it your way. Have you looked at either Fundamentals of Futures and Options Market or Option Volatility and Pricing: Advanced Trading Strategies and Techniques? Maybe that's the more of what you're looking for.