The Official Trading Thread

Here is a good look at a position for this coming week. Lets remind ourselves just how much consolidation Netflix has had between $210 and $220 in the last month. The following is a position that allows us to take advantage of the consolidation. This is a calender spread. Similar strike prices, but the expiration dates are different. The short leg expires first, that is also when we close the position overall.

This position is in the green between the levels of $207.84 & $222.67. Maximum gain is between $214 & $215.

Leaving a position alone is not the best thing so here is how you will maintain it. First of all, the red line on the chart represents the P/L once the options expire. If the stock moves to $222.00 by Tuesday, the position will be in the red, but if it stays there by Friday expiration it will lose all the loses.

Well, once the stock reaches the breakeven level throughout the week, you open a naked call position. This acts as a hedge. If the stock continues going higher, your call position will continue gaining. You will be losing on your calender spread, but your naked calls should be covering that fairly well. If the stock gets to that break even level, you open the call, but it pulls back down again. You sell the call for a loss. What this will do is reduce your overall gain for the week, but this allows you to control taking a loss on it.
 


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grunin you ever use contingent orders? I noticed NFLX jumped up pretty quick over that 220 mark today, i find them pretty useful to execute orders faster than i would have reacted

[ame="http://www.youtube.com/watch?v=zzm1wUmQ4eE"]http://www.youtube.com/watch?v=zzm1wUmQ4eE[/ame]
 
davidne said:
grunin you ever use contingent orders? I noticed NFLX jumped up pretty quick over that 220 mark today, i find them pretty useful to execute orders faster than i would have reacted

Buying Options with Contingent Orders | ThinkOrSwim Training - YouTube
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I have not because I do not like to add automation to my trading. I know many people love to use order stops but I prefer to use mental stops. Just that sometimes a market may rise or fall for different reasons, but the auto-order does not know better.
 
What I opened today are calender spreads in Apple and Google. Double calender spread in each of them. This is a very vega intensive strategy. Money is made from the time decay (we are long theta), but vega will make or break the position. We are long vega so if IV (implied volatility) goes up, our spread does very well. If IV drops = causes vega to drop, and that will such crucial gains from the spread.

This is the risk profile of the Google spread:

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When the position was first opened up in the morning, that area right in the middle was not slightly in the negative territory as it is right now. Later in the day the IV dropped, and this has an affect on how the risk profile looks like. Remember, the red line shows you how the position will look at expiration (this Friday). Further drop in IV will force those higher peaks on the left and right side to come down even lower. On the flip side, a pop in IV will increase the possible gains and make the risk profile much favorable.

Calender spreads require for you to look at the implied volatility or both legs very closely. The short leg must have a higher volatility than your long leg. Remember that on the short leg we are actually short vega. If the IV on the short leg is much higher than the long leg, then we will benefit much more from a drop in IV on that short leg. If the long leg has a higher IV, then we will only take a small gain from the short vega on the short leg, but we will take a large loss on the long vega on the long leg.

Enjoy.
 
Implied volatility is typically a difficult thing for beginning traders to understand. When IV is high, the stock is expected to move quite a bit. This causes option premium to rise. If the stock is not expected to move much, this causes option premium to drop.

At the same time, if the stock is slowly making its way up, this will bring down IV. Reason is that in a bull market traders are more cautious to buy calls. When the markets are dropping quickly, everyone and there mom are rushing in to purchase puts or short stocks to hedge their positions. The demand for puts in a down market versus calls in a bull market is a tremendous difference. This causes IV to increase mostly in a bear market.

There are expectations - such as catalysts. If earnings is coming up, you can bet that IV will be sky high. This will be the case even if the stock is trending down or up. As soon as the catalyst goes by, there will be a vega crush. (extreme drop in vega)
 
mGrunin said:
Implied volatility is typically a difficult thing for beginning traders to understand. When IV is high, the stock is expected to move quite a bit. This causes option premium to rise. If the stock is not expected to move much, this causes option premium to drop.

At the same time, if the stock is slowly making its way up, this will bring down IV. Reason is that in a bull market traders are more cautious to buy calls. When the markets are dropping quickly, everyone and there mom are rushing in to purchase puts or short stocks to hedge their positions. The demand for puts in a down market versus calls in a bull market is a tremendous difference. This causes IV to increase mostly in a bear market.

There are expectations - such as catalysts. If earnings is coming up, you can bet that IV will be sky high. This will be the case even if the stock is trending down or up. As soon as the catalyst goes by, there will be a vega crush. (extreme drop in vega)
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strip out all acronyms, references to greek letters & options labels, and its a lesson that elementary school kids would grasp in 2 seconds. not a rip on you mcgrunin, you seem pretty sharp... but options traders in general have a bad habit of trying to make simple shit sound complex.

tell a 3rd grader to expect a vega crush after a catalyst goes by & you'll get a blank stare. tell him that people will react to what happens once it happens, and he'll look at you like you're retarded and thank you for wasting his fucking time.
 
drave said:
strip out all acronyms, references to greek letters & options labels, and its a lesson that elementary school kids would grasp in 2 seconds. not a rip on you mcgrunin, you seem pretty sharp... but options traders in general have a bad habit of trying to make simple shit sound complex.

tell a 3rd grader to expect a vega crush after a catalyst goes by & you'll get a blank stare. tell him that people will react to what happens once it happens, and he'll look at you like you're retarded and thank you for wasting his fucking time.
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Course, which is why it took me a while to understand everything when I first started. Many of the webinars or analysis you read online will stick to this jargon. In my posts I attempt to use the jargon and then break it down so it is understandable from this point on.

Somewhat off topic but the funniest thing is watching traders going crazy after an earnings release on StockTwits. That site has a similar platform such as Twitter but is meant to follow stocks. After every earning release you will find someone saying "I purchased calls in X stock right before earnings, and it beat earnings and went up. I just checked my position this morning but I am down 40% on my position. Who is scamming me." Really goes to show you how many people attempt to trade options when they should not.
 
I would like to point on VIX. This product is typically used to guage the amount of fear in the markets. The equity markets and VIX have an inverse relationships.

1hr chart for the last three months:

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VIX is one of those indicators that trades in a range. Right now it is near its lower level. It is looking attractive for a call position. If you are long in some stocks or holding calls, then this would be a great time to hedge your position with a call in VIX. Professional investors hedge their positions with VIX.
 
mGrunin said:
VIX is one of those indicators that trades in a range. Right now it is near its lower level. It is looking attractive for a call position. If you are long in some stocks or holding calls, then this would be a great time to hedge your position with a call in VIX. Professional investors hedge their positions with VIX.
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i'm no longer in the markets, but if i were, playing the inevitable VIX bounces off the bottom would be hard to resist.
 
Yes, the bounce is bound to happen. The only question is how soon will it happen. Since VIX call options are priced to expect a movement towards the upside, unless it pops to 16+ points, the gains will be pretty minor. A vertical can be opened, buy the 12 call leg, and sell the 13 call leg. Breakeven is if VIX stays above 12.75, and max gain is if VIX is above 13. This is a high probability trade. You will be risking 3 units to make 1 unit. Keep that in mind.
 
SHGDigitalMedia said:
I agree that you shouldn't trade daily your retirement portfolio but just investing and forgetting about it doesn't work either. Not in the times of High Frequency Trading and short term outlooks of investors So there is a balance in between, sometimes stocks get over bought and its wise to take profits and other times when the market is over sold its time to add more money to it.
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High frequency trading has literally nothing to do with long term investing. They are two completely different things. Trading is largely based off of technicals whereas investing is largely based off of fundamentals. Try telling Buffett/Cuban/Gates/any private equity firm/JP Morgan(the guy)/etc that long term investing doesn't work or that HFT has ANY affect on their investing.

The difference is that long term investing is about making your money work for you in a relatively hands off fashion. You put your money somewhere for a few years and depending on the investment vehicle, spend a nominal amount of your time keeping track of it and making sure that the fundamentals still make sense. Trading is about discovering perceived mispricings in the market over the short term and profiting from investor behavior as they are repriced.
 
mGrunin said:
Yes, the bounce is bound to happen. The only question is how soon will it happen. Since VIX call options are priced to expect a movement towards the upside, unless it pops to 16+ points, the gains will be pretty minor. A vertical can be opened, buy the 12 call leg, and sell the 13 call leg. Breakeven is if VIX stays above 12.75, and max gain is if VIX is above 13. This is a high probability trade. You will be risking 3 units to make 1 unit. Keep that in mind.
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VIX **options** are not priced off of spot VIX, they're priced off of the expectation of where VIX will be in the future. As far as I'm aware, you can't buy options on spot VIX, only on the futures contracts.

Edit: Changed calls to options
 
Merezza said:
Trading is about discovering perceived mispricings in the market over the short term and profiting from investor behavior as they are repriced.
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i think buffett would argue that long term investing is about exactly this, with a longer term expectation of mispricings reaching their valuation.
 
The price action on Apple was absolutely ridiculous right now. Just when everyone thought that Apple was getting legs underneath it, the stock flushed 3.38% just today. I spoke about Apple failing to break the resistance last week and from that point Apple has gone more than $35 (8%).



At the close today Apple was below the 20, 50 & 100 simple moving average. Intraday there was a serious bounce of the low at $422.36. Much of this bounce can be accredited to an overall market rally in the last hour.

Why else did Apple drop today?

  • Funds that are worth at least $100 million were releasing their 13-F filings which shows the change in holdings in the fund. There were many funds that showed a large reduction in shares in Apple through out Q1.
  • Google has been rallying insanely for the past days including today. Money is flowing out of Apple heading into Apple.
 
Brief coverage of the other stocks:


  • Last week I spoke about $880 being a long entry on Google. Google broke that on Monday and is now trading at $915.89.
  • Last week I spoke about $220 being a long entry on Netflix. Netflix broke that on Monday and is now trading at $243.40.
  • On Monday I spoke about the entry on VIX for the bounce. Even though the markets have only gone up since then, VIX has still gone higher. VIX is currently trading at 12.81 versus 12.55 since chart.
 
This is an interesting level to watch on the S&P futures. It is currently hitting a rising resistance, as a matter of fact it hit it earlier today. As expected it bounced down off it but is still hanging around right near it. If it does break over that resistance..then this bull rally has only began...

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