Newbie Options Trading

[bxr140]

I would like to know what tools/websites that folks use to evaluate options prices, trading, an potential profits/losses.

Most trading platforms will allow you to create and analyze mult-leg options positions. They're all kind of different and so its hard to say that any particular one is better than the other; usually its easiest to just go with what you already have (through your 401k or IRA or whatever) before creating new accounts.

FWIW, I use Fidelity, Tradestation, and E-trade.

Tradestation is my primary trading platform, as it is significantly more powerful than the other two, has way better charting functionality, way more functionality for setting up trades, and the pretty seamless futures/forex functionality means they're just another ticker in my watchlist. Its also the only platform where I can create my own indicators and automated trading scripts. (I've been working for a year or more on an automated get-rich script quanting the ES...I'll let you know <ahem> when it works. ). The downside is that I have to run it in a VM (on my MBP) with significant resources allocated, so its a bit of a chore if I'm looking to just do something quick. The web interface is great for bare bones quick stuff but is significantly less functional--like, I can't analyze options P/L, for instance. The mobile app is great too, easy to use and similar functionality to the web interface. Super easy to maintenance trade and pretty deep charting functionality.

Fidelity's platform (Active Trader Pro) is pretty solid too, though its a little slow on my MBP and freezes sometimes. Charting is a bit frustrating but overall the platform is great for an entry level trading platform. There are actually some indicators that prefer to use with Fidelity because they are easier to use than Tradestation, so I often have both platforms running at once. The options P/L tool is not quite as powerful as Tradestation, but does 95% of what the TS tool does and so I often just use the Fidelity tool. The web interface is crap, though there are some good research tools in there for equities/ETFs/Options--I have a few custom options scans that I use for finding volatility trades, for instance, and every few weeks I run an equities scan to see big institutional movers. Fidelity's app is a steaming pile, only made worse by the fact that faceid is somehow broken (honestly not sure if its just me--can't be bothered to check) so logging in is a PITA.

I didn’t spend much time on the e-trade platform before I uninstalled it. I didn’t find anything of differentiating value over the other two and if you're asking me it’s even odds whether the UI is newer or older than windows 95. The web app (power etrade, not the regular etrade) is actually really nice and easily the most powerful of the three. It’s the only one where you can analyze options, though I only use it in a quickie as the functionality isn't as deep as the other two platforms. The app is also great (again the power etrade app, not the regular one), and easy for maintenance trading, though I don't like the charting as much as TS.

 

[ReddyLeaf]

Thanks @bxr140 Unfortunately for me, my platform is web-based and has no charting or analysis tools, just a bunch of pull downs, boxes, and buttons for inputs. The only extra is the ability to select up to ten options at once, which only shows the last price. I can’t get greeks or other rudimentary info.

 

[Chenkers]

Did you happen to get this formula working on an MS Excel, or Google Sheets? If yes, can you share the steps?

Just google it. It's not that hard to find plenty of examples with people more qualified than me guiding you through the steps to set up option pricing in Excel.

 

[corduroy]

If, on the other hand, you're going to stick with the variety pack... So far, I've never managed to sell options "at the peak". I'm OK with that -- I did plenty well, and just had to convince myself not to check the price again in the following days or weeks. I don't think you necessarily need to lock in the very best price -- if you get 10x or whatever your goal is, that's doing great and you've certainly taken advantage of the opportunity. Don't beat yourself up if you don't make 20x by selling at the "perfect moment." So I'd go in one by one and set limit sell orders for a price I'd be happy to have. Then if things change over the days between now and 12/21, I'd adjust my sell orders. Having that on autopilot makes me a lot less stressed about whether I'm in front of the ticker every single moment.

Some great advice here in general about not beating yourself up and looking back. I am the king of that these days. I tried to get cute with my bids on a big call purchase about a week ago, which of course never filled, and I keep going back to calculate "what could have been". I need to let that stuff go and focus on the current situation and looking forward.

 

[vwman111]

If i am looking at profiting from an increase in IV (in addition to the share price continuing to rise), should i be looking at short term options vs LEAPs? Deep ITM vs OTM? Is there a known pattern when it comes to purchasing the optimal options to take advantage of a spike in IV? It is simply looking at the Vega?

 

[adiggs]

Some great advice here in general about not beating yourself up and looking back. I am the king of that these days. I tried to get cute with my bids on a big call purchase about a week ago, which of course never filled, and I keep going back to calculate "what could have been". I need to let that stuff go and focus on the current situation and looking forward.

I've had a few situations like this. It's helped me in that now, when I identify what looks like big potential situations, I go for something closer to a market order rather than sweat a few pennies or dimes. I know the market makers like that attitude, but having missed a few fills that hurt badly later, picking over pennies to put 10s of $$ at risk - I try to ID those situations and just get the fill.

This for me is what can be learned from the past - now how you can change a decision already made, but rather how you can use what happened previously to change a future decision in a similar situation.

 

[ammulder]

If i am looking at profiting from an increase in IV (in addition to the share price continuing to rise), should i be looking at short term options vs LEAPs? Deep ITM vs OTM? Is there a known pattern when it comes to purchasing the optimal options to take advantage of a spike in IV? It is simply looking at the Vega?

It appears that rising IV affects short-term options more quickly or more strongly than long-term. Right now if you pick a price like $700 or $800 and then view the stats (including IV) on a variety of expiration dates for that price, I think you'll see the shorter the term, the higher the IV. For instance, IV might be in the low 90s for Dec 2020 expiration, and low 70s for Jan 2023 expiration. But it does also vary by strike price.

 

[bxr140]

Thanks @bxr140 Unfortunately for me, my platform is web-based and has no charting or analysis tools, just a bunch of pull downs, boxes, and buttons for inputs. The only extra is the ability to select up to ten options at once, which only shows the last price. I can’t get greeks or other rudimentary info.

I'd strongly recommend that you sign up for a broker like IBKR, Tastyworks, or Tradestation. This really is a right-tool-for-the-job kind of situation. Those services typically have a really low balance limit for full access to the tools (TS is $2k) and sometimes also free versions...though in that case they might charge a monthly or maybe per-use(?) commission for using the platform. You can research the bigger institutions (like Fidelity) too, but I think the requirements to gain access to their trading platform are more stringent.

The good news is you don't need to move all of your assets into that account. I have assets spread around the three services noted above, and I use all three of them to varying degrees to make trades in all three accounts.

I'd be happy to give you some pointers on TS if you go that route to speed up your learning curve.

 

[EV forever]

Thanks @bxr140 Unfortunately for me, my platform is web-based and has no charting or analysis tools, just a bunch of pull downs, boxes, and buttons for inputs. The only extra is the ability to select up to ten options at once, which only shows the last price. I can’t get greeks or other rudimentary info.

I'd strongly recommend that you sign up for a broker like IBKR, Tastyworks, or Tradestation. This really is a right-tool-for-the-job kind of situation. Those services typically have a really low balance limit for full access to the tools (TS is $2k) and sometimes also free versions...though in that case they might charge a monthly or maybe per-use(?) commission for using the platform. You can research the bigger institutions (like Fidelity) too, but I think the requirements to gain access to their trading platform are more stringent.

The good news is you don't need to move all of your assets into that account. I have assets spread around the three services noted above, and I use all three of them to varying degrees to make trades in all three accounts.

I'd be happy to give you some pointers on TS if you go that route to speed up your learning curve.

I personally find Thinkorswim a little too complicated. I am used to Fidelity's platform - both web based as well as ActiveTraderPro.

@ReddyLeaf - are you sure the web based platform does not have any charting or analysis tools? The reason I am asking is that I used Fidelity for years, but didn't even know that there were web based tools available. I am just surprised that you have an account that can trade options, but no tools for analysis. It may be worth calling customer service and asking.

 

[⚡️ELECTROMAN⚡️]

Great answers. Thanks @ggr & @FS_FRA . Another thing to remember @BabyBull is that most options are never exercised or reach the expiration date because people buy back or sell to close, often on the Thursday or Friday before expiration. In the wheel options thread, especially when selling an option, people often close when 60-80% of the value has decayed away. For example, say you sold a weekly covered call for $10 and the stock price remains constant but the time decay causes the option to be worth only $2 on Thursday. Since you sold it for 10 , buying it back for 2 means you get to keep 8/10=80% of the value and you’ve closed the position and your options risk is zero.

Here’s a personal example (don’t remember the exact numbers). I sold a call two weeks before the S&P inclusion announcement for somewhere near $5/share. The next week, the value was somewhere near $2, and I decided (luckily) to buy it back. A few days later, that same option spiked back over $10 because of the SP announcement. I got really lucky on my first “safe” covered call option sale, pocketing a whopping $350 total or so. If I had missed closing it early, I would have lost more than $1000, potentially my 100 shares and all the current and future price appreciation. I got lucky, “picking up pennies in front of the steamroller“ as many people say on TMC. It’s a lesson that I think about every time I trade.

So the $1000 loss is just from the stock price rising $15 above the strike price that you sold the covered call at?

 

[bxr140]

It appears that rising IV affects short-term options more quickly or more strongly than long-term.

That's not necessarily true. Remember that the impact of volatility on contract value is [∆ %IV * Vega], so its the movement of IV that's important, not the IV value. It is true that while IV for closer expirations typically moves faster than farther expirations (it depends a lot on strike vs underlying, earnings, etc.), Vega is almost always if not always higher for farther expirations. So the two variables in the equation are often kind of 'opposite'--you want the closer expiration for the bigger IV moves but the farther expiration for the bigger Vega.

Its also worth noting that IV movement typically decreases the farther from the money you go, so a DOTM contract will likely fare better as a farther expiration than a closer one.

If i am looking at profiting from an increase in IV (in addition to the share price continuing to rise), should i be looking at short term options vs LEAPs? Deep ITM vs OTM? Is there a known pattern when it comes to purchasing the optimal options to take advantage of a spike in IV? It is simply looking at the Vega?

So as a baseline, ATM will provide the most immediate results from volatility, since IV moves fastest ATM and Vega is highest ATM. But assuming you're bullish, its worth considering a slightly OTM strike, as favorable underlying movement [which brings your strike closer to the money] and will raise the Vega and IV of your contract compared to the ATM strike which will immediately start to drop off. A good starting point for that OTM strike would be maybe 20-30% of the way between current SP and your price target.

As for expiration, as a general rule its primarily a function of how long you're going to hold, though I wouldn't go too short because you'll burn too much on theta and if you go WAY close (like, a couple weeks out) you'll see diminishing returns because of the decreasing Vega.

Really it all comes down to your conviction, when/where you think IV will peak, etc. Your trading platform's P/L calculator should be able to show you what will happen with a change in IV which should definitely help.

 

[bxr140]

So the $1000 loss is just from the stock price rising $15 above the strike price that you sold the covered call at?

Re-reading @ReddyLeaf's post, I don't think there was a risk of $1000 loss. I read the position as a covered call, and the only way a covered call loses is if underlying is below break even at expiration. If it was a naked call then yes, there's increasing risk with upward SP movement.

 

[vwman111]

That's not necessarily true. Remember that the impact of volatility on contract value is [∆ %IV * Vega], so its the movement of IV that's important, not the IV value. It is true that while IV for closer expirations typically moves faster than farther expirations (it depends a lot on strike vs underlying, earnings, etc.), Vega is almost always if not always higher for farther expirations. So the two variables in the equation are often kind of 'opposite'--you want the closer expiration for the bigger IV moves but the farther expiration for the bigger Vega.

Its also worth noting that IV movement typically decreases the farther from the money you go, so a DOTM contract will likely fare better as a farther expiration than a closer one.



So as a baseline, ATM will provide the most immediate results from volatility, since IV moves fastest ATM and Vega is highest ATM. But assuming you're bullish, its worth considering a slightly OTM strike, as favorable underlying movement [which brings your strike closer to the money] and will raise the Vega and IV of your contract compared to the ATM strike which will immediately start to drop off. A good starting point for that OTM strike would be maybe 20-30% of the way between current SP and your price target.

As for expiration, as a general rule its primarily a function of how long you're going to hold, though I wouldn't go too short because you'll burn too much on theta and if you go WAY close (like, a couple weeks out) you'll see diminishing returns because of the decreasing Vega.

Really it all comes down to your conviction, when/where you think IV will peak, etc. Your trading platform's P/L calculator should be able to show you what will happen with a change in IV which should definitely help.

Thanks @bxr140, i was thinking of purchasing some Jan 23 LEAPs, likely OTM in order to take advantage of the stock price movement related to the upcoming inclusion. it sounds like i should be looking for some options that expire in the next 3-6 months and close to ATM to take advantage of an increase in the IV.

 

[corduroy]

Anyone planning to make changes with their inclusion calls? Seeing some of mine lose 100%-200% yesterday and probably a lot more today has me scratching my head what to do. Hold, sell and try to re-buy on the dip, hold and buy more - I'm considering all options.

 

[Nrkl]

Anyone planning to make changes with their inclusion calls? Seeing some of mine lose 100%-200% yesterday and probably a lot more today has me scratching my head what to do. Hold, sell and try to re-buy on the dip, hold and buy more - I'm considering all options.

I have a small YOLO position riding on this inclusion and am pondering the same. My conclusion was to just sit tight till week of 21st. In the end, that's when the real buying and squeeze is supposed to happen, and my options are at 12/24 expiry, and most of the almost in the money.

I did properly YOLO on some 900 strike options couple days ago. Those will probably be another learning in a long chain of failures teaching me to just hold and play dead.

 

[bxr140]

Thanks @bxr140, i was thinking of purchasing some Jan 23 LEAPs, likely OTM in order to take advantage of the stock price movement related to the upcoming inclusion. it sounds like i should be looking for some options that expire in the next 3-6 months and close to ATM to take advantage of an increase in the IV.

If you think IV is going to go up then yes, closer than 24 months is probably a good idea. If you have access to IV30/60/90/180 data you can visualize where it might top out for a certain expiration and then you can evaluate the P/L to see if its actually a worthwhile position.

Since IV is actually pretty high right now (IV30 is only around 50% TTM, but the TTM were pretty bananas and not representative of "normal" years), you may want to considering covering your +C cover with a sold call at or above your +C strike and at a closer expiration (creating a calendar or diagonal) or a sold put somewhere OTM (creating a collar) either at the same or closer expiration as the +C.

 

[bxr140]

I did properly YOLO on some 900 strike options couple days ago. Those will probably be another learning in a long chain of failures teaching me to just hold and play dead.

Admittedly a bit heavy on the parenting here, but since this is the <ahem> proper newbie thread, "proper" and "YOLO" are incompatible concepts.

The only "proper" trade is one where the entry, stop, and target (and the associated risk/reward) are all evaluated before taking the position. That's how smart money makes money. FTR, Trade != Investment...investing is another story and on a completely different timeframe than trading.

Conversely, YOLO is lucky money. There are some great stories out there especially on the crypto side, but for the most part YOLO money gets shoveled toward the aforementioned smart money. It is essentially a spin on "If you can't spot the sucker in the room..."

Just to be clear I don't have a problem with YOLO as long as its accepted as YOLO, essentially written off, and not purported to be some great success if it hits. FTR, I dropped a small YOLO on XRP this year (and I happen to be up 2.5x right now), and a number of my TSLA positions over the dynamiting-fish-in-a-barrel year have been as much YOLO as anything.

If it helps, a good entry level rule of thumb for Risk/Reward is 3:1. Also, a good entry level rule of thumb for total risk on any position is 1-2% of the account balance, and that total risk defines actual position size. Follow those rules and one can have a bad streak of only a 25% win ratio and still statistically maintain account balance.

 

[Nrkl]

I have a small YOLO position riding on this inclusion and am pondering the same. My conclusion was to just sit tight till week of 21st. In the end, that's when the real buying and squeeze is supposed to happen, and my options are at 12/24 expiry, and most of the almost in the money.

I did properly YOLO on some 900 strike options couple

Admittedly a bit heavy on the parenting here, but since this is the <ahem> proper newbie thread, "proper" and "YOLO" are incompatible concepts.

The only "proper" trade is one where the entry, stop, and target (and the associated risk/reward) are all evaluated before taking the position. That's how smart money makes money. FTR, Trade != Investment...investing is another story and on a completely different timeframe than trading.

Conversely, YOLO is lucky money. There are some great stories out there especially on the crypto side, but for the most part YOLO money gets shoveled toward the aforementioned smart money. It is essentially a spin on "If you can't spot the sucker in the room..."

Just to be clear I don't have a problem with YOLO as long as its accepted as YOLO, essentially written off, and not purported to be some great success if it hits. FTR, I dropped a small YOLO on XRP this year (and I happen to be up 2.5x right now), and a number of my TSLA positions over the dynamiting-fish-in-a-barrel year have been as much YOLO as anything.

If it helps, a good entry level rule of thumb for Risk/Reward is 3:1. Also, a good entry level rule of thumb for total risk on any position is 1-2% of the account balance, and that total risk defines actual position size. Follow those rules and one can have a bad streak of only a 25% win ratio and still statistically maintain account balance.

I appreciate the parenting, and apologies for misunderstanding the spirit of the thread. . While I consider myself a rational and cool-headed person, I have a tendency to gamble at times. While I do have a loose plan, it's certainly light on rigor and heavy on hopes and dreams.

 

[bxr140]

I appreciate the parenting, and apologies for misunderstanding the spirit of the thread. . While I consider myself a rational and cool-headed person, I have a tendency to gamble at times. While I do have a loose plan, it's certainly light on rigor and heavy on hopes and dreams.

If it matters I think you hit the spirit of the thread on the nose. Its a place to come and learn and be exposed to other ideas. Any criticism should be constructive and forward looking and not just kicking the dog. Most of us have had dumb losses, most of us gamble from time to time, and all of us love big wins.

 

[Yoona]

Hello... need your expertise please. I sold a covered call $615 for this Fri, and AH is $584 right now. I am nervous of it getting exercised soon. What is your 'not advice' so I can exit my predicament? I am big HODL and would rather pay whatever amt to close the sell than lose the shares. Book cost was $179. I know profit is huge but i care more for keeping the shares than having $.

Thank you.