Options trading in OZ - 'Reopening' discussions

[Sharkman]

Is it time to sell some heavily OTM calls on QAN ?
Gunnerguy.

i took a quick look at QAN earlier today when the market was open and found that the sept ATMs were trading at around 32 IV. that's fairly high compared to most of the majors, but for an airline stock and given what's going on in the world right now, it kinda feels a bit too low to me. i don't follow QAN too closely, but had i found IVs in the 50s i wouldn't have batted an eyelid.

 

[Gunnerguy]

@Sharkman
Thanks for your comment.
I’m just looking around for opportunities to extend my trading.
As you say the IV is still not attractive.
With my IV scanner I still come up with Z1P with a high IV, however seemingly Z1P could go +/- 30% within 2/3/4 weeks. I don’t want to be and the wrong side of that ?

 

[Sharkman]

With my IV scanner I still come up with Z1P with a high IV, however seemingly Z1P could go +/- 30% within 2/3/4 weeks. I don’t want to be and the wrong side of that ?

i'm not familiar with Z1P options, i don't think they'd have sufficient liquidity for my liking, but i might check them out on monday anyway and see what's going on.

this sounds like you're still treating options like they were stocks and focusing on the delta. there's nothing wrong with that if you are aware other risks besides delta do exist, but you don't have to have massive delta exposure if you don't want it. there are strategies that will allow you to square up or hedge off some your delta risk so a blowup in the stock price doesn't also blow up your account.

you could try having a look at the IVs at different strikes/deltas and also the IVs 2 or 3 months out vs front month IV (ie. tenor skew) or even the weeklies (not in Z1P's case as they are too small to have weekly chains, but the majors will) and see if you think there are good opportunities to sell contracts at a high IV and hedge off some of your delta/gamma risk by buying different contracts at a low IV.

there was an opening for this sort of thing in a few of the majors during the early panic stages of the pandemic using strategies like diagonal spreads (i wrote a bit about it in some posts above) but the skews are no longer like that anymore. there might well still be some good chances to do this, but they don't seem as readily apparent these days (at least to me). so it's back to the old covered calls and cash covered puts for now.

 

[Gunnerguy]

Thanks for your comments @Sharkman.
I'll take a look at the changing IV's over contracts.

Monday mornign here and considering .....

..... a Short 5/10 Strangle on Z1P for September.
Selling a Put at $5 strike , and Selling a Call at $10 strike.
Not a great premium, however breakevens are $4.8 (-30%) and $10.2 (+46%).
Background - if I get assigned the Put I am happy to take the Z1P shares at $5.

Comments, critics greatfully recieved.

Gunnerguy.
(Just trying to use the IV of Z1P)

 

[Gunnerguy]

A bit of a frustrating day with respect to ASX options today.

Last week I only made 1 trade on Monday (ASX200, December 8200/8500 Bear Call Spread) and was hoping to get 2-3 in this week to keep the momentum going.

I looked at several trades today ….

August or September Bear Call spreads on Z1P, QAN, CPU
August or September Short Straddle on Z1P
August or September $5 Put on Z1P.
August or September $104 Covered Call on CBA,

……. but I just couldn’t pull the trigger on any of them ……

I did place trades on Z1P September Bear Call spread but the price from the MM’s just kept moving away from me (lower and lower premium through the day) so I eventually didn't get sucked in. Premiums are not that high, and even potential losses are not that high but I believe they would all be good positions based on where I ‘believe’ the prices in these shares is going over the next 4-6 weeks.

…… Can you believe it …… I own a large swath of CBA shares (bought between $85 and $90) but find it hard to sell a single contract of $104 September covered calls. If CBA goes up to $104 my other shares gain significantly, but I would loose a much smaller amount on the covered call, but still couldn't pull the trigger.

FYI I was looking at Z1P and CPU due to their current high IV, QAN, because I believe they are ‘dead’ for a few weeks, and CBA ……. Because I’m (well) covered.

…… my August STO 89 & 90 CBA Puts are doing well, as are my STO 106 CBA calls. My BHP 52 and FMG 25.5 Calls are currently being threatened, but my August STO 48/44 BHP is also doing well.

Gunnerguy.

(Patience, don’t fight the market, remember the tortoise beat the Hare. If it was easy every one would do it. Rome wasn’t built in a Day. We don’t do it because it is easy, we do it because it is hard …….)

 

[Gunnerguy]

As a community of traders/investors it is nice to see the sharing of information and ideas, and also seeing people successful in their strategies and trades. I believe I is also good to see where others have made mistakes so that those that follow them do not make the same ones.

For those who have been following my posts on my learning and experiences in options trading this is such a post that shows an error.

This morning I was setting up for a Short Strangle on Z1P. Share price was $6.61 at the time of the trade. I was planning to Sell a Put at $5.25 (which if assigned would ‘force’ me to but Z1P at $5.25 which I wouldn’t mind too much), and Sell a Call at $8.00 (if assigned would allow the buyer to buy Z1P from me at $8.0). The strike date is for August expiration. I didn't believe the share price would move as much as to go outside these values before August expiration. I thought I might pick up a small premium.

I use excel to calculate and display the payout chart on the option strategy based on the premiums. My excel showed me that the net premium was only about $5 with a Delta of 0.10. Not worth it at all. When I put the trade in to IB it was suggesting a net premium of $286. My eyes lit up thinking my excel is incorrect. I checked the strategy name in IB, and it was ‘Short Strangle’, which it is, so I presumed it was correct. I checked my numbers in excel again and the net premium was still only about $4. I thought my excel was wrong.

A nice premium of $286 for an option expiring in August. That’s a nice little gain I thought. Distracted I hit the sell button ……….

The trade went through. I was credited the premium immediately. Then I started to think about it. The premium was TO GOOD TO BE TRUE. Further analysis then showed me that I had the options the WRONG WAY ROUND !!!!

What I had in fact done was Sold an $8 Put (buyer can sell his Z1P shares to me at $8 now) and Sold a $5.25 Call (buyer can buy Z1P from me now at $5.25). The current price of Z1P was $6.61. So I had sold two opposing options that were both ITM !!! What a stupid mistake !

I tried to go back in to the market and buy the contract back but was unable to as my offer price was not accepted. Looking at the time/prices it looked as if I could have bought the position back for about $295 (leaving me a net loss of $9 to learn from my stupidity). But was unable to buy the position back.

If Z1P remains between $5.25 and $8.00 by expiration in August both options will be assigned. I will have commission on buying shares and selling shares, probably 4 lots of commissions. I have potential UNLIMITED losses if Z1P falls dramatically below $5.25, or rises dramatically above $8.00.

I will keep a daily close look at the Z1P share price over the next 4 weeks, and if the price gets close to the $5.25 or the $8.00 I will take a single position to reduce any potential losses above/below my strike prices depending on which option is threatened.

Lesson Learned …….. Look at IB’s profit/loss graph, and then your own. If they don’t match then something is wrong. Check, recheck, and double check. Don’t get distracted.

Hopefully not a too expensive error …… maybe up to $50, which is not a lot, however I am trading small values till I get confident, and then go in for the $500 to $1,000 option trades.

Gunnerguy.

(feeling annoyed with oneself ....... )

 

[Sharkman]

you may have already realised by now, but the payoff is the same regardless of whether you sell 5.25 puts/8.00 calls or sell 5.25 calls/8.00 puts! that's probably why you didn't notice anything was awry on IB's payoff graph... because nothing was awry.

disregarding brokerage + spreads and assuming zero cost of carry (which it may as well be considering what the risk free rate is these days) to simplify things for illustrative purposes, if you took in 2.86 premium for the strangle that you did, that leaves 0.11 extrinsic. so at fair value you should have received 0.11 premium for selling 5.25 puts/8.00 calls with put-call parity (for retail trading purposes it's fairly safe to assume it always holds, as any meaningful divergence will be arbitraged out of existence by MM bots in milliseconds).

say the stock is 5.00 at expiry so the puts get assigned. if you sold the 5.25 puts, you take a 0.25 cap loss, plus the 0.11 premium taken in, for a 0.14 net loss. if you sold the 8.00 puts, you take a 3.00 cap loss, but you took in 2.86 premium, so it's the same 0.14 net loss.

if the stock is 14.50 at expiry so the calls get assigned, if you sold the 8.00 calls you take a 6.50 cap loss, plus the 0.11 premium for a 6.39 net loss. if you sold the 5.25 calls you take a 9.25 cap loss but you received 2.86 up front so again the net loss is the same 6.39.

if the stock is 6.00 at expiry, both the 5.25 put and 8.00 call expire worthless leaving you with the 0.11 premium collected. if the strangle is done the other way around and they both get assigned, you are put the stock at 8.00, get it called away at 5.25 for a 2.75 cap loss, plus the 2.86 premium received for the same 0.11 net gain.

the fact that both legs would be assigned instead of expiring worthless is no big deal - with IB you DON'T pay the normal stock brokerage rates when options are assigned, you only pay the option exercise/assignment fee of 27.5 cents per contract. so ignoring other considerations (spreads, tax treatment etc.) which might not be significant in any case, it'll only cost you an extra 55 cents compared to getting the legs the right way around.

as you've probably guessed, i didn't pick the 14.50 at random. that's the price Z1P reached from levels similar to where they are now in the space of a few weeks earlier in the year. which relates to the last point i wanted to bring up - do you hold enough units of the underlying to cover a potential call assignment? it wasn't immediately apparent to me from your post.

if you do, it's all good, you essentially ended up with the risk profile that you originally wanted anyway.

if you don't, then you really do have unlimited topside risk, as you basically have a naked call with a small bit of extra cushioning from the put premium, and being short the 8.00 call instead of the 5.25 call won't change that. in which case i'd consider going and buying 100 units of stock when the market opens tomorrow. or buying like a 9.00 call to cap your topside risk. i realise you're deliberately keeping the positions small whilst getting the hang of it, so even if it does rally to 14.50, that's not a huge loss in $ terms. but leaving short calls uncovered is not a good habit to get into my view. if you do it with larger and larger positions, one day you may wind up on the wrong side of a takeover offer / FDA approval / company winning a massive surprise new contract etc. and that could blow you out of the water in one fell swoop.

 

[Gunnerguy]

Your an absolute Star @Sharkman !!!!

I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.
My STO call is at 5.25, and my STO put is at 8.00. I do not hold any underlying.

If I understand you correctly, and I have redone my excel math (with no commission for assignment, apart from the 27.5c) if the SP remains between 5.25 and 8.0 I actually make a smidgen of money $8, but most importantly I did not totally screw up as I though I had.
I am most concerned about the upside risk, and yes I know straight away about $14.50 when you mentioned it.
I can buy a 7.75 Call for 0.1 at the moment which would protect me if the price shoots up. I will hold the option and assign it if/when the SP goes over my 8.00 Put. This, I believe, will create an 'underlying' when/if I need it.
I could also put in a conditional trade to buy 100 of the underlying at 7.99 say when the SP goes over 7.50. I would then hold the underlying in defence of the SP going over 8.00.

Buying the 7.75 call has upfront/immediate costs, and protection, but a 7.99 conditional buy order still protects me at no 'current' cost.
Yes we are talking about small peanuts now, thankfully. The easy one is just to buy the 7.75 call and forget about it, move on to other trades, and my Z1P Strangle will sort itself out in time with minimal loss, but as I like 'strategies' and seeking 'angles', the conditional order would be the most cost effective, except if Z1P get an takeover offer at say $15 my conditional trade would just be ignored and I would be left standing holding the bag.

But ......... I'm gonna buy a 7.75 Call tomorrow to cover my erroneous Strangle. Learn from my mistake. As we say in golf 'take your medicine'.

Great stuff @Sharkman . Your an absolute saviour with your explanation. I live to trade another day.

My next job now is how to 'manage' my CBA, FMG, and BHP trades over the next 3-4 weeks with FY results, XD's, and no doubt volatile share prices.

Gunnerguy.
(I'm gonna sleep better tonight and dream about keeping my concentration)

 

[peter2]

@Sharkman I'm pleased that someone replied. I knew that something could be done to minimise the open risk. Option traders are as flexible as seals.

Please to see that @Gunnerguy has decided to "fix" his error immediately. If it doesn't cost a little then the lesson may not be learned as easily. Whenever I make a mistake I cop the double brokerage plus the spread asap.

 

[Sharkman]

no problem, i learned most of what i know in options from reading some great material over the years that people put in the effort to create and provided for free, it's only right that i try to do the same where i can.

I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.

it's your portfolio, so you are of course free to do what you think is best. however i would suggest sticking to just covered calls and cash covered puts for a short while. IIRC those are all i did for my first 3-4 months of options trading. it might seem repetitive, but going thru the thought process of "if the underlying does this, then my risk is that, if the market moves like this, then i'll respond by doing that" etc. on the basic strategies helps build up the "muscle memory" that will make it easier for things like strangles to click more intuitively down the track.

I can buy a 7.75 Call for 0.1 at the moment which would protect me if the price shoots up. I will hold the option and assign it if/when the SP goes over my 8.00 Put. This, I believe, will create an 'underlying' when/if I need it.

you could, but that will leave a window between 7.75 and 8.00 where they will both be ITM, leaving you with a stock position that you may not want. again, probably no big deal because it's a small position, but it helps build the "muscle memory" for later when position sizes get larger.

the simplest way to "unwind" the position is probably just buying 8.00 calls. a bought call + a sold put at the same strike and expiry = a synthetic long stock position, which will cover your short 5.25 call obligations, regardless of whether it expires above or below 8.00. that simplifies the position to just 2 possible outcomes: stock is above 5.25 and gets assigned, you take delivery at 8.00 to cover the assignment and your profit is 0.11 (2.86 premium - 2.75 cap loss) minus the cost of the 8.00 calls; stock is below 5.25 and your short calls expire worthless, you take on a stock position at an effective cost base of 5.14 (8.00 - 2.86) plus the cost of the 8.00 calls.

I could also put in a conditional trade to buy 100 of the underlying at 7.99 say when the SP goes over 7.50. I would then hold the underlying in defence of the SP going over 8.00.

in my opinion a non-guaranteed conditional is not an effective way to protect this sort of position because what if it gaps on the open from 7.40 to 8.50 then rallies to 10 and beyond during the session - you will not get filled. and gapping is often the result of some surprise upside event, the very same things that can blow up trading accounts holding uncovered short calls!

if the broker offers guaranteed conditionals, those would guard against gapping, but behind the scenes the broker will be buying an option (and charging you for it) anyway, so you may as well just buy the option yourself.

Please to see that @Gunnerguy has decided to "fix" his error immediately. If it doesn't cost a little then the lesson may not be learned as easily. Whenever I make a mistake I cop the double brokerage plus the spread asap.

that's very true. if someone picks up a bit of premium by taking on a risky uncovered position and "gets away with it" by avoiding the assignment, there is the danger of potentially mistaking a good outcome for a good strategy, keep doing it, and eventually get wiped out when the aforementioned takeover offer / massive earnings surprise etc. comes along.

 

[wayneL]

Your an absolute Star @Sharkman !!!!

I had to re read your post 2-3 times to get my head round your explanation but now it's all good (I think).
I was really annoyed (and depressed) at my failure today. My attention to detail's normally impeccable.
My STO call is at 5.25, and my STO put is at 8.00. I do not hold any underlying.

If I understand you correctly, and I have redone my excel math (with no commission for assignment, apart from the 27.5c) if the SP remains between 5.25 and 8.0 I actually make a smidgen of money $8, but most importantly I did not totally screw up as I though I had.
I am most concerned about the upside risk, and yes I know straight away about $14.50 when you mentioned it.
I can buy a 7.75 Call for 0.1 at the moment which would protect me if the price shoots up. I will hold the option and assign it if/when the SP goes over my 8.00 Put. This, I believe, will create an 'underlying' when/if I need it.
I could also put in a conditional trade to buy 100 of the underlying at 7.99 say when the SP goes over 7.50. I would then hold the underlying in defence of the SP going over 8.00.

Buying the 7.75 call has upfront/immediate costs, and protection, but a 7.99 conditional buy order still protects me at no 'current' cost.
Yes we are talking about small peanuts now, thankfully. The easy one is just to buy the 7.75 call and forget about it, move on to other trades, and my Z1P Strangle will sort itself out in time with minimal loss, but as I like 'strategies' and seeking 'angles', the conditional order would be the most cost effective, except if Z1P get an takeover offer at say $15 my conditional trade would just be ignored and I would be left standing holding the bag.

But ......... I'm gonna buy a 7.75 Call tomorrow to cover my erroneous Strangle. Learn from my mistake. As we say in golf 'take your medicine'.

Great stuff @Sharkman . Your an absolute saviour with your explanation. I live to trade another day.

My next job now is how to 'manage' my CBA, FMG, and BHP trades over the next 3-4 weeks with FY results, XD's, and no doubt volatile share prices.

Gunnerguy.
(I'm gonna sleep better tonight and dream about keeping my concentration)

Don't beat yourself up, man.

Options are non linear and that nonlinearness(sic) is complicated.

We've all been through the brain fade of figuring this crap out... And still do. It is these lessons which make you better, keep it up man you're going well.

 

[Gunnerguy]

@Sharkman

Thanks for your further ideas.

I fully comply with your comments about helping others. I completed my Masters in Financial Planning a couple of years ago but have been unable to get a job in the industry due to the RC and my age, probably. I am however helping some friends, for free, with their tax, capital gains and superannuation ideas at the moment. I was hoping to change careers with my qualification however instead I am ‘between’ jobs and don’t want to admit being retired.

My daily routine, after doing the kids school run, is logging in to IB and looking at strategies for making income through options, above my gains in my ‘investment portfolio’. Unfortunately I am the kind of guy who can only play golf twice a week and always wanting to learn new things, especially relating to investing, finance, super etc. A couple of hour on IB then that’s it. And then in the evening another couple of hours reviewing, planning for tomorrow, and writing replies on ASF.

So today to get out of my precarious position with Z1P, I went for the middle ground and BTO Aug 7.25 Call. Z1P did have a bump today. Yep Great comment about gaping up and a conditional offer being bypassed. This has happened a few times over the years in my long positions and missed out. We’ll see how things go. Yes also to being naked in anyway. I was looking at SYD only 3 weeks ago. Can’t remember what trade I was looking at but then ….. Bang a take over bid and the share price ‘rockets’. One could have been caught holding some option strategy if not covered.

Yes I agree with your ideas of starting with covered calls. Done this for >2 months also with some naked (cash covered puts). I have posted most of my trades so far in this thread. Most of these have been in CBA. These have done very well, some STO positions are well OTM and in profit, considering closing (BTC) but I think most should expire worthless so I get the full PM.

@wayneL thank you also for your comments and encouragement.

As the wind blows heavily outside my window this evening (in Perth), my golf is cancelled tomorrow so I guess I will have to log on to IB and see if I can make some money.

Gunnerguy.
(There IS gold in them hills, I just need the right tools to extract it.)

 

[Gunnerguy]

It's like buses, none for ages then they all come at once.
Where there’s one there’s two, I’ll watch the Olympics later this evening.

Well Ms. Gunnerguy is doing the dinner for the young Quokkas so I had some more time this evening to see if I can do more damage to my ‘Options Portfolio’.

Here’s a thought …….

So by the end of September, and Options contract expiration date of 21st. Sept, several large dividend payers such as FMG, CBA, RIO, BHP, and CSL will all be XD. What are the thoughts of the ASX200 ending September lower than the values we currently have. Is it worth creating an options strategy on the ASX200 Index in anticipation for a lower ASX200 by the end of September ?

Looking at a Bear Put Debit Spread on ASX (tired at the moment of STO and being exposed to unlimited possible losses). Lets say a 7,500/7,600 Put spread for September. All the majors will have done their XD’s, and possibly the market comes off the boil for a while/opportunity. Debit PM = -670, with a BE at $7,540. ASX currently at $7,414.

Probably a rise over the next 2,3,4 weeks with all the frenzy of dividends, but then the drop post XD.

Is this stupid or something that may work.

Gunnerguy.
(Time to watch the Olympics)

 

[Sharkman]

the (projected) dividends are already factored into option prices, that includes index options. the MMs will have projected the divs for the constituents of the index, calculated how many points those divs are worth, and factored that into the spreads they show the market. the actual divs may vary from the projections of course, so if you think they have mispriced the projections you could take a punt on that basis, but i'm not willing to bet that i can project the divs better than the MMs can.

eg. looking at the XJO sep 16 contracts, with the index at 7410, the 7400 calls are showing 97/108, the 7400 puts are showing 180/193, so the MMs are estimating that the stocks going ex-div before sep 16 (which would include some big ones like CBA, BHP, RIO) will shave off a cumulative 94 points, give or take, from the index due to the effect of the div.

this applies to both index and stock options, for eg. the CBA sep monthlies you can see that with the stock at 99.50 the 99 calls (which would normally be ITM) are showing 2.115/2.48 and the 99 puts (which would normally be OTM) are showing a much higher 3.22/3.67, due to the big fat dividend that's expected prior to sep expiry, so the 99 calls are effectively OTM and the 99 puts are effectively ITM in this situation.

i'm only an occasional trader of index options though, i'm sure there are others on here who'd have more insights on those than i do.

 

[Gunnerguy]

Dear All,

Its been awhile since I posted in ASF on my ‘Options Trading’ learning experiences, so a little bit of an update is well due as August expiration approaches us next week. I’m sure this will create some entertainment to those of you whom are experienced Options traders.

Remember I only started really educating myself in Options in May, and opened my first position in June.

Well so far …..

9 positions opened and closed, all were credit trades, July/August/September expirations with one losing trade (very low $ value), thus 8 from 9 so far. Phew ….. Trades were mainly in covered calls/puts and vertical spreads on CBA, FMG and BHP, with deltas of 80-90. Yes I know low risk but with potential high losses is assigned.

I currently have 15 open trades, 11 STO and 4 BTO. They cover CBA, BHP, FMG, ANZ, Z1P, and ASX200 Index. I won’t bore you with the details of all the trades, however when I look at them there are some very very interesting trades still in play at the moment ….

1. Opened 2/7 STO BHP 52 Aug Call. I sold this Call when BHP was at 48.55 knowing that their results were on their way. This is going to go down to the wire I think. I hope for a few down days on the ASX so I can BTC or let it expire.

2. Opened 5/7 STO ANZ 29.5/29.0 Aug Bull Put Credit Spread. I bought when ANZ was at 28.09. ANZ’s price has stayed low for so long. I was hoping that with CBA’s result coming they would be good and pull the ANZ stock price up in to my win zone. This is finally happening. The trade is currently ‘ITM’. How lucky do I feel ? Not sure but think I will stay in the trade and let it expire.

3. Opened 8/7 STO CBA 106 Aug Call. See the price movement over the past 1-2 days !! A drop of 2.5% today. CBA closed at 105.67 today. Still a lot of extrinsic value left and I am still underwater on this one. Gong down to the wire this one also !!

4. Opened 19/7 STO ASX200 8200/8500 December Bear Call Credit Spread. Bought on 19th July when AXJO was 7291 and based on the idea …. AXJO will not rise a further 12.45% by December. If it does then my ‘investment portfolio’ will do extremely well and the loss in this option contract will be insignificant. I still hold that AXJO will not reach 8200 by December. I may actually buy more of this one.

And one last one …….

5. Opened 30/7 BTO FMG 25.5 Sept Put. Amazing luck with this one. The idea was that in Sept, after FMG go XD, the price would drop. I could then ‘sell’ at 25.5 when FMG would, hopefully, be lower. I’m well in to the money on this one at the moment, however yet to see FMG’s results.

Happy so far with a 8/9 win rate, which is important, however the $ values is also important (I know in other posts I said this was not true however with options I feel it is). Only one small $ loss and the other 8 trades all provided $ profits. If I were to use the subjective phase ‘great’ profits, some would think $100K is great, and some would think $10,000 is great. So objectively, I have made profits and a good successful trade ratio.

Comments, critics, and general abuse on my strategy/results will all be well received.

Gunnerguy.
(The big trades are coming, as I learn. Objective is to cover inflation, then my booze costs, then the kids schooling by end 2021).

...... Ms. Gunnerguy had her Pfizer today ..... still alive and kicking .....

 

[wayneL]

. Objective is to cover inflation, then my booze costs, then the kids schooling

Dammit man! You have those priorities all mucked up... FFS cover booze first

Okay seriously now.... These trades go well in a sideways or creeping bull market.

In what might possibly be a crack up bull (or even just plain old irrational exuberance), you forfeit gain possibly that gain could be the true inflation rate.

If we get a proper swoon, you get taken the the woodshed.

Cover thy @ass in this market.... IMO

 

[Gunnerguy]

@wayneL thank you for expressing your concerns. I truely appreciate it.

As I said, my @ss is covered by a large (subjectively some would say huge) ‘investment portfolio’ if the market has a large ‘crack up bull’.
I don’t really want my ‘options portfolio’ to hedge my ‘ investment portfolio’ as I am trying to seperate these 2 strategies.
I am trying to make extra income from the fluctuations in the market.
My ‘investment portfolio’ will be cashed in in 10 years or so.
Thanks for your comments @wayneL

Gunnerguy

 

[Gunnerguy]

For those interested / reading .........

Well what a week its been. IO prices, POO, FMG, BHP. Share and commodity prices have been wild …. Now tell me about the fluctuations in the options prices ……

Last week I closed out 7 option trades, this week I closed out 8 traders (and opened 4). I wasn’t planning to close/open so many trades during a week however with the significant (good) movements in the market (and profits made) I decided to close some good ones (BITH), ) Bird in the Hand), all due to the significant movements in the prices. ‘Hey Gunnerguy, remember options are leveraged’, hell yes. I’m glad I am managing my risk and trading both sides of the tracks.

At this stage, 3 months in to my education in options trading, I have opened 28 positions and closed 18. With the 18 closed trades I am now 13 from 18, 72% success rate. I have kept my risk levels pretty similar across the trades. My average Delta is +/-0.8 depending on STO/BTO.

I have 10 open positions in the market at the moment.

I have also opened some vertical spreads on AP (ASX200) for September, October, and December, rather than my usual BHP, CBA, ANZ, BHP, A1P, FMG. Premiums seem a lot nicer (multiple of 10 on larger prices) compared to individual shares (multiples of 100 on small values). Not sure if this is a good thing or not, however I think that market risk/volatility is lower that individual share risk/volatility. Look at BHP this week !!!! and FMG !!!!

I feel pretty lucky, and happy, as I am getting there slowly. This week was the largest net realised weekly profit so far on my 13 week journey.

To those reading this, and with years of options trading experience, I know this is small fry, however I am trying to learn the basics, with good, secure risk management, and plan in the future instead of trading 1/2/3 contracts per trade, to building this experience to 10/20/30 contracts per trade …….. per week.

As an aside, I have been looking closely at Newcrest (and Gold). I missed the boat over the last couple of days, however I am thinking about some positions in NCM, with respect my personal feelings that as a result of the market/inflation/gold prices, doing some NCM options strategies might be worthwhile. I welcome others thoughts on this.

As always comments, critics are very welcome.

Gunnerguy.

(Learning new things. 3 months of Options trading so far have covered the costs of 20 slabs of beer, except that I drink wine ? ).

 

[Gunnerguy]

Dear ASFers,

Well its been an interesting month with regards Options trading. My learning experience is starting to give highs and lows (emotionally). The BHP and FMG volatility and yesterdays expirations produced some interesting results.

This month only 4 trades were ‘closed’, and 4 were opened. I currently have 10 trades in play in FMG, Z1P, CBA, and AXJO.

The Good

With BHP falling (LSE announcement & XD date coming) my July Bear Call Spreads gave me some nice profits when they expired yesterday. My AXJO 7800 Call also gave me some nice profits as did my CBA short strangle. Three for three so far.

The Ugly ….

I was assigned my BHP $47 Puts yesterday, ouch … but got some recompense on my $44 puts. I now own some very expensive BHP shares but at least I can use them for selling covered calls until, one day, BHP, gets over $47 again. This may take a few months ….. or till next years results. I’ll just continually sell $47 puts through the year and take premiums every month. Either several monthly STO puts, or less longer dated puts.

The journey so far since I started in May …..

22 trades closed so far with a success rate of 15/22, 68%.

My profits since starting this journey in May is approximately …….. 30 Slabs of Beer.

Gunnerguy.
(Learning, but patiently increasing my trade sizes. Building confidence)

 

[Gunnerguy]

An update on my move to the ‘Dark Side’ (trading Australian options).

The journey continues. Its interesting, enjoyable, and challenging. For those who haven’t followed my occasional posts my background is ……

Invested in shares for over 30 years. Large Investment portfolio in International and Australian shares/ETF’s and investment property income. Geology educated and career, and recent Master in Financial Planning graduate. Always found options confusing but decided to educate myself in order to potentially gain additional income from the Long positions I already own. Started my journey in June this year. Unemployed, between jobs, semi retired, or under employed depending on how many beers I have had.

I continue to grind out income from selling covered calls, vertical spreads, strangles, and straddles, on FMG, CBA, Z1P, BHP, and AXJO. I find company options don’t give me that much in premiums and have started to heavily trade in AXJO Index options.

Started in June. 47 Trades so far. 32 closed. 15 currently open. Of the 32 closed, 23 were ‘good’ trades, expired or closed at a profit. 9 were ‘bad’ trades’, of which 4 trades failed due to incorrect placement due to me being thick/newbie/learner, 4 trades closed at a loss to limit the loss, 1 was assigned. Current profit is equivalent to 40 cases of beer, worth it. Since I’m not working my time is free, and I enjoy the process.

Currently starting to ramp up my trading and plan to generally place 4-5 trades a week, with DTE about 25-45 days. Increasingly trading in AXJO Index options.

My latest plan is based around FMG. I already have a small holding of FMG in my ‘Investment Portfolio’ and have decided that I want to increase my holding substantially. If I can get some income from options in the process it would give me some extra income.

My current (personal) belief is that FMG has pretty much ‘bottomed’. Last year dividend was $3.58. I believe, worst case scenario, dividend could half for 21-22, ie. $1.79. With the historical return on my Investment Portfolio being 14% pa. this is the return I need to achieve if I invest in anything. With the possible reduced dividend I thus value FMG at $12.80. If the dividend is any higher then I would obviously value the share higher. Thus, in combination with my ‘Investment Portfolio’ and my RRR (Required Rate of Return) I plan to sell multiple cash covered Put contracts at strike prices of say …. $12.25, $12.50, $12.75, $13.00, $13.25, $13.50) across multiple dates (4/11, 18/11, 16/12) in order to receive varying sizes of premiums. If I get assigned, then I am happy to be ‘forced to buy at this price’. Yes I know if FMG goes up over the next 1-2 months I should have just bought all my shares at $14 today, however my 'bottom' might not be correct. Staggering in with options and premiums is a form of DCA if the price takes another dive.

And that’s it. Not that exciting, but I’m enjoying the journey, making some beans from it, and for those who have no experience in options and are considering it I personally think one can grind some cash out of it, depending on your propensity for Risk.

Gunnerguy.

(Eventual future income WILL come from Capital Growth, Dividends AND Options premiums)