Post: #1

If there are, I'm interested in talking strategies that you use to produce a steady income.

For the last year, I've been focused on monthly credit spreads and/or iron condors but am now migrating over to weeklys. Mainly because of the increased return and faster compounding.

Post: #2

I trade AApl. Its expensive but the markets are really efficient and so that is reflected in the price. I typically like to buy in the money calls (always bullish on Apple it has 50 billion in cash) at around 8.00-10.00 1 to 2 months out and sell it when the option makes a 3 point movement in my direction. The stock will move sometimes 30 basis points in 1 day. I dont have it down to a science but with the volatility and volume and taking small but reasonable profits it seems to work. Hedging such as straddles and strangles is often recommended but I think buying in the money calls with a 1 - 2 month out expiration is safe enough bet. Any suggestions you would like to add that could help my strategy would be great.

Post: #3

this would be a good datasheet primer. i always wanted to learn how to bet spreads and such.

Post: #4

(12-06-2012 09:03 PM)defguy Wrote:  I trade AApl. Its expensive but the markets are really efficient and so that is reflected in the price. I typically like to buy in the money calls (always bullish on Apple it has 50 billion in cash) at around 8.00-10.00 1 to 2 months out and sell it when the option makes a 3 point movement in my direction. The stock will move sometimes 30 basis points in 1 day. I dont have it down to a science but with the volatility and volume and taking small but reasonable profits it seems to work. Hedging such as straddles and strangles is often recommended but I think buying in the money calls with a 1 - 2 month out expiration is safe enough bet. Any suggestions you would like to add that could help my strategy would be great.

Well the first thing you should look at is the term structure of implied volatility and aim at buying the cheapest. Is there a time when you like to buy the ITM calls such as dips, support levels, etc? I like selling puts over buying calls since time decay can work in my favor and I can profit even if there isn't any directional movement.

There is another strategy that you may consider trying. You can buy ITM LEAPS and then finance those by selling front month calls. It's similar to a covered call strategy but the LEAP acts as your stock (so much cheaper than owning 100 shares of AAPL). Here's an example:

+1 AAPL JAN 14 400 Call at $16,645 (81 delta)
-1 AAPL JAN 13 630 Call at $460

So, the JAN 14 400 Call costs $16,645 but you're effectively controlling 81 shares of AAPL. If doing the same with stock and using today's close, $547.24, that would cost $44,326.44. Now, the whole idea is to sell a call against the position in order to reduce your cost basis. The call being sold is about +15% from the current stock price. The first month, the position would cost $16,645 - $460 = $16,185. Doing this every month would reduce the cost basis by $460 x 12 = $5,520 so down to $11,125. Of course, this is just an example but I hope it conveys the idea accurately. Let me know if you have questions

Post: #5

(12-06-2012 10:30 PM)HiFlo Wrote:  this would be a good datasheet primer. i always wanted to learn how to bet spreads and such.

I'll see if I can work on one. Selling vertical spreads (credit spreads) is an easy concept once it is learned.

Post: #6

(12-06-2012 09:03 PM)defguy Wrote:  I trade AApl. Its expensive but the markets are really efficient and so that is reflected in the price. I typically like to buy in the money calls (always bullish on Apple it has 50 billion in cash) at around 8.00-10.00 1 to 2 months out and sell it when the option makes a 3 point movement in my direction. The stock will move sometimes 30 basis points in 1 day. I dont have it down to a science but with the volatility and volume and taking small but reasonable profits it seems to work. Hedging such as straddles and strangles is often recommended but I think buying in the money calls with a 1 - 2 month out expiration is safe enough bet. Any suggestions you would like to add that could help my strategy would be great.

Apple has double that 50 Billion. I believe they sit at over a 110 billion. But margins are being compressed rapidly. The bullish case for Apple is changing. Not to mention it has no real price support until you get down to $420 a share. And even then that is pretty weak. Look for Apple to be trading around $200 at some point next year.

But as for trading options I use every strategy possible. I do sell alot of puts and calls. I also do the credit spreads when appropriate. But nothing gets me higher than trading weeklys on AAPL and GOOG. I love that shit. I buy OTM strikes based on support and tape reading.

Post: #7

Not a professional trader but I traded options for a long time on my personal account. I used to invest in long term put options since daytrading cleared out my bank account fast.

I haven't traded for 5 years now and it was all in Dutch so unfortunately I can't be of any help.

Post: #8

(12-07-2012 02:44 AM)BIGINJAPAN Wrote:  

(12-06-2012 09:03 PM)defguy Wrote:  I trade AApl. Its expensive but the markets are really efficient and so that is reflected in the price. I typically like to buy in the money calls (always bullish on Apple it has 50 billion in cash) at around 8.00-10.00 1 to 2 months out and sell it when the option makes a 3 point movement in my direction. The stock will move sometimes 30 basis points in 1 day. I dont have it down to a science but with the volatility and volume and taking small but reasonable profits it seems to work. Hedging such as straddles and strangles is often recommended but I think buying in the money calls with a 1 - 2 month out expiration is safe enough bet. Any suggestions you would like to add that could help my strategy would be great.

Apple has double that 50 Billion. I believe they sit at over a 110 billion. But margins are being compressed rapidly. The bullish case for Apple is changing. Not to mention it has no real price support until you get down to $420 a share. And even then that is pretty weak. Look for Apple to be trading around $200 at some point next year.

But as for trading options I use every strategy possible. I do sell alot of puts and calls. I also do the credit spreads when appropriate. But nothing gets me higher than trading weeklys on AAPL and GOOG. I love that shit. I buy OTM strikes based on support and tape reading.

what are you doing in AAPL right now? I'm looking at selling weekly call spreads on a bounce

Post: #9

(12-07-2012 04:06 AM)Neil Skywalker Wrote:  Not a professional trader but I traded options for a long time on my personal account. I used to invest in long term put options since daytrading cleared out my bank account fast.

I haven't traded for 5 years now and it was all in Dutch so unfortunately I can't be of any help.

can you elaborate a little more on what your process to buying/selling put options was?

Post: #10

I daytrade options. SPY only. Usually weekys or two weeks out for the increased return. Have to be nimble though.

Post: #11

Any of guys on stocktwits ? I find it highly amusing and when I get tired of looking at charts I like to log on and watch the AAPL commentary. Almost as entertaining as the fast money guys who always make the right call at the right time, everytime. What amuses me the most on that site is as soon as a stock hits a new LOD or HOD about 5-10 people tweet that. And since is AAPL has been whip sawing back and forth all day it happens mutiple times a day. This site is for day traders and I guess they assume we don't have acces to charts and we are expecting their updates to keep everyone on top of AAPL movements. Every once and awhile you catch me trolling and making fun of these nerds.

It really is the little things in life like trolling hardcore apple fanatics that make it easier to get out of bed in the morning.

Post: #12

You guys who are into trading,

What do you say to the idea that it's a fools game? I've heard people say it's no better than gambling, i.e. streaks of income over a few months arent true skill but just natural statistical variation, and in the long term you lose out? What do you guys in-the-know reckon?

There are obviously a LOT of products and info out there on it all ... does any of it work? So much of it feels similar to Internet Marketing products - e.g. selling the dream, telling you how to do something they havent done themselves. True or not?

I've heard it said that you're competing against massive investment banks /hedge funds employing hundreds of PhD's and even they are lucky to do better than 15% ROI in a year.

So how is it that the little guy can go up against them and make a living?

Post: #13

(12-07-2012 05:43 PM)RichieP Wrote:  You guys who are into trading,

What do you say to the idea that it's a fools game? I've heard people say it's no better than gambling, i.e. streaks of income over a few months arent true skill but just natural statistical variation, and in the long term you lose out? What do you guys in-the-know reckon?

There are obviously a LOT of products and info out there on it all ... does any of it work? So much of it feels similar to Internet Marketing products - e.g. selling the dream, telling you how to do something they havent done themselves. True or not?

I've heard it said that you're competing against massive investment banks /hedge funds employing hundreds of PhD's and even they are lucky to do better than 15% ROI in a year.

So how is it that the little guy can go up against them and make a living?

Well lucky for us real life experience shows time and time again that the scholars lose out constantly to traders. Why it works well for a retail trader is most of us cannot affect the market. These funds and banks park hundreds of millions or billions of dollars into companies. You simply cannot hide that kind of money. But being a small retail guy you can quickly move in and out of stocks or options without really anyone noticing. Although in some low volume option plays even a small trader can be detected.

But again the big guys cannot simply just hit sell when they want to liquidate their position. It make take them weeks if not months to unload. Which is what is happening with Apple right now. Plus the big banks and hedgefunds have acces to huge margin. If a trade goes bad on them they have to liquidate because they are getting calls to return the money they borrowed. Where as a small guy like me in my RRSP acount I have no margin and use all cash and in my portfolio account it is all based on brokerage algorithms and positions held and cash on the side. But generally my margin account won't go higher than 10 to 1. Those IB's and HFs push it north of 30 to 1. So when a stock drops more than 3 percent they have to get out. I don't have those issues, I can hold positions longer and a lot of times I am correct and I just needed a little more time.

The other thing that comes into play is I use a disciplined set of rules I follow. I can stick with my system because I am not a market mover and my decisions will not cause a panic. Where as big banks can't follow set rules due to the size of their books. Also the algorithms they use and designed by the egg heads only work for so long. Then human emotion over takes the market and due to their massive size of leverage a years gains can be wiped out in days or weeks.

I personally think almost any system will work as long as you stick to the rules of it. The 2 keys are cut your losses around 8-10% and let your winners run. Sticking as close to those 2 and you really only need to be right 33% of the time to make money. Problem with most retail investors is they make stupid mistakes due to emotion. Also I think alot of retailers don't actually know what they are doing. When I read the tweets coming out on stocktwits most of the people don't have a clue what they are talking about. Every other sentence starts with " I hope ".

Post: #14

(12-07-2012 09:53 PM)BIGINJAPAN Wrote:  

(12-07-2012 05:43 PM)RichieP Wrote:  You guys who are into trading,

What do you say to the idea that it's a fools game? I've heard people say it's no better than gambling, i.e. streaks of income over a few months arent true skill but just natural statistical variation, and in the long term you lose out? What do you guys in-the-know reckon?

There are obviously a LOT of products and info out there on it all ... does any of it work? So much of it feels similar to Internet Marketing products - e.g. selling the dream, telling you how to do something they havent done themselves. True or not?

I've heard it said that you're competing against massive investment banks /hedge funds employing hundreds of PhD's and even they are lucky to do better than 15% ROI in a year.

So how is it that the little guy can go up against them and make a living?

Well lucky for us real life experience shows time and time again that the scholars lose out constantly to traders. Why it works well for a retail trader is most of us cannot affect the market. These funds and banks park hundreds of millions or billions of dollars into companies. You simply cannot hide that kind of money. But being a small retail guy you can quickly move in and out of stocks or options without really anyone noticing. Although in some low volume option plays even a small trader can be detected.

But again the big guys cannot simply just hit sell when they want to liquidate their position. It make take them weeks if not months to unload. Which is what is happening with Apple right now. Plus the big banks and hedgefunds have acces to huge margin. If a trade goes bad on them they have to liquidate because they are getting calls to return the money they borrowed. Where as a small guy like me in my RRSP acount I have no margin and use all cash and in my portfolio account it is all based on brokerage algorithms and positions held and cash on the side. But generally my margin account won't go higher than 10 to 1. Those IB's and HFs push it north of 30 to 1. So when a stock drops more than 3 percent they have to get out. I don't have those issues, I can hold positions longer and a lot of times I am correct and I just needed a little more time.

The other thing that comes into play is I use a disciplined set of rules I follow. I can stick with my system because I am not a market mover and my decisions will not cause a panic. Where as big banks can't follow set rules due to the size of their books. Also the algorithms they use and designed by the egg heads only work for so long. Then human emotion over takes the market and due to their massive size of leverage a years gains can be wiped out in days or weeks.

I personally think almost any system will work as long as you stick to the rules of it. The 2 keys are cut your losses around 8-10% and let your winners run. Sticking as close to those 2 and you really only need to be right 33% of the time to make money. Problem with most retail investors is they make stupid mistakes due to emotion. Also I think alot of retailers don't actually know what they are doing. When I read the tweets coming out on stocktwits most of the people don't have a clue what they are talking about. Every other sentence starts with " I hope ".

I couldn't have said it any better myself

Post: #15

BigInJapan - that's great, thanks for that.

So the gist of it is, you actually have advantages as a solo guy - being less detectable, using your own cash, etc. Cool!

What I'd love to hear - is what you think the key factors for success are as a solo trader.

Like- obviously I wouldn't ask you you to reveal your specific methods or techniques - but maybe you could share some of the general principles?

Sounds like having a system is key, what about things like being emotionally unbiased (e.g. avoiding "tilt" like in poker), anything else? What sort of skills are you using daily - deep analytical stuff? combing through lots of data for research? intuition?

In short, what does it take?

Post: #16

(12-06-2012 08:05 PM)juice Wrote:  If there are, I'm interested in talking strategies that you use to produce a steady income.

For the last year, I've been focused on monthly credit spreads and/or iron condors but am now migrating over to weeklys. Mainly because of the increased return and faster compounding.

(12-07-2012 02:14 AM)juice Wrote:  I'll see if I can work on one. Selling vertical spreads (credit spreads) is an easy concept once it is learned.

Can you provide a little more detail?

How big of an account do you need to make credit spreads worth the commissions you'll pay? I'm not asking how big it needs to be to finance a location-independent life, but I don't want to be paying more than 1%, maybe 2% in commissions.

I haven't got into options much (I mostly take a value-investing approach, and don't trade derivatives), but I'd like to mess around with these a bit. But I'm only interested if I can legitimately do it with a relatively small account and low commissions. So what's the minimum account size you would recommend? $1,000? $10,000? $50,000? Also, what broker do you use?

Post: #17

(12-07-2012 09:53 PM)BIGINJAPAN Wrote:  

(12-07-2012 05:43 PM)RichieP Wrote:  You guys who are into trading,

What do you say to the idea that it's a fools game? I've heard people say it's no better than gambling, i.e. streaks of income over a few months arent true skill but just natural statistical variation, and in the long term you lose out? What do you guys in-the-know reckon?

There are obviously a LOT of products and info out there on it all ... does any of it work? So much of it feels similar to Internet Marketing products - e.g. selling the dream, telling you how to do something they havent done themselves. True or not?

I've heard it said that you're competing against massive investment banks /hedge funds employing hundreds of PhD's and even they are lucky to do better than 15% ROI in a year.

So how is it that the little guy can go up against them and make a living?

Well lucky for us real life experience shows time and time again that the scholars lose out constantly to traders. Why it works well for a retail trader is most of us cannot affect the market. These funds and banks park hundreds of millions or billions of dollars into companies. You simply cannot hide that kind of money. But being a small retail guy you can quickly move in and out of stocks or options without really anyone noticing. Although in some low volume option plays even a small trader can be detected.

But again the big guys cannot simply just hit sell when they want to liquidate their position. It make take them weeks if not months to unload. Which is what is happening with Apple right now. Plus the big banks and hedgefunds have acces to huge margin. If a trade goes bad on them they have to liquidate because they are getting calls to return the money they borrowed. Where as a small guy like me in my RRSP acount I have no margin and use all cash and in my portfolio account it is all based on brokerage algorithms and positions held and cash on the side. But generally my margin account won't go higher than 10 to 1. Those IB's and HFs push it north of 30 to 1. So when a stock drops more than 3 percent they have to get out. I don't have those issues, I can hold positions longer and a lot of times I am correct and I just needed a little more time.

The other thing that comes into play is I use a disciplined set of rules I follow. I can stick with my system because I am not a market mover and my decisions will not cause a panic. Where as big banks can't follow set rules due to the size of their books. Also the algorithms they use and designed by the egg heads only work for so long. Then human emotion over takes the market and due to their massive size of leverage a years gains can be wiped out in days or weeks.

I personally think almost any system will work as long as you stick to the rules of it. The 2 keys are cut your losses around 8-10% and let your winners run. Sticking as close to those 2 and you really only need to be right 33% of the time to make money. Problem with most retail investors is they make stupid mistakes due to emotion. Also I think alot of retailers don't actually know what they are doing. When I read the tweets coming out on stocktwits most of the people don't have a clue what they are talking about. Every other sentence starts with " I hope ".

What about HFT? Millions of trades per minute. How can you compete against that?

Post: #18

Who cares about HFT when your time horizon is hours, days, weeks ? Let the HFT guys trade a thounsand times per minute, if the EUR/USD is in a strong uptrend, nothings is going to stop that multi-billion freight train to go up.

That being said, trading is extremely hard, my guess is that over 90% of traders lose money in the long term, it's a zero sum game

Post: #19

HFT isn't a big concern unless you are holding a stock that they happen to crash. Hasn't happened to me. I was out of the country when the computers dropped the DOW a 1000 points.

HFT is used to scalp points. Doesn't affect me because I set my limit orders and don't go with market orders. Using a limit order I get the price I want on a given security.

I fully expect one day for HFT to fuck me over on a certain position but I know that going in, plus I have no more than 5% of my account in any one position. I also keep most of it in cash.

Post: #20

(12-08-2012 11:59 AM)bhawthorne Wrote:  

(12-06-2012 08:05 PM)juice Wrote:  If there are, I'm interested in talking strategies that you use to produce a steady income.

For the last year, I've been focused on monthly credit spreads and/or iron condors but am now migrating over to weeklys. Mainly because of the increased return and faster compounding.

(12-07-2012 02:14 AM)juice Wrote:  I'll see if I can work on one. Selling vertical spreads (credit spreads) is an easy concept once it is learned.

Can you provide a little more detail?

How big of an account do you need to make credit spreads worth the commissions you'll pay? I'm not asking how big it needs to be to finance a location-independent life, but I don't want to be paying more than 1%, maybe 2% in commissions.

I haven't got into options much (I mostly take a value-investing approach, and don't trade derivatives), but I'd like to mess around with these a bit. But I'm only interested if I can legitimately do it with a relatively small account and low commissions. So what's the minimum account size you would recommend? $1,000? $10,000? $50,000? Also, what broker do you use?

I use thinkorswim as my broker and was able to negotiate my commissions down to $1 per contract. Using a $5,000 account as an example, you can hypothetically take up the entire account as margin using 5-point spreads. Using $1 commission per contract and 10 contracts, that would be $20 round trip or 0.004% of a $5000 account making it worth it.

Post: #21

(12-09-2012 01:42 PM)BIGINJAPAN Wrote:  HFT isn't a big concern unless you are holding a stock that they happen to crash. Hasn't happened to me. I was out of the country when the computers dropped the DOW a 1000 points.

HFT is used to scalp points. Doesn't affect me because I set my limit orders and don't go with market orders. Using a limit order I get the price I want on a given security.

I fully expect one day for HFT to fuck me over on a certain position but I know that going in, plus I have no more than 5% of my account in any one position. I also keep most of it in cash.

Just wanted to add that since HFT is for scalps, options traders are not really affected too much because we don't day trade or scalp.

Post: #22

@bhawthorne read "Generate Thousands in cash on your stocks before buying or selling them" by Dr. Samir Elias. It is more suited to your risk tolerance. Basically what you do is own the stock and sell calls and puts on the shares you own. Its a lot less risky then just buying and selling options and can help negate the losses you incur as the stock goes up or down.

Post: #23

(12-10-2012 12:05 PM)defguy Wrote:  @bhawthorne read "Generate Thousands in cash on your stocks before buying or selling them" by Dr. Samir Elias. It is more suited to your risk tolerance. Basically what you do is own the stock and sell calls and puts on the shares you own. Its a lot less risky then just buying and selling options and can help negate the losses you incur as the stock goes up or down.

Thanks. I'm guessing he suggests:
1. Selling calls on any stocks I own that I don't expect to rise immediately, and
2. Selling puts on any stocks I want to own that are overvalued right now.

I'll check it out.

Post: #24

(12-09-2012 09:21 AM)sheesh Wrote:  That being said, trading is extremely hard, my guess is that over 90% of traders lose money in the long term, it's a zero sum game

Ug, you just struck a pet peeve of mine.

By definition, anything "zero-sum" means whatever is lost by one, is gained by another. Therefore for every winner, there is a loser. This means 50% win, and 50% (at least on a value basis) *if* trading was a zero sum game. It is not. Poker is an example of zero-sum.

The stock market is 110% sum game lets say. People get rewarded when they put their money in things that make life better for the average person. This is economic growth and rewards everyone. Win/win.

I make plows lets say. These plows allow farmers to farm with twice the efficiency. So now whatever was getting done before, gets down now in half the time. Or given the same amount of work, double the output.

Assuming double output, as long as I charge less than half his total output, the farmer will be better off than he was before given the same work. Lets say I say "charge" 25% of his increased output for a plow, with which I can trade for materials to make 2 more plows. Or I can make one more plow, and eat the profit. This is what profit actually is. Establishing a new and better way of doing things. Getting more outputs from the same inputs.

More modern example:

Even though an Iphone costs $700, the map features saves me time getting lost, money buying maps, the calls allow me to contact people real time instead of walking to their house or mailing a letter. All these increased efficiencies and savings are worth lets say $1000 to me. So I'm better off with the phone than without, even after spending $700. It literally improves my life. Since it only costs $400 to manufacture, Apple profits $300. What that $300 really is though, is increased productivity from me for the benefit of the rest of the world. It saves me 10 hours in a year. I use that 10 hours to make 10 extra cars. That makes the world better, because now 10 ppl can drive who couldn't before which in turn makes me $1000 more income.

Because Apple was clever, I'm better off, they're better off, and the rest of the world is (marginally) better off because there is more "stuff".

Conversely I can sell my rights to the profit and control of the business decisions. This is the business, or a fraction of it is the stock. Provided what that company makes is of more value than the inputs, and provides value to someone else in excess of the cost, this is where value is literally created out of the blue. This is why the stock market (and economy as a whole) is not zero-sum.

Post: #25

Seadog, if you look at the big picture, then yes, it is not be a zero sum game.

But I'm referring to the reality of a trader who only cares about his account balance. When my option expires in the money and I make a profit, where does the money come from that is credited to my account ? It's the guy/broker/market maker who sold me this option who lost the money.