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99
Posted by
Option Bro
3 months ago
Comments are lockedStickied postModerator of r/options

If not sure about any of the below, post to the weekly noob thread.

A few tips to avoid shitposts (shitposts will be taken down):

  • State the underlying ticker, strategy, strikes, expiration, price on entry
  • What was your original plan? Did something go wrong and you are looking for help? Be specific.
  • If you are exploring an idea, stay on the side of being more verbose than terse. If it takes 12 responses to weed out all the details, it's a shitpost (and you know what happens next).
  • Want to start a thread about something else just to chat? Fine, just make sure you don't sound like wsb is paying a visit.
  • Not sure about any of the above? Just post. The worst that will happen is it will be taken down, there's no public shaming. Send the ModMail, it works.
  • Don't link to external sites with paid services. It's ok to mention relevant content in a context of a discussion, but link posts with no commentary are spam, and will be taken down promptly.

Finally, for multi-leg positions stick to a commonly accepted form, like:

  • 200/210 short call spread (or credit call spread)
  • 195/200/240/245 long iron condor
  • 205 long call

Happy posting!

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2 comments
386
Stickied post

Hey all,

A comprehensive options/trading book list has been requested on this subreddit several times. I've been reading about options and trading since freshman year of college (2012), and these books helped me prepare for a career in options trading. Over the past two years, I've been working at a Chicago-based options market making firm, and spent time on the modeling team, S&P desk, and a trading automation team.

Here are the books that have helped me the most over the past 6 years.

Miscellaneous: [Finance, Trading, Markets]

  • Alpha Masters by Maneet Ahuja (9/10)
    • Enjoyable book to read as as freshman with an interest in finance but no idea about the different types of trading roles / strategies out there. The author interviews some of the most famous hedge fund managers (Ray Dalio, David Tepper, John Paulson) book covers different hedge fund managers and discusses strategies from macro, distressed debt, swaps, equities, short sellers, options, shareholder activism, and a little financial engineering.
  • Fooling Some of the People All of the Time by David Einhorn (8/10)
    • Listened to this on audible when walking to class. This is the story David Einhorn tells about his fight with Allied Capital, his own "big short." Covers fraud accounting & general investing. Useful for any business student.
  • Hedge Fund Market Wizards by Jack Schwager (7/10)
    • Same format as Alpha Masters; interviews with top hedge fund managers, although Jack's series came first. I read this one after Alpha Masters and it honestly felt like it didn't live up to the hype.
  • Reminiscences of a Stock Operator by Edwin LeFevre (6/10)
    • Biography of a stock trader in bucketshops during the '20s. I don't really remember a ton of valuable takeaways, it got kinda boring.
  • Dark Pools by Scott Patterson (8.5/10)
    • Read this five years ago but I remember liking it a lot. History of automated trading and describes some of the strategies the first guys were making. Good story of exchanges, markets, and algorithmic trading from 90s to 2010. Although a lot of the strategies might be arb'ed out or outdated, I might actually pick this back up for some idea generation.
  • When Genius Failed by Roger Lowenstein (9/10)
    • Practical trading book that tells the story of rise/demise of Long Term Capital Management. Another one useful for most undergrads, good on audiobook, and entertaining. Lessons applicable to options trading (realized vars, correlations, etc.)
  • Advances in Financial Machine Learning by Marcos Lopez de Prado (9/10)
    • MLdP is a quant trading genius and this is a pretty useful book for anyone with ML background. I like the chapter on cross validation, strategy risk, and anything backtest related.
  • Algorithmic Trading by Ernie Chan (8/10)
    • Ernie Chan has 3 books out w/ quant strategies and MATLAB code. Good resource for statistical arbitrage and mean-reversion strategies, but I didn't read all of his stuff.

Beginner Options: [Spreads, Greeks]

  • Option Volatility and Pricing by Sheldon Natenberg (8/10)
    • Extra point because its always referred to as the "bible" of option trading. It's very straightforward, covers forward pricing, dividends, spreads, volatility skew, implied distributions. Ch 24 is especially important, but otherwise very dry.
  • Option Trader's Hedge Fund: A Business Framework for Trading Equity and Index Options by Mark Sebastian (8/10)
    • This was my first options book. Practical trades, discusses some vol modeling, hedging/defending, stories from an early-2000s-ex-market-maker. While I'm really opposed to any book or content that pushes trading in one way, this book approaches options trading from an "insurance" mindset, calling it the "One Man Insurance Company." I vaguely remember most trades being net short premium, but there were a few relative vol trades. He "coaches" options traders, so he has quite a few examples and describes common pitfalls.
  • Options Volatility Trading by Adam Warner (8/10)
    • Good primer on trading VIX options and conceptualizing volatility trading. I especially remember his analogy to weather, VIX futures, and why modeling is important for VX. Adam Warner also has a good book on Volatility ETFs. If you've ever wondered why relationships between SPX and VIX diverged, or why VIX went up but your VIX calls didn't, read this book.

Intermediate Options: [Vol Trading]

  • Option Gamma Trading E-Book Series by Simon Gleadall (9/10)
    • Helps conceptualize gamma and its role in exposure to realized volatility, scalping, profitability, and time. If you're looking for a quick read, check it out.
  • Trading Options as a Professional by James Bittman (9/10)
    • Bittman is another ex-market maker from the floor, and I think he now works at Cboe in Education. While his book encompasses what MM were doing ~15 years ago, a lot of the concepts are still important, like pricing synthetics, revcons, dividends, boxes, flying off options, and managing bids/offers.
  • Trading Volatility by Colin Bennett (9/10)
    • One of the absolute best resources for institutional option trading, skew, correlation, and term structure trading.
  • Volatility Trading by Euan Sinclair (8/10)
    • Ignore the volatility forecasting sections, but pay closer attention to psychological biases, and money management/kelly.
  • Exploiting Earnings Volatility by Brian Johnson (7/10)
    • The title is a little cheesy, and it comes with some excel sheets that, if you learn them, could help a good amount with trading earnings. It's not the best system cause it's missing some of the nuances of event pricing, but it teaches a really good amount about the vol surface, how it changes around earnings, and how vol should move as we approach the event. Good overall, and I don't think any other book teaches event pricing. Never took the time to learn his excel sheet, though, but it can spur some good trade ideas.
  • Dynamic Hedging by Nassim Taleb (9/10)
    • Very important book, and still a reference to this day. Pay special attention to chapters on vol surface, shadow greeks, alpha, and arbitrage.

Advanced Options: [Vol Surface, Modeling]

These books are all under the same umbrella of how to model arbitrage-free volatility surfaces, local volatility, SVI, skew, correlation, and term structure dynamics. Not useful for retail.

  • Volatility Smile by Emanuel Derman (9/10)
  • Volatility Surface by Jim Gatheral (9/10)
  • Lectures on the Smile by Derman (8/10)
  • Financial Mathematics of Market Liquidity by Gueant (7/10)

Wishlist/Interested In Reading:

A Man For All Markets by Ed Thorpe

Stochastic Volatility Modeling by Lorenzo Bergomi

Trading and Exchanges: Market Microstructure by Larry Harris

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70 comments
3

So I've been learning about options trading for a couple weeks and I keep hearing this advice above everything else: place frequent high probability trades with small risk compared to your account size.

I understand the frequency and account size arguments. However, I am not still clear about the high probability. One of the assumptions for it seems to be the law of large numbers. That is, with high enough frequency, "the probabilities will work out". Most of the sources I've been following (optionsalpha, tastytrade and others) repeat this over and over, saying that placing 60 or 70+% probability trade is the way to go.

So I went ahead and looked at the possible profits, losses and probabilities as shown in thinkorswim and tastyworks. Whenever I find a high probability trade, the situation is more or less like this:

70% prob. of profit
max profit $25
max loss -$75

Well, that works out to expected value of -$7 ... so I would be losing seven dollars per trade in the long run. Or would I? On the other hand for low probability trades, say 30%, I get positive expected value.

So the main question is, why is the above approach wrong? What am I missing?

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8 comments
1

Pretty much the title. I want to bet a stock in one month will be above say 100, but don’t want to guarantee it won’t fluctuate along the way. Could my put that I sold be “used” by the buyer if it dips below 100 only for a few days? If it does is it pretty much ‘game over’ for that option?

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0

Can someone clarify why an OTM Jan 2019 call is still returning profits?

For example let’s say I bought a MSFT option for a January 2019 $115 call when the stock price was $90. Today Microsoft is at $105, I know that since the stock price is coming closer to the strike price the value of the option will go up. But how can I realize the profits if the option is still out of the money? Is it just paper profits on the books?

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bought these about 10 mins before the bell for $3.58. based on the greek and the AH price of around 108. what should these open at? https://i.imgur.com/oRfFKDn.jpg

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1

Costs $3300 to buy 100 shares. You can write an option that expires in a week with a $33.5 strike, and collect $123 of premium per contract

Stock goes up - you get exercised, you still made 3.7% in a week, that’s a fat dividend.

Stock goes down - write weeklies with a purchase price at your strike.

The IV on this thing is crazy - great for writing covered calls

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9 comments
1

Hi guys, I've been using Robinhood to option trade but I can't do spreads on the application yet (since i've been doing options for only 2 months). Is there another application you guys recommend? Or does anybody know how I can do straddles/strangles on Robinhood without the spread feature? Thanks

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A little late but thought I would start posting any interesting trades I make. Going in on MSFT long 1 day trade for earnings, IV for the Jul 20 is at 127%, usually trades at 25-30% so this is a play on short volatility.

Jul 20 2018 Bull Put Spread with additional downside protection

Sell $105 Put

Buy $102 Put

Buy $99 Put (cheap protection)

Routed the entire trade for $1.00

Max Profit $100 on the upside, "Unlimited" on the down side

Max Loss $200

Break even: above $104 or below $97.06

Why the protective put? I have seen some things in my time trading lol did not want to get caught in a huge down move like with Netflix.

Will update when I close the trade, hopefully goes well, I can see they just beat earnings

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6 comments
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Learning to profit off of earnings calls. The fact that they beat the estimates and guidance has given it after-hour boosts.

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19 comments
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Hey guys, long time lurker. I appreciate the posts and the mods here, I've truly learned a lot.

Quick question: I have an AMD Call that expires tomorrow. What is the best way I can stretch my gains? [It's a small call cause I'm still learning].

https://i.redd.it/o0byzj6uhya11.png

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9 comments
2

Last month I bet the market would go down by August:

Bought 5 contracts of SPY, 20180817, 273 CALL @ 4.11 (market val: 8.74, up +4.63)

Sold 5 contracts of SPY, 20180817, 265 CALL @ 9.40 (market val: 16.11, down -6.71)

For a credit of 5.29

I want to extend the time and raise the low end of my bet and I'm looking into making this trade, but I can't figure out what my max loss/profit would be:

Sell 5 contracts of SPY, 20180817, 273 CALL @ 8.74

Buy 5 contracts of SPY, 20180817, 265 CALL @ 16.11

Sell 5 contracts of SPY, 20190118, 273 CALL @ 15.56

Buy 5 contracts of SPY, 20190118, 280 CALL @ 10.64

For a credit of 2.25

If this trade goes through, it would mean the total credit collected is 7.54, right? That doesn't seem reasonable seeing as how I'm left long 280 CALLS and short 273 CALLS.

Isn't the total credit of 7.54 I collected more than the max loss of 7.00 I would experience if the market goes up rather than down?

What am I forgetting to include in my calculation?

edit: formatting/text

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9 comments
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I work overnights, so I am asleep as the market closes. What happens if I have options that expire either ITM or OTM at the time of market close?

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16 comments
2

Long term DIS owner. Wrote some covered calls to generate some income. 8/10 $111 Which as you all probably know, has turned out to not be the best move.

My question is, what do you all do in this situation? I think there is more upside to DIS, but maybe not before expiration. Would you roll it? Close it out? or just let it ride and then sell some CSPs?

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7 comments
0

Analysis of #BankNifty (NSE Bank Index, Nifty Bank) for 26Jul2018. Market Analysis is done based on Technical Analysis, Option Call / Put Chain & futures market. Best possible strategy is discussed considering the market scenario. BankNifty Support, resistance, Target etc. discussed along with some options strategy .

We put our weekly Nifty & BankNifty Strategies and Analysis through BullTrack RT YouTube Channel.

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1 comment
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Let's say you were to play an ER, and you buy a straddle in hopes of it going way up or way down... but for some reason it' stays at break even, and you have say... 7/27 expiry?

Do you profit if stays at break even? The options profit calculator shows that you do, but I doubt it. If so, what's the reasoning?

Thanks in advance!

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6 comments
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Is anyone else anticipating a possible spike in GE tomorrow from Earnings?

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9 comments
1

Heal All,

Hope you're doing well. Can someone help me with my question below?

on 7/12 i sold a $p $9 put expiring 7/20 for $0.94 putting my break even at $8.06 per share.

on 7/18 the option was exercised and the stock price was $8.31. Once I looked at my P/L for that stock, it shows that my total loss is $-77. How is that possible since my break even was at 8.06 and neither during my initial sell to open nor after the exercise, my account has never shown the full $94 premium.

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If I buy a put on a stock, that means that someone else sold that put, right? So if I choose to exercise the option, they are obligated to buy the stock from me at the agreed upon price. If the stock tanks and I exercise the option, what happens if they don't have the money to buy the stock?

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5 comments
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To start, yes I am new and yes I have been reading a lot, watching video examples a lot and not planning to jump in until i fully understand the “game” (probably several months at minimum). I have only been looking into this for approx 1 month so I’m sure I would stumble on the answer sometime but its been the one thing I am having trouble fully finding an answer for. And yes I am using very small numbers because its basic.

The option contract example:

XYZ has a stock price on $.98 and an options contract strike price of $1 is available. The contract is a $1 premium ($0.01 x 100 shares = $1.00). You pay the premium then a day before expiration the stocks value is $1.50 meaning your contract is worth $150 - $1 premium. If you exercise the contract you net a profit of $49.00 if you sell after exercise.

My major question is, do I have to exercise my contract to reap the profit or can I sell the contract to get the profit. Meaning do I have to buy the shares at the $1 ($100 total) strike price then turn around and sell to make the profit.

Many examples I have read seem askew and make it seem like the investment coming from my account would only be $1 (the contract price) then upon exercise of the contract I could sell netting the $49 profit without buying into the full $100 share value. I assume this question seems stupid to at least most and I will probably get some heat for it for being new and not researching enough but I wanted to make sure I'm understanding as I go along and not make mistakes down the road.

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7 comments
1

Hey everyone,

I have a bit of a problem that I unfortunately ran into. Back over the summer, I purchased a September put option on Copper, using the ETF $JJC. This ETF didn't have HUGE volume, but it had more than enough to justify buying a put without having to worry too much about underlying liquidity.

Copper has and continues to crash, so given my strike price of $35 (the underlying index is below $30 now), I'm pretty deep in the money.

See screenshot of option here: https://imgur.com/a/tNZBSfX

The Liquidity Issue

The problem is that at some point, the ETF $JJC switched to the OTC index $JJCTF in my brokerage (don't laugh, I use Robinhood). So while JJC had enough liquidity, I no longer own JJC, and now own $JJCTF, which seems to have almost zero liquidity. I've tried selling the option even at decent discounts to the current value, yet can't get any bidders. I can't purchase the underlying ETF to exercise the put either since it's an OTC index I can't buy on Robinhood.

I wouldn't mind letting this run further ITM which I think will occur, but I'm worried that despite whatever profits I glean, no bidders will show up due to the lack of exposure period.

Anybody have any thoughts / experiences with something similar?

EDIT: Was able to solve the problem thanks to u/spelunker . Sold for $500

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4 comments
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