I use short strangles as my trading approach and for success probability I set the strikes at 2 standard deviations from the price for the time period….statistically, this indicates a 95% success rate. I also use weeklies as I only go out 3-4 weeks as time decay seems highest during this period. 9. The site may not work properly if you don't, If you do not update your browser, we suggest you visit, Press J to jump to the feed. I also use mostly ETF’s although solid slower moving companies also work as they are less inclined to wide swings (don’t want that with a strangle). Already?! Explain Like I'm Five is the best forum and archive on the internet for layperson-friendly explanations. Fucking VALUE BABY. Now we about to hit some meth and and things are going to get wild. The reason the return rate increases is because the time decay has occurred over fewer days than originally planned (that's goodness). You wrote a lot of words and I didn't read a single one of them but the sprinkles of bolded letters throughout the paragraphs gave it an air of competence as I scrolled down so I went ahead and upvoted. Instead of trying to get as much of that sexy gamma for as little as possible, we're now trying to collect as much of that sweet, sweet theta as we can with as little movement risk as possible. I think that you first need to define for yourself an objective (beyond making money which we all have) and then evolve a strategy that fits. 15. If they're wait out then just hold on and see. At my retired age, I can't wait for long term stock trades so my objective is short term "in and out" option trades with a high annualized run rate (30%+....can't get that from a bank). Coke has low volatility. You have 100 dollars from your birthday. If it's awful and the price drops to $10, at least you didn't buy it for $100. Your friend has a nice bike that he is looking to sell. So what's the point?". Say you don't want the bike anymore by the time the end of the month is up. No offense, but you explained it like they were seasoned stock traders. Alright guys, volatility's back and everyone is making money except for you guys, so here's a quick introduction to some basic option plays for your weekend learning. So all option prices are based on the average of what people think is going to happen. However, if the bike happens to go down in value, you are paying an extra $50 dollars for a bike that maybe you could have bought for $400 in the future. More posts from the StockMarketIndia community . KO is currently trading at 37.04. You sell it to him, and make a quick $50 profit. They would lose $250 on the difference in price, minus the $32 premium. You tell him, "Hey man, the bike seems to be going up in value, and you can buy it for $500 with this coupon!" Imagine you own a straddle that's worth $5 and expires at the end of today. My strategy is short term trades with a high probability of success and using decaying time premium as the source of income. We went from flat to long 90d. Press question mark to learn the rest of the keyboard shortcuts. There are various ways to use options together with other financial contracts to customize your level of risk and reward. There's no perfect advice for this question though especially when this market is so fucky. 0 comments. Don't Panic! If the future keeps ticking up your short stock position is covered by the now-ITM call. If the world thinks your company is great this transaction will be cheap. A buyer of the call thinks the price of the stock is going to go up, and the seller thinks that it will stay below the strike price. If it looks a little pricey, ride the short straddle a little while before rolling the position. You're assuming that the bike price will go UP, not down. Right now they are $10 a share. So what’s the downside? You have £100 as pocket money. Not a trading journal: strategy and other details required. You cannot trade options well without first understanding how to trade the straddle. No matter how wrong you are about the market, you know going in the most you could lose. Buyer B buys the call from Buyer A and pays $1000 premium for the right to buy the stock at $37.50 from the original seller, so it transfers that right between buyer A and buyer B. Salman Khan has a lot of videos on finance on www.khanacademy.com, and I want to point out that he mentions a difference between US and UK options. That contract you made with your friend is transferrable, so maybe your other friend wants the bike too. If the price rises to $100/share in that time, you can use your option to get Apple stock at a low price (compared to the market price) and immediately sell for $20/share profit. So if the stock moves again we get to rinse and repeat. They keep the premium. Doing so would mean they would have to buy the shares at $37.50, even though it's easily available at $36. A stock like Coke or Proctor and Gamble have very low premiums because there is very little risk they'll run up more than a few dollars a share. I dont know what the fuck you are talking about so im going to buy some SPY FDs monday morning. Now on the other hand, let's say the game gets great reviews and it's going to come out for $70. Example: November 17 2012 Coke (KO) 37.5 Call: 0.32. Good question. Here's the interesting part. Options Trading 101: Call And Put Options. This is the essence of what options/futures do. The buyer of the call has the option to exercise that call immediately, OR they could look at the price of the call which is now worth $10.00 instead of $0.32 and sell that call to another person (buyer B) for the premium without any risk of downside. 8. So you go down to your local game store and find out you can pre-order for only $50 if you pay $5 right now. 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