Why Aren't You Trading Options?

ITT: We tell cryptoids why options are superior.

IF you want superior returns, you have to play derivatives. Options are the safest derivative to play since most strategies require no margin, meaning, you can't lose more than you bet.

Options have built-in leverage. Lets say you see something start to head moonward. It goes from $10 a share to $40.

If you bought stock at $10 and sold at $40, that's 400%. Amazing returns, but these opportunities are rare. What if you used call options instead?

Assuming you bought a $10 call at $10, you probably would have paid $250 for a contract. At $40 a share, your contract is now worth $3000, leaving you with a $3,750 profit. Divide that by your cost of entry to determine profit %. $3750 / $250 = 1500%. Ah, that's better. And we only had to risk $250, vs over $1000 of stock to obtain the same payoff.

Even better would be to wait for something to pump into bubble territory and ride it down. If it goes up too fast, it WILL come down too fast - and that is an opportunity as well. Why not win both ways? You can with options.

Lets say the market grinds sideways for a few months. Great, we can make money on that too. A butterfly spread can give us 3-10x leverage against our risk, yet with low probability of success - or perhaps we prefer a higher probability of success by using an Iron Condor, in exchange for lower profit potential?

So what the fuck are you doing trading shitcoins? Go learn options, and remember, don't get fucking greedy.

There are plenty of great tutorials on Investopedia, tastytrades, optionsalpha etc.

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fuck me, I meant $2,750 profit. Still, that is $2,750 / $250 = 1100% returns. Riskier strategies (generally to be avoided) can bring that return potential up to 5000%.

Whats the best way to learn options?

I use to trade options but I lost a lot of money... crypto is unironically easier

options quickly bleed value over time, it's a "house edge"
it's the same as 0 and 00 in roulette, etc.

options trading is the same as gambling, you degenerate cuck

Study the different strategies, learn technical analysis and how interest rates / FED talk rigs the market. Watch for volume and volatility spikes, they are your friend. Trade in a paper account to verify you know what you are doing and go live I suggest with Robinhood, since no fees. I use tradingview for analysis.

Theta decay is logarithmic, you choose how much exposure you have. Sounds like you had a bad time with short term contracts, which I generally avoid for that very reason.

Maybe you can answer this question for me. What kind of entity writes the majority of options sold on the market?

High frequency trading algorithms that are run by the largest banks. They buy them to close as well, or they would quickly go bankrupt.

Interesting. How do they buy them? Do the algorithms just wait until price fluctuates in a certain direction to a certain degree before closing their position?

Most High Frequency Trading (HFT) algorithms perform arbitrage. Arbitrage is a low risk strategy that capitalizes on small discrepancies in pricing between two securities, contracts, exchanges etc. The idea is that you buy and sell something at the same time, and take a small spread as profit. Basically makes it so that they get paid to keep spreads small. More aggressive algorithms use technical indicators (statistical analysis models) to analyze changes in price direction and momentum, and act accordingly. Technical analysis can give us a general idea on what the more aggressive algorithms are doing, since they tend to trade up and down in cycles.

Here are my weekly returns using mostly options and holding a few stocks. The market recently has been essentially free money, rigged all to shit.

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For instance they may notice that a particular spread is $0.15 apart. They can buy at the lower bound and sell at the higher bound, bringing the spread closer to say, $0.05, and profiting in the meantime. It's slow and consistent.

Also, it is possible to perform your own arbitrage strategy using options by, for example, buying a debit spread for $25 and selling it's inverse for $30 to lock in a $5 profit. Allows bypass to the day trading rule and avoids the risk of holding overnight uncovered. It's up to the individual how risky they want to play it, and honestly it depends on your confidence in prevailing market conditions.

A butterfly spread I placed on EA today after they dropped -20% on the open. Common behavior for a stock after dropping on earnings is to bounce slightly before beginning a slow grind down. Short term butterfly spreads are typically risky, but the algorithms tend to make this kind of after-earnings play very easy.

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CRON entered bubble territory, now its doing the Bitcoin death spiral. Easy money yet again. Made 20% this morning on a put I set yesterday, re-entered at a lower price and now I'm here, waiting for more.

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Thank you for sharing your knowledge. I'm going to try to work this out semi-mathematically/logically based on your explanation. Let me know if I've got anything too badly wrong.

So you have a larger category of algorithm that identifies [option contract] at price x. It identifies price y, which only must be y>x. It creates a nearly identical security, that being [*option contract]. It buys [option contract], sells [*option contract*], and reaps whatever profit is = y - x.

Effectively this has no output except potentially on volatility.

Then you have a smaller category of algorithms that write options based on technical analysis. They write a large number of [options contract] with parameters based on an equation that is statistically likely to generate a positive return. They are essentially writing these in perpetuity in a cyclical fashion so long as there is sufficient demand.

Effectively this has an output of [options contract], but most options written thusly will effectively be betting on a particular position arrived at by whatever technical analysis the algorithm is using.

So the main effects of those algorithms are large scale bumps in volatility coupled with a potentially heavily weighted product on the market, yes?

I suspect gambling on shitcoins is easier than trying to understand this. Thanks anyway though.

It should be obvious what is going to happen next...

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anyone else use Nadex?

Where the fuck is that Cuban Sandwich you owe me?

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more specifically, binary options. alot of traders look at it like a joke but ive made pretty decent returns. granted ive also lost alot as well. id say its the closest to gambling as options get.

Yep you get it. The technical analysis algorithms increase the volatility substantially. There are also algorithms that perform sentiment analysis on economic news events. Those are the most dangerous of them all. They will cause massive price spikes within seconds, whether or not the news is fake. Last fall a headline came out claiming that treasury secretary Steve Mnuchin cancelled a meeting with Saudi officials. The DOW dropped 350 points in a matter of seconds, and was back up 350 points within 5 minutes. On Dec. 19th when the FED raised rates, the DOW was up 350 points. It immediately hit zero upon announcement and proceeded to drop to a daily low of around -400. These events can make or break any trader, so you must be aware of them. Best suggestion is to AVOID BETTING ON WHAT THE NEWS WILL BE, only bet on what the reaction is. And NEVER bet too big! If you leave yourself enough room to bet on the reaction, you can always pull yourself out of a hole. Once a direction is picked from a news event it typically sticks for a while, so any damage you might receive by being in the wrong position can be offset by adapting.

However this really depends on market conditions. Last fall was absolutely brutal for news event spikes. Yet when you get into the "ever upwards" sort of market condition, its basically free money as long as you bet on the reaction to the news, and not on what the news will be.

I traded them in a paper account on Nadex, took $25k and turned it into $5k on my first night. Left it alone for a few weeks and came back later, turned that $5k back into $23k or so, once I had some news to back the trades up.

I think if you trade binary options on interest rate events like the FOMC, you can reliably make incredible returns on the foreign exchange pairs. The rest of the time, its probably best to be patient. Do you trade events or use technical analysis for the binaries?

So essentially:

>bet in accordance with the algorithm unless you think you've figured out something that they haven't because the simulated volatility will drive price your way
>bet on volatility when big news is expected to drop if you think any news will freak people or algorithms out

I see a lot of possible moves. Do most banks use the same algorithms for high frequency trading, or do they all use different proprietary software?

I believe they probably use proprietary in order try and get some perceived "edge", however they all have to model off of the same data using the same basic principles: modeling of price momentum given volume and the derivative of price action; modeling of volatility through standard deviation comparison with historical mean and normal distribution model. Anything more complicated is basically just an extension of these ideas, in fact all options are priced according to Black-Scholes formula which is itself a form of normal distribution.

I use nadex only for forex. I dont touch commodities or gold/oil. Pretty good returns.

Also make sure to watch the FED talk and their move on interest rates. That has the largest effect on the overall market trend than anything else, besides outright rigging by the PPT (which has occurred since Dec. 26th of 2018, to prevent a full-blown crash). Lower interest rates encourage lending and borrowing, which stimulates money supply and velocity, producing inflation. By nature this inflation produces "growth", although the growth is only sustained by ever increasing debt. The debt is ultimately a ticking time bomb, so it is critical to follow the FED and the bond market, so as to understand the "health" of the ticking debt bomb. What triggered all of the volatility last fall began with the 10yr yield hitting 3.25% - the market opened on that news and the DOW dropped 1,200 points that day. An incredible opportunity if you watch the FED and bond market, or potentially an incredible loss if you don't.

Also there are delta-neutral strategies which are market neutral. Makes it so market direction is not a factor in your success. It is more difficult to manage and not quite as profitable, but very safe.

So it's a safe bet that most banks will take a very similar position in most cases. It's also a safe bet that spreads will be relatively small due to arbitrage, but volatility will be relatively high so there's usually someone buying or selling something you want.

Is there a threshold where technical algorithms try and buy back their own positions?

TA is hard for a small time frame. Usually just trade events

where did you go to get started, OP?

So it's entirely possible to formulate a trading strategy based solely on the movement of FED interest rates and the bond market? I can probably integrate that nicely into my overall investment strategy.

90% of options expire worthless

Options are a meme. Crypto is wayyy easier. I made a shit ton on HOT and QNT and now its looking like LTO is next.

Options are for pussies who don't have the balls to by a stock and hope for the best.

seems like the person who buys and just hopes for the best is the pussy in that scenario.

>paying money to write a contract because you aren't confident enough to follow your intuition.

Thanks for this thread, one of the more productive on biz

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I became over confident and over leveraged myself. Lost 33% of my networth :(