Thanks Hammer, for that detailed example. It was very helpful. Tracing out
different profit/loss scenarios is something that I have not done, but will have to learn to do. So far the situations I got myself in have been very simple, and luck was involved; I like to long a bit ITM 1.5 years out, if can, when I think a stock is bottoming. It can get a bit dicey, which is why I go far out and try to be patient. Since I don't have time to trade, it works out, and I use the process to learn. A similar thing works with Puts, though psychologically I find have trouble with Puts, especially if it is a stock I like that I have been long on.
Over the next couple of years if I get time, I will try to study more complicated strategies and see if I can do small experiments. I am comfy with the probability part etc, so that does not bother me. It is understanding the terminology and practical consequences of risk, what to do to get out of jams and reduce risk etc. that I really need to spend time learning. I think the best way for me is to work with one strategy at a time as I learn ---
I like to try and keep things simple (so far). :)
So far I find that the Options market-makers can be more than a little crooked with their Bids and Asks, esp, when OI/volume is small. I try to estimate where to hit the price, and one simple way is go about half-way between what they've advertised. It probably p***es them off, but I don't see any other option (pardon the pun) with the way they jack the prices around. :)
I really doubt they are running Black-Scholes or anything else to get at price. I suspect they are so experienced that they do some rough (mental) calculation and get near enough to theoretical price, and then they add some profit.
Thanks again! |
