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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: CommanderCricket who wrote (43433)	5/4/2005 11:57:04 AM
From: kodiak_bull	Read Replies (2) \| Respond to of 206347

Commander, Welcome to the rather amped up world of option trading. As you could see in the course of 3 days of KWK I went from flat (purchase, Day zero), to +92% on Day 1, flat on Day 2 and +70% on Day 3. A couple of suggestions. If you are just going to trade options through your regular broker, consider setting up a separate account with OptionsXpress. They have a lot of educational stuff on the site, scans, analyzers, and an excellent real time real "money" paper trader function. If you are already there, great (there are other places to trade options: Interactive Brokers, Thinkorswim.com, etc., which many people like). Once you trade the real thing for real money, try to use only about 1/15 to 1/20 of your capital at risk for each position. Options are like jalapenos, it doesn't take much to season the whole pot (see earlier post on KWK vs PTEN for a numerical example). Learn as much as you can about time decay, risk curves, etc. I don't think you have to become tremendously versed in the Greeks, but you have to understand what your risk is along the time line. If you want to take it very seriously, sign up with OptionVue for their inexpensive 1-month trial ($60). If it convinces you, it'll be about $2,000 per year. It will probably save you that on your first 2 trades, once you understand how to use the system a little bit. Options trading seems to me to be divided between two camps: the quants and the directional traders. The quants are those who verse themselves in the Greeks, work to find market-neutral but volatility-based strategies and are often heard to say things like, "I have no idea and don't care where the underlying is going in the time period, but I believe that volatility will return to this line, and I believe that gamma scalping will profitably occur at this level--therefore . . ." Directional traders start from another position. They believe that probabilities favor a stock moving in a certain direction over a conservative time frame (3 weeks to 2 years) and look for a structure to express that move with the highest probability of profit. Positions can be unilateral (long PTEN Jun 25 puts @ $XX) or bilateral (spreads, straddles, strangles, etc.) or multilateral (condors and other combos). They can go to a certain point in time (verticals) or go across time (calendars). These are all tools of options traders, but the more complicated strategies are not solely for the quants. Directional traders can use complicated strategies (in fact, I think legging into complicated strategies is the way to fly) to "express" their view of the underlying's likely direction, hedge against losses (really cut down purchase price, in my view) and lock in profits along the way. I recently posted a note on DB's thread about a one-month campaign in one stock, TKLC, which involved 4 separate transactions to fully enter and then fully exit positions which yielded over 100% in gains. Finally, one piece of advice. I am slowly coming to a better understanding of how TA can dovetail nicely with options; in fact, good TA can really stoke up your options ability and take you beyond many of the purely quantitative bent. I don't see how FA works with options, except on the most fundamental risk control and hedging ideas. So it strikes me that a serious trip into options is a serious trip into TA, and probably the TA journey should take precedence and importance over the options expedition. Kb