Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: paulmcg0 who wrote (15154)	3/19/1998 9:47:00 AM
From: James F. Hopkins	Read Replies (1) \| Respond to of 94695

Hi Paul; At one time I traded a lot of options, to tell the truth I was over focused om them. In options you compeat within a market of supply and demand, floor traders who have an edge, also the commissions are more than with stocks. The original writer is also not to be considered a fool. In a lot of cases the writer has inside information. There are so many unseen factors, that no matter what or whoes rules you go by they can be very risky. That facts are 80% expire worthless. To beat thoes odds you have to be dammm good, when you take the expences off etc. The floor traders get first pop..they are in and out and most make money, but people like myself on the buying side are like in a third market. ------------------------------ Look at options from the writers view, and get that view understood to were you think you could write options and make money. Books that deal with just buying options deal with them much like the tipshyster at a race track who sell systems to beat the dogs. On the surface they can show you how it works, and it all looks just fine..put in in pratice and you find out it seldom works. The track the kennels and only a hand full of pros make money at a track and the pros know that if they make 15% they are doing good. Of course they roll a lot of bets, and I never got that good but I rolled bets you wouldn't belive. I lost tons of money before I could get to were I found a way to "beat the crowd" , that required working the odds more than handicapping. Same to some extent with options, analyzing is like handicapping, but were is the "tote" board. ----------------------------------- The "tote" board is in the open interest..the bets already placed, to find good odds and to win you got to beat the crowd, sometimes a lot. Another factor is just how much of the stock is shorted..odd they don't stress always check the short interest always not all preform the same way, but a look at the short interest on a chart compared to price tells more than most other factors. Not being able to get up to date short interest is a drag, but the brokers have it, at least they have their in house info, and they often take short positions too..based on the orders coming in. The data we get is not up to date but with some extrapolating it can be usefull. In most cases you will see a dramatic drop in short interest just before the stock goes down. ( most shorters lose money ). -------------------------------- All the rules you mention apply, but any of them can be defeated and have you making bets you shouldn't make. Then after you buy an option, if it's not to limit risk on a long position..( better done with writing ) then you most often want to sell the option..so what is the market you sell to, if there is small open intrest you may be surprised to find how the price skews agains you as you place the sell order. The best market is in a large open interest close to but just out of the money, were when you chart the option you find the vast majority paid a lot more for it, you get in way under their price and the floor traders will have a hard time cutting you out. It's a slice of time sold as a commodity..you want to own it cheaper than the vast majority so you can dump it at a discount or say undercut the price on the way out, and still make a profit. This gives you an edge..and with options you need an edge. Most of the writers will not buy options back, unless they get them a lot cheaper than when they wrote them. -------------------------- I lost a lot in options, backed off and looked again, then in the last six to nine months I've only played a few.. they are not as profitable as a lot of people would have you think. I'll have to go back and look, but since I got more cautious..in the last 6 to 9 months I have not lost on any bets in options, not one. Most of my bets were on calls, with only one put bet in the bunch. It will take me a long time to make up for the early losses, fortunatly I backed off while I still had some money to play with..a lot don't. ------------------------------- Leaps ( calls ) on companies with a faily strong balance sheet that has got beat down but will likley survive and were the leaps have gotten dirt cheap..are the safest bet. If I had the time I could show you over and over were these made much more money than any other kind. From T to pepsi, to ADBE..to TWD..CYRX ..the premuims were drit cheap when thoes cos were at their lows. I make exception to WDCDW only if it falls to 3/8..and the stock shows support at 16 when and if she drops that low..that exception may not last..it's based mostly on what I know the vast majority paid for that call..and the large OI and that with any bounce in the stock price some of those suckers will try to average down, ( I got my market ), and can under cut the floor traders if I get in that cheap. Normally I like more time..but chances are if she goes off that cheap..even a 1/2 pt bounce in the stock price will double that premium or more, and she can do that on any day. ---------------- Looks like I might be over over talking what I want to say, I'l give it a break..just study the options from the writers angle and get a handel on that before you get tied up in the third world market of buying and hoping to sell them. Don't write un covered calls, and if you going to work the exotics as I call them (straddels and such )..remember it's a full time job, commissions are high, spreads get skewed, and most of the paper profits never work out in real time. The pros on the floor got most of that covered real good. ------------------- Jim --------------------------------

To: paulmcg0 who wrote (15154)	3/19/1998 11:42:00 AM
From: yard_man	Respond to of 94695

Very rare pattern, but sometimes works -- the extended parabolic rise which is a result of a high level of short interest -- after the big squeeze. Very recent and timely example here -- BLDPF. I got lucky buying a single put when it was 130+. See MU the last time it went to 60+. Look at whole sectors which are getting beyond themselves and lots of positive press reaching a "crescendo." Look at these sectors now: Banks, Airlines, and Internet stocks. Diversify. Timing is crucial. Cutting your bets into portions is essential. You can't expect to time it perfectly. Above all, if you can't afford to lose it -- don't bet it. That's what you are doing unless you are writing options against stock you own or looking to pick up stock cheap writing puts.

To: paulmcg0 who wrote (15154)	3/19/1998 12:09:00 PM
From: yard_man	Respond to of 94695

biz.yahoo.com

To: paulmcg0 who wrote (15154)	3/19/1998 7:54:00 PM
From: Don Westermeyer	Read Replies (1) \| Respond to of 94695

FWIW, I think options are really a truly efficient mechanism in the market. Unless you are a good timer, or have insider information ,:), the only one who makes money is the specialist/market maker. (1) Try to avoid stocks where the put premium is too high compared to the Black-Scholes price. Beware if the model is the standard BS model that assumes log normal distribution, you will always find discrepancies in out-of-the-money options. That is because the log normal distribution does not really accurately describe typical stock price distribution (although it does a lot better than assuming normal distribution).