Options Boot Camp

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Options Bootcamp 56: Options Trade Tags Demystified Apr 30, 2015

Show notes

Options Bootcamp 56: Options Trade Tags Demystified

Basic Training: Today's guest is Andrew Giovinazzi, of Option Pit, Option Block, and Options Oddities fame.

Mark, Dan and Andrew discuss options trade tags, including:

Regular
Spread
Block Trade
Inter-market Sweep
Combo
Cancel
SoldLast
Price Variation
Buy Write

Mail Call: Listener questions and comments

Question from Vegan - What oil products do airlines use to hedge their crude exposure?
Question from Alan - Why is rolling a position so prominent? Is that not just averaging into a losing trade?
Question from Angus - Maybe this is a basic question, but where do the names call and put come from? What about straddle and strangle?

Options Bootcamp 55: Going Naked in IRAs Mar 26, 2015

Show notes

Options Bootcamp 55: Going Naked in IRAs

Basic Training: Using Options in an IRA Account. Can you trade options in a retirement account? What are the limitations? What strategies can you utilize? What are the benefits of writing covered straddle vs calls? What is a stock replacement strategy? When should someone consider this strategy? Using options as an investment tool. What are any other investment strategy?

Mail Call: Listener questions and comments

Question from Hector - Can I still trade mini options or are they no longer available?
Question from Neil Cerone - What are the most common mistakes you see from "stock guys" who try to become "options guys?"
Question from Steve: First off, I love ALL the shows. They fill my daily commute with wit AND wisdom. Thanks! Also, better late than never, it was great meeting you all at Benny's Chophouse back in Sept. I am one of the Lobster and Meatballs trainees (thanks to your shows). I had the pleasure of sitting right next to you and across from Uncle Mike as we devoured steaks on The Greasy Meatballs tab. That would be Extra pleasure as Sebastian was paying for them! However, I gotta tell you that you blew it big time the other day when trying to describe why a Leap Call Diagonal is called the "Fig Leaf". Brian named it the "Fig Leaf" because you are "kinda covered but not exactly" due to the curves in the profit graph. I think that makes perfect sense and is pretty funny to boot. Finally, on a side note I would love to hear Uncle Mike explain what is and what is not considered holding in the NFL. It boggles my mind to see play after play of inconsistent enforcement. I understand if that's out of scope, but what the hell I thought I would ask anyways. It is not too often you meet a Pro Lineman. Best regards - Steve aka "Hawkeye".

Options Bootcamp 54: The Great Theta Debate and More Listener Questions Feb 27, 2015

Show notes

Mail Call: Listener questions and comments

Comment from Max_p24 - One of the best podcast for option trading. They have amazing Bootcamp for option beginners.
Question from Brian Collamer - Back in October I sent this question and I see you ran with it in a couple of other shows: "You mentioned that when selling options the fastest theta decay occurs in the 45-30 day range. I thought that was only true for ATM options? Do OTM options decay the fastest at 60-70 days and then kind of flatten out?" In each show you had asked where I had seen/heard this. LiveVol blog and forum. Thanks for the great content! PS: Futures Roundtable needs to be twice a month IMHO.
Question from Imbroglio - If I exercise a call option what happens - do I just hit a button and the stock hits my account? Or does it take some time? When do I actually get the stock? If I want to collect a dividend do I need to exercise a few days early in order to get the stock in time to collect the dividend?
Question from Angry Bunny - What the hell is a front spread? How does it differ from a back spread? Who the hell comes up with these names? They seem to make no sense.
Question from Neal Tompkins - How do I know when an option is going to be less liquid? What are some good suggestions for dealing with less liquid options?
Question from Jason Dague - I am long AAPL from about $99, and have a protective put on right now at $105 for July. When do you know whether to roll your put up? I am obviously down on the put by ~%70% from where I bought it in November.
Question from Jay - If the market is really falling out of bed what are some good strategies to take advantage of that movement while also minimizing option decay?
Question from Matt Dilks - Hi, I have just listened to Mark on Topstep trader, and missed the questions. But could you recommend which company/broker to get a sim/demo account to get to grips with trading options? Any advice would be greatly appreciated.
Question from John D. - Hi, Love your show. You guys do a great job. Keep up the good work. My question...If I am looking at a pair trade (e.g. long Facebook, short Twitter), obviously I can do it by buying/shorting the stocks. I was trying to figure out if there is any way to effective do the same thing with options what the advantages might be, if any. I thought of doing a synthetic long/short, but did not see any advantage since I will be naked short an option for both names... but maybe margin treatment is different? Long call on one and log put on the other does not seem to make sense since I am pretty much guaranteed to lose the premium on both those positions. Is there another or better way to structure this type of trade using options? Thanks.

Options Bootcamp 53: Income Trade Adjustments Feb 02, 2015

Show notes

Options 101: Income Trade Adjustments

An overview of income trades: Covered call, short put, short straddle, etc.
What do we mean by adjustments? When to or not to adjust?
Previous episodes that will be helpful: Options Bootcamp 41: Advanced Adjustments & Options Bootcamp 40: Trade Adjustments.
Basic adjustments, partial adjustments and adjusting into spreads.

Mail Call: Listener questions and comments

Comment from Dmitry Shesterin - @Options There is no V in the Greek alphabet, so how come Vega is considered a "Greek"? Who started this madness?
Question from Brian Collamer - Do OTM options decay the fastest at 60-70 days and then kind of flatten out?? Great show, wish it was longer! Thanks, Brian
Question from Charles Patterson - Is it accurate to describe delta as the probability of an option expiring in the money?
Question from Rohan - Do you think it is viable for an active retail trader to become a professional retail trader using primarily the freely available tools from OX and other retail brokers? How viable is that in the current environment? Would I always be at a disadvantage from the pros picking me off? Is this just a pipe dream? How much would you say the average pro trader needs to make to be viable? Thanks again for all of the great programs you guys have put out for free.
Question from AVG - I heard Dan Passarelli talking about Goldman telling people it's not worth it to sell S&P puts anymore. Do you guys agree with that sentiment?

Options Bootcamp 52: Looking Back at 2014 and Ahead to 2015 Dec 31, 2014

Show notes

Basic Training: 2014 Year-in-Review/2015 Preview

What option strategies worked in 2014: put credit spreads, IV overpriced throughout the year, "Wheel of fun."
Things to learn from 2014 - Do not get married to a single strategy.
Misperceptions of 2014 - VOL/VIX was cheap. Despite "low volatility" options volume was still very strong in 2014. Tempting to believe that OTM call buyer did well in this extended market.
Fed tapering - When is it likely to happen? What is likely to happen in the market when the Fed tapers?
Things to keep in mind for 2015 - It might be time for a smart hedge. The return of Rho. Volatility has a volatility. Exchange fragmentation will continue. Expand your horizons.

Options Bootcamp 50: Futures Options vs. Equity Options Nov 26, 2014

Show notes

Basic Training: Futures Options vs. Equity Options

We've talked about how to use options to mitigate your portfolio risk, but many traders also rely on commodities diversification as a way to mitigate portfolio risk.

Futures options strategies: All of the options strategies we've discussed on this program in the past are applicable to futures options as well with a few exceptions

Covered call & protective puts both require underlying futures positions - something most traders prefer to avoid.

Most traders looking for diversification typically want bullish exposure to the underlying. Some great options strategies for this include:

Stock/futures replacement strategy
Vertical call spread
Spreads with wings

Futures are useful for traders who want to establish sizable positions with a minimum of outlay

Options on futures can be useful for traders and asset managers who want exposure to alternative asset classes but can't or won't trade futures. You'll need a futures account to trade futures options - but if you use risk mitigated strategies such as spreads and don't get net short units and close out positions near expiration you don't have to worry about dealing with the underlying.

Mail Call: Listener questions and comments

Question from Jim Horn: Hey boot campers! I keep hearing about a spread called a onebytwo. What the heck is that? Am I even saying it right? Great show. Thanks for educating poor slobs like me.
Question from Tom Evans, St. Louis, MO: What does more volume futures or options? Also does one do more electronically than the other? If I'm looking to dive into one am I better off going with the futures or the options? Lastly can you clarify the difference between CBOE and CME and CBOT? They all sound the same to me.
Question from Anon: On several of your programs you mention that it is important to understand the VIX cash level at a given SPX level. Can you please explain this further? As an example, what are the implications of a 12 VIX at 1800 vs. a 9 VIX at 1800? Likewise, how does a 15 VIX at 1800 compare?

Options Bootcamp 49: All Mail, All Day Long Nov 25, 2014

Show notes

Mail Call: This episode is dedicated to our listeners.

Question from Neil Filasco - What sets do you recommend to hedge my retirement accounts, in clouding my defined contribution plans? The pickings in these accounts are relatively slim and there are no options to speak of. As one of the newly enlightened options masses, I thank you for bringing me into the fold.
Question from Chandra Bajpai - Hey Mark, I love the Radio show...I find myself wanting the next show because I something new every episode. My question is: How should a trader handle stop losses on a naked call/put and/or a vertical spread. When should you call it quits? IBD mentions 8% for stocks, but what is the level for options. Thanks.
Question from Hedger - I am a bit flummoxed when it comes to spreads. I listen to a show like this, that tells me to use spreads. I read a few articles about spreads, and I think I have the gist of it. Lets say ABB is trading for $50, if its going to $55, I can buy the 50-55 spread for $1, if the underlying moves to $55, that spread should be worth the maximum profit of $5. However, in the real world, my experience has been much different. In the real world, that spread would be trading around $2.50 or $3 forever! If I hold the spread, to expiration and all other things hold constant, I "may" get my five bucks, but thats hardly a given. I goes I am asking - What give with spreads?
Question from ToothFish - Hey Mark and the Black Hat One. Loving the Boot Camp show. Why is it back to once a month? Should be daily! Anyway I have hear you guys bicker back and forth on dark side vs light side trading, but I don't think you have ever actually committed to one or the other. So gun to your head. Which way are you going - premium selling or premium buying?
Question from Ing86 - Cool show. Learning a lot from all the options talk about XYZ and Apple. But what are some of the crazier things I can trade with options? Can I trade options on a big hollywood premiere for instance? I would have loved to be long calls on the Ninja Turtles or Guardians of the Galaxy. What about sporting events or elections? I would think this would be fertile trading ground for these products. Can I do something like this or is this too outlandish?
Question from Chilly Palmer - Hey Drill Squad. Lets say I bought calls on Firm A, and then Firm B buts them out (something I am dealing with now). What happens to my calls on Firm A? That firm is doing away and the stock will no longer trade. Will my calls be automatically exercised for me on the day the merger is put through? Should I just sell them now rather than wait for the issue to be settled
Question from Civas - What is the best way to handle a ratio vertical spread that has moved to my short strike? Close it out as soon as it hits the short strike, even though that means buying back two options on the short strike for every one I sell?Play the wait and see game to see if the underlying retreats and those short options go out worthless? Or add a long premium third leg to my trade to cap my risk - essentially legging into a short iron butterfly? I know Mark is partial to those. Enjoying the app. Thanks for all the shows and the mad knowledge.

Options Bootcamp 51: Covered Strangles, Theta and Closing Spreads Nov 19, 2014

Show notes

Basic Training: Covered Strangles/Covered Combo

What is it? Long stock, covered call, short put. Why do it? Collect more income than a standard covered call or short put. Why not to do it? Increased margin requirement, you will increase your stock position to the downside.
Example: XYZ trading at $50.

Option 1 - Sell covered front month 55 strike call for $1 - collect 2% income.

Option 2 - Sell both front month 55 call and 45 put for $1 each - collect $2 or 4% income. Rinse and repeat.

Note: Call and put should only be sold on strikes where you are comfortable buying/selling the stock.

Listener Mail: Listener questions and comments

Question from Tony - Mark, love boot camp. I was lucky enough to have a fairly significant weekly put spread position in DIA this week (long puts at 166-167 and short at 161-162.5). I was making good money on Wednesday and ran into a problem. The bid ask spread on my long puts were so wide, I could not close out, roll or adjust the trade. I thought about buying futures contracts to hedge my delta risk and suck out the theta. Is there any other strategy to adjust or hedge a successful trade without getting haircut on the executions? Should I just calculate the extrinsic value add a spread and put in a limit order for the long leg? Is it always harder to close out a spread trade in a volatile market… i.e. if I want to close a spread trade does one person have to want to enter the same trade? Or can the trade go to two counter parties?
Question from Mukund Ambarge - Hi Team, I had question on theta decay. I understand that delta is in constant flux with every tick move in stock, the delta / gamma changes. IV is in constant flux with buying and selling of options and volume etc. So vega changes with option transactions. But theta decay is the only one which is always in a steady pace i.e. it's not like it will decay quickly today and slowly tomorrow. The question is when the theta decay is really adjusted in the prices of options. Do the theta decay get adjusted at every tick move? Or every hour? If it is adjusted daily. Then when is the theta decay taken out of options. Early morning before start of trading? Or late in the day like last few minutes that whole days theta is taken out? Also I do not know when is weekend theta taken out of prices? Friday early morning or Friday ending or middle of the day? Basically when does market maker run the prices with the model and set the prices? Only once before trading starts or does he keep adjusting every minute/hour/tick based on demand/supply?

Options Bootcamp 48: The Great Open Interest Conspiracy Jul 30, 2014

Show notes

Mail Call: Your questions directed this episode.

Question from Jason Kruse: Is there a Bootcamp episode that discusses OI and how it can affect expiration moves? I hear people talk about max pain and pinning like it's a conspiracy. Would love to hear real info about how it works.

Open Interest

What is it?
Why is it important?
Why is it not important?

Pin Risk

What is it?
How prevalent is it?
When should you be concerned?
Is there really a conspiracy?

Question from Allen Manning:Hello everyone, I just started listening to the Options Bootcamp podcast, and I'm really enjoying it! I have a question about a strategy described in episode 20: Options in Lieu of Stocks. As a covered call alternative, I was interested in possibly buying a LEAPS with a 1 or 2 year expiration and selling monthly calls against it. When I looked up a few stocks and ran some preliminary numbers, I noticed that the cost to purchase a deep in the money LEAPS (about 80 Delta) option was usually higher than the total money I would make selling monthly calls for the duration of the LEAPS. What I did to get these rough numbers was to take the money earned from selling the initial 1-month call (after commission cost) and multiplying it by 12 or 24. I'm assuming one or more of these possibilities:

The method I used to get these figures is wrong, even as a rough estimate.
This strategy will only work with certain stocks/underlying that have optimal Greek numbers.
This method only works when assuming the underlying LEAP also appreciates in value to offset its own cost.
Commission costs make this strategy less successful (I have a TD Ameritrade account)

Any information you can provide about this strategy is greatly appreciated. Thank you, and keep up the good work on a great program!

Question from Ethan Kamen: My question may be a little basic for the esteemed Bootcamp drill instructors, but I would like to know about back spreads. It seems like the majority of the information online is devoted to ratio spreads. Is there a reason for this? Are back spreads not popular? Do you use them? If so, what scenarios are suitable for back spreads? Thanks for this show. I look forward to each new episode.

Back Spreads

What are they?
What is the use case for them?
When shouldn't you use them?

Back spreads vs ratio spreads

What is the difference?
When should you use each?
Are ratio spreads more common/popular than back spreads?

Question from Ilythian: What is the ideal time horizon for trading options? My typical stock trade lifespan is 3-6 months? I have heard many people describe options as short-term investments. Is my time horizon too long to be trading options?

Options Bootcamp 47: Protecting Profits Jul 11, 2014

Show notes

Basic Training: How to protect your profits.

Easiest method: 1st buy a 2-3- month put ATM or slightly OTM put.
Purchase an ATM put spread with the short leg at your break-even point. Easiest to do in a single stock or underlying.
What to do if you have a broad equity portfolio? Its a little more complicated. Determine the effective beta of your portfolio an how many effective shares of that index you own.
Rule of thumb - Expect to spend about 2% of your portfolio for effective 3-6 month protectionHow to reduce the cost of protection. Buy a spread instead of an outright put. Set up a collar. Set up a collar with a kicker.

Mail Call: Listener Questions and Comments

Question from Big Charlie - Hey guys. What is your take on the OH/Monster merger? What does this mean for the options landscape going forward?
Question from Brian Collamer - Hi Mark, If I have a short call in $SPY on the ex-dividend date that is OTM, I will not owe the dividend correct? Thanks, Brian
Comment from Justin - Hi Mark, Just heard my question on the podcast! Awesome! Thanks so much. Keep doing what you do. And I will keep listening. -Jay
Question from Niles F. - How much of my portfolio should I allocate to defensive strategies such as protective puts? Thank you for answering my question and for producing this fine program.
Story and Question from KAISERDOG76: Funny story- I was trading on my IPad. It is the Summer 2013. CNBC is on but I am not paying attention to it. I had some cash to play with and there was some electricity in the air that day. I settled in on Apple options. This was the first and last time I used mini options. In total I spent $2,800 in capitol for options. !,400 I spent on 3 or 4 regular Apple options. Then I spent equal amount on Apple "Mini" options. This was when Apple was trading below $400 if memory serves true. Well no sooner that 10 minutes after I had completed my order and was filled on those calls? Some guy named Carl Ichan came out and made his first "Famous Apple Tweet" LMAO. I got an instant $20 plus move on the stock. My Calls I had just bought? Exploded as they were now deep in the money. On the regular Apple options I instantly made several thousand dollars? You know what I made on those Mini's? After Commissions and such it was a few hundred bucks. I was so pissed and felt just ripped off. So I have never touched a "Mini" again. Why would I right? With that kind of move and you still cannot make any real money? Forget about it. Minis are Dead to me...The VIX flirting with $11? I wish I bought some calls today too. LOL...So If I do not have a futures account. What is best way for me to hedge using Volatility? Please help a hopeless Bull who wants to get into insurance.:) Thanks for all the insight and education!

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