Options Bear

Gamma sneak peek of delta and what does it mean?

2013-09-15T18:57:00.002-07:00

Current IV Percentile on Charts

2013-09-14T07:02:00.000-07:00

I use this Current IV percentile a lot from the trade page, and if you listen to Tasty Trade they have done a study where sell when the current IV percentile is over 50% your more likely to have a winner.

I found a post on Twitter about adding this to the chart page from @Ricksta about doing this in thinkscript what a great idea. Nicole from TD Ameritrade was great about getting me lined out on this and getting me in touch with David Kier. Here is what we came up with;

Here is the script;
#Current IV Percentile

declare lower;
def vol = ImpVolatility();
rec data = if !IsNaN(vol) then vol else data[1];
def hi = Highest(data, 252);
def lo = Lowest(data, 252);
plot perct = (data-lo) *100/(hi-lo);

You can look at the chart, IV, current IV percentile, and IV vs HV histogram all at one time. I find this handy when looking though a scan..

Theta (Time is Money)

2013-03-10T11:28:00.001-07:00

Review An OTM Vertical Credit Spread

2013-02-15T12:19:00.001-08:00

Setting Up an OTM Vertical Credit Spread PT 2

2013-02-15T12:09:00.000-08:00

Setting Up An OTM Vertical Credit Spread PT 1

2013-02-15T12:05:00.000-08:00

Tastytrade Natenberg Interview

2013-02-10T20:09:00.003-08:00

Sheldon Natenberg

Great Interview with an author who is very knowledgeable about the way Tastytrade teaches to trade volatility.

Uploaded on Dec 6, 2011

Sheldon Natenberg, legendary author and head educator at Chicago Trading Company, discusses volatility, arbitrage and options trading with Tom and Tony

http://www.youtube.com/watch?v=Jg8oVObc4_g

Further reading start with the book
"Option Volatility Trading Strategies"

Then tackle
"Option Volatility & Pricing"

Basic Scans I like

2013-02-08T07:56:00.003-08:00

I have a couple Scans I like to use;

TOS

CAT Tool

FINVIZ Short Int.

Tastytrade (They are the best!)

2013-02-08T07:06:00.001-08:00

Tastytrade is a Internet channel which has shows that teach and explain different ways to better understand trading options and futures.

The two main characters:

Tom Sosnoff - one of the previous owners of think or swim.
Tony Battista - (the trusty Bat) former market maker.

They have many shows to help from beginner to advanced traders or investors.
I like these shows (in order);

Talking with Tom & Tony
Market Measures
X-Trader
Options Math
Good Trade Bad Trade
Liz & Jenny
Ask Slim

They have an app for a "fee" for mobile phones that show what they are trading. This really helps you understand their logic and how they react through a trade. The best part (besides the BAT) is all the shows are archived on their website and searchable to learn at your speed on topics that you are interested about.

This has been the absolute best thing I have found to learn, grow, and understand. No more trials, services, or CNBC for me, I just enjoy getting caught up on important stuff, make a couple trades and be entertained along the way.

If you have a TD Ameritrade account you can contact them for a free membership to Tastytrade. If you don't have TD I think they can work something out for you!...this is a must to subscribe to, it is well worth it for everybody..

www.tastytrade.com

Standard Deviation formulas for Excel

2013-02-08T05:33:00.000-08:00

Simple excel formulas to get a one standard deviation moves up and down
Add the price, expiation date, Implied Volatility

		Square Root of Time
Number of Trading Days (Daily)	252	16
Number of Trading Weeks (Weekly)	52	7.2
Number of Trading Months (Monthly)	12	3.5

% move                                 =Vol/Square Root of Time
1SD Stock move                   = Price* % move value
1 SD Stock price down         =Stock Price -% move value
1 SD Stock price up              =Stock Price +% move value

	% Move (1) Std Div.	$ Move (1) Std Div.	Minus (1) Std Div. Move	Plus (1) Std Div Move
Number of Trading Days (Daily)	5.10%	$3.41	$63.50	$70.32
Number of Trading Weeks (Weekly)	11.24%	$7.52	$59.39	$74.43
Number of Trading Months (Monthly)	23.39%	$15.65	$51.26	$82.56

Thinkscript IV vs HV histogram

2013-02-07T21:29:00.002-08:00

This is a great histogram showing the difference between IV & HV, I learned the importance of knowing where the future and actual volatility is

See http://www.smalldoginvestor.com

#sdi_hivdelta - difference between historical and implied volatility
#hint: plots the histogram of the difference between historical and implied volatility. the idea is that options are richly priced when iv exceeds hv and selling options is the more advantageous strategy.

declare lower;
input mode = { "histMinusImp", default "impMinusHist"};
#hint mode: select which way to perform the difference calculation.
input length = 20;
#hint length: number of bars to perform historicalVolatility calculation
def ihDelta = historicalVolatility(length)- impVolatility();
plot hid = if mode == mode.impMinusHist then -ihDelta else ihDelta;
hid.setPaintingStrategy(paintingStrategy.HISTOGRAM);
hid.setlineWeight(5);
hid.assignValueColor(
if hid < 0 and hid <= hid[1] then color.RED
else if hid < 0 and hid > hid[1] then color.DARK_RED
else if hid >= 0 and hid >= hid[1] then color.GREEN
else color.DARK_GREEN);

Thinkscript IV & HV together

2013-02-07T21:26:00.000-08:00

Simple yet effective for knowing the difference between the implied volatility and the historical volaitility.

IV & HV Together
#begin
declare lower;
plot IV = Round(ImpVolatility() * 100);
plot HV = Round(HistoricalVolatility() * 100);
#end

Thinkscript AUGEN N-1

2013-02-07T21:24:00.001-08:00

This is a handy script for the TOS platform that I found. It bascically shows Jeff Augen's standard deveation spikes.

Augen N-1

declare lower;

input length = 20;

def closeLog = Log(close[1] / close[2]);

def SDev = stdev(closeLog, length)* Sqrt(length / (length – 1));

def m= SDev * close[1];

plot spike = (close[0] – close[1]) / m;

spike.setPaintingStrategy(PaintingStrategy.HISTOGRAM);

spike.AssignValueColor(if close > close[1] then Color.UPTICK else if close < close[1] then Color.DOWNTICK else GetColor(1));

Volatility

2012-11-24T08:02:00.002-08:00

Volatility-

The most valuable item in options pricing next to price movement. This normally does not get much time in the importance of knowing what the implied volatility is for the underlying (Stock). This value in pricing models will be half the reason the premium is higher or lower than normal. Volatility is a way to seek a peek into how the option is priced at current day and can be a way to judge if a options premium is relatively cheap or expensive.

Depending on what the stock price is doing and how many or how big the price changes are will determine its volatility.

     Example: if the price is moving around a lot in a large range it will have a
      high volatility value    (IV of 85%).

     Example: if the price is not moving very much then the it will have a
      low volatility value (IV of 20%)

There can be a long discussion on this. However in all the books, websites, and people talking about volatility there is one thing you must keep in mind, "what will Volatility mean for my upcoming position?" By this I mean is it "Low" or "High"

IV= Implied Volatility what the future/ forested volatility is supposed to be.

HV= Historical Volatility what the volatility has been.

the one we always see is IV & HV, we can easily get these two values. People like to compare IV to HV to see if something is Cheap or Expensive? Be careful the options price is based on the IV.

The most important thing is in any price weather it be an option or stock is where the price is going, you cant go back in time. Once a event has happened its over. so to me the IV (Implied Volatility) is the thing to watch and compare. IV is also what the options premium is based one.

Example: a 82% IV where the average IV for a particular stock would normally be 60%, the 82% would be inflated option premium.

The bigger lesson is which direction will the IV go? Can it go higher or can it go lower? We like to use the HV as a mean, the thought is the IV if high will revert back to its mean. When it starts to fall it will accelerate.

What does this mean before or during a trade?

1. If you buy a Call and the IV is high, chances are your option will be worth less and it will difficult getting or staying profitable.

2. If you sell a Call and the IV is high, chances are the IV will revert to the mean or at least get lower in time. As the IV lowers the options price will deflate. When you sell an option you want the options premium to lower and hopefully be worth Zero by expiration.

The strategy choice is very important depending on what the IV is.

I like to scan the markets for Higher than normal IV's, also i like to find a very liquid market (high volume)

SBUX

2012-11-24T07:36:00.001-08:00

Set Up

2012-11-24T07:12:00.001-08:00

1.   Market Direction / Sector Direction
2.   Option liquidity & Determine the Bid / Ask Spread
3.   Volatility Analysis (Know where IV compared to the IV mean is.)
4.   Technical Analysis; I like to see MACD, CCI, RSI, Acc/ Dist.
5.   Fundamental Analysis; P/E. P/S, P/CF, Short Ratio, Margin, Earnings Dates
6.   Trade Small / Trade Offen (Tastytrade)
7.   Trade Strategy (High Probability Trades, 25-50 day "day to expiration")
8.   Position Size < 2% of total portfolio
9.   Know what you have. (How it effects you weighted SPY dela & beta)
10. Monitoring & Control (Rolling, Mental stops) No market orders / No physical stops