Option trading with DanPickUp

[DanPickUp]

Jain

Discussions at this stage on any such system questions you have are not fruitful.

Please wait with your queries until all the subjects are lighted out. You then will see the correlations in an other light and you will have more components to work with. Every thing will be fine. Do not worry about that.

Thank you

 

[Placebo]

Hi

Let me start a thread about directional and strategically option trading. AW10 thread is about low risk option trading. This one not will be only about that subject and I do not want to cross my friends thread with those subjects. As far as I have recognized: Here in Traderji are people who really like to know more about option trading and this thread should serve them to a certain point.

Options are some times quit tricky and confusing, as there are so many ways to trade them. Even the option greeks make many . This thread should bring you to a point, where you hopefully will lose some of your confusion or for more advanced option traders, it may will expand your knowledge about the derivative. By the way: I do not mind if I also can learn from you .

I will go here through different subjects post by post. You maybe will see sometimes copy past posts from me from old posts from the past. I only will do that, when I think it makes sense to complete a subject or to expand a subject. I like to have them once organized in one thread.

You will need to do a lot of work and testing by your self, as I not will lead any body. The first few post will be about the subjects shown below** and I would please you not to interrupt the flow of posts with to many questions until the first bulk is done. If there are points you think or see which are not makable with option trading in India, please post it, so I can adjust my writing to that.

After having all the ingredients, you then can add more of it or reduce it. Target should be a useful trading plan for option traders after all the subjects are lighted out. I will try to avoid complicated option greek explanations. Further I will not be able to watch and post all the time. So please, visit when ever you want but do not expect spoon feeding from my side.

**Subjects which will be spotted on

- What kind of option trader do I want to be?
- Direction of the market.
- Volatility in the market.
- Time frame of our option trade.
- Choosing the strategy.
- Margins for the strategy.
- Choosing the strike level/s.
- How to implement a strategy.
- Entering the market.
- Adjustment of our option trade.
- Stop loss of our option trade.
- Exit strategies for our option trade.
- Money management and risk reward ratio of our trade.
- What to do after the trade.
- Summary

DanPickUp

Will be keeping an eye on this thread. I'm always interested in learning new things in option as i know very little about options trading.

Cheers

 

[EagleOne]

Ah-ha! Danny boy! The master Options trader from the mountains! I am pleased to see this thread. You should have started it long time back, man!

Best wishes, buddy.

 

[DanPickUp]

Hi

I recognize that some of you already start to get confused with simple TA. I mean, this is nothing unusual for newbies and even more experienced traders, as there are so many ways to use TA. I do not know any trader which never had any confusion with TA. I use TA in my way and if you still not have found your way with TA, you will find your way. Do not worry about that. Take what I show as ideas you may can/want to use by your self. The choice is yours and if you want to add more indicators to your charts, you are free to do so.

Any way: Use your own eye/s and brain to spot ranges and trends and if you still do not see it, change the time frames and do not fix/hang up your self on just one thing. Experience over time will come and make the insecure ones from you feel better. Trading maybe is the most imperfect thing you can do in your life. So do not try to be perfect in some thing which is not perfect. Keep that in mind.

This thread is about option trading and if you have any more problems and questions about or with TA and TA systems, please visit the TA section of this forum. TA is not as important in option trading as it is compare to day future trading. That is the way I see it. So do not spend too much time on learning all kind of TA systems and indicators in case you plan to be an option trader in the future.

We are still in a very early stage in this thread and there are quit a few more subjects to go through. With the time you will get more components you can add to your charts.

Now lets move on to the third subject: Volatility in the market.

That will be the first option greek you will be confronted with in this thread. I will keep it really as simple as possible. At the end of the post you will find a link to read in. These for those which want to go by them selfs deeper in to the subject. (*)

Volatility or also called Vega, which is one of the most important option greeks to understand, is a MUST UNDERSTANDING subject in any kind of option trading. Without understanding Vega, you will make mistakes which can cost you a lot of money. Loosing money is part of the business and loosing money because of not knowing basics in option trading is part of stupid loosing money.

In option trading we distinguish between implied volatility (IV) and statistical volatility (SV), which is also called historical volatility (HV).

Definition of statistical volatility or historical volatility:

The realized volatility of a financial instrument over a given time period. Generally, this measure is calculated by determining the average deviation from the average price of a financial instrument in the given time period. Standard deviation is the most common but not the only way to calculate historical volatility. (Also known as "statistical volatility".)(**)

Definition of implied volatility:

The estimated volatility of a security's price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.(**)

Why is Vega so important in option trading? It is because of the change in the pricing of the options. High vega means expensive options and low vega means less expensive options. Before we implement any option strategy in the market, we must be very clear about that subject.

When analyzing the vola, we do not have to know why it changed. There was maybe some thing to the underlying of the option like earnings, attack like 9/11, change of forecast for the season and what ever. Not important!

Important: You have to see/recognize and understand the vola which is now at this moment in the market when you want to implement the option trade and nothing else.

High vega means selling strategies and low vega means buying strategies.

You will get a better and deeper idea about what is told here when we arrive on the subject: Choosing a strategy. If you do only directional trading, vega also is important for the strike levels you will choose to use in your trade. Also here you will get a better understanding about that when we spot on the subject: Choosing the strike level/s. Thats it for today.

Third subject closed

DanPickUp

(*)http://www.riskglossary.com/link/volatility_skew.htm
(**) Source: http://www.investopedia.com/terms/i/iv.asp#axzz1lJIhOgVI

 

[sunny_cool]

Can u please tell what kind of MA is the blue line & wtz its value?
I tried drawing different EMAs, MAs...but didn't get proper kind of result

Hi

http://i44.tinypic.com/vdzllg.png

Now we zoom in this daily chart to see in dept, what we want to see very clearly: The direction of the markets moves. Spot the blue line: If it is near the red line, we are in an uptrend. If it is near the green line, we are in a downtrend and if the blue line is some where between the red and green lines, we recognize a sideway moving market. This is, at least for me, one of the best and simplest ways to visualize market direction.

 

[VJAY]

Dear DAN,
So you are started much needed /awaited thread about options (Though I not forgeting AW10...only the good thread for options in TJ by him)...So we starting learn options form KG1 which importantly neede due to not much good teachers of options here.......Thanks dan for start this and teaching ss selflessely ...We all obey /thankfull to you .

 

[DanPickUp]

Can u please tell what kind of MA is the blue line & wtz its value?
I tried drawing different EMAs, MAs...but didn't get proper kind of result

Hi Sunny

You may missed the edited part in that post which is just above the part you showed in your post. Never mind

These screen shots should help you:

For the green line: http://i44.tinypic.com/nn1y5y.png

For the red line: http://i43.tinypic.com/2qu64cl.png

For the blue line: http://i44.tinypic.com/id7wxy.png

Hope it helps.

DanPickUp

 

[VJAY]

Dear Dan,
In india many are using Amibroker....in ami I not getting this Median setting...

NB: I THINK WE CAN USE AVEAGE FOR MEDIAN .....RIGHT ?

 

[VJAY]

 

[DanPickUp]

My friend

Your option trades will not be better if you can paint this blue lines or not.

I can give you ideas which I use with Metastock on bar charts. Ideas which serve me perfectly and you have to find by your self any idea you may want to work with and use in your Ami broker software. That starts with the colors you want to work with, the kind of price charts like candles, bars, lines, indicators and so on. I only can give you ideas and the rest must be done by your self. There is no perfect and only as there are many ways and techniques to spot direction of the markets.

Like told: Use your eyes and brains to spot trends and side way markets and if you not can see it because of the high vola in the picture, expand your time frame to get a less volatile picture.

Please, let us concentrate on the flow of the post with the many important subjects which still are not posted and let us stop posting on such little things, which are in the long run not the key to survive successful in option trading.

Thank you

DanPickUp