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Making Money A Primer to Derivatives Trading
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TheFinalEpic Offline
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A Primer to Derivatives Trading
Throughout the past year, I took up trading the global financial markets and learned about all aspects of trading various instruments. The trading of Derivatives quickly became my go-to due to the fast pace and global macro nature. Now, these are involved instruments and will require further research on your part, but I am banging out a data sheet for those that have thought about getting into this sort of trading but never knew where to start (I know I had no clue). We have stock threads, but I wanted something a little more dedicated to futures and options as well. I will go through everything you will need to know to start, and can go further in-depth if you guys enjoy what I throw down here.

How I got started

I started investing in the stock market at the age of 16, and had the basic understanding that if a stock goes up, you make money, if a stock goes down, you lose money. I didn't even know you could short stocks, what a stop loss was, or how to read candlesticks. In fact, I got my "ideas" from watching Jim Cramer's show "Mad Money" on CNBC. For those of you in the know, Cramer has probably lost more people money than any other personality in the world. But, it was a Bull Market, and I quickly made 40% on my portfolio, and thought of myself as a god/genius. Little did I know I simply got lucky, just like thousands before me in the dot com run of the late 90s. I had no sense of risk management, no exit strategy, and in all honesty, no fear of loss (as I literally couldn't lose).

Although this was my primer to getting far more serious about investing and trading, it was clearly a beginning built on a foundation of sand. I would learn very quickly through losses that I had no understanding whatsoever. But, it got me started, and as the saying goes, the hardest part is starting. In the following years, I would go on to do quite decently in the equities markets even though I was paying $9.99 a transaction at a bank run brokerage. This year was the year that I got sick of paying so much to open and close trades that I took my business to an independent brokerage and began looking into the depths of wall street, in which I would come out on the other side trading derivatives.

What you will need to begin

You will absolutely need a brokerage account and a bit of money. You cannot use a bank brokerage, as these instruments are riskier, and most don't support it at all (frankly I don't think most retail bankers even know about this stuff). Most brokerages will require a minimum of $2000, but to really begin, you'll want closer to $10 grand. I'll touch on this later, but it allows you to risk more money while subsequently risking less overall % of your account.

I recommend Interactive Brokers as a brokerage. I use them, and their execution of trades is exceptional, their commissions are some of the lowest in the business, and their platform is fairly straight forward, but also allows for you to grow with it and even perform involved algos and more. TD Ameritrade and their platform Thinkorswim is also a great alternative, as I have many friends that use them.

What is a Derivative?





If Micheal Moore can't understand them, you most certainly can

There are three main types of Derivatives in the world of finance. Options/Warrants, Futures/Forwards, and Swaps.

Swaps are for all intents and purposes out of our scope, as they are pretty much only available to institutional traders. These are where Credit Default Swaps, CDOs, and interest swaps fall. They are effectively a way for a bank to lend at more favorable rates to different parties by taking the interest rate offered to a better credit individual (in most cases "individual" refers to a company or business of size, or a person looking for a big loan [think mortgages]) and performing some financial magic to offer a better rate to an individual with a worse credit standing. If you want to know more, I can direct you to some videos to watch, but I don't really understand them myself.

Options/Warrants are pretty much interchangeable terms. There are two types of options: Call Options and Put Options. These give the owner the right but not the obligation to buy or sell an underlying instrument at a set date sometime in the future. You can buy options on futures, forex, stocks, bonds, and indices and all of these are referred to as the underlying asset. Calls simply give you the right to buy stock at a later date. Puts allow you to sell it at a later date. We can get super technical and talk about how options are priced via the Black-Scholes model, Implied Volatility, and the Greeks, but for the average person, you buy a call option if you think the stock is going up, and you buy a put if the stock is going to fall. Knowing this will already make you more financially literate than 85% of people.

Why buy an Option instead of just a share of stock?

1. Options limit your downside. You know what you stand to lose at the entry of a trade.
2. Options provide you with leverage. The standard option contract is for 100 shares of stock. So with a small investment, you control 100 shares. If Apple is trading at $100, you can control one share for $100, or you can control a call option worth $100 that is for 100 shares. You control all these shares and profit on the increases of the underlying stock. I can effectively make 200% on a 2% move in the underlying stock.
3. Options allow you to hedge your risk and exposure.

Example: I may think AAPL stock is going to rise in the future and it is trading at $100/share. I have $100 to spend. I could buy 1 share, or I could buy a 105 Call option for January 20th for $100. If AAPL is trading at 110 on January 20th, I just made $500 (as I control 100 shares: 110-105= $5 and $5 x 100 = $500). Simply buying one share would have only made me $10 profit.

As you can see, with $100, I made far more money than simply buying a share of stock. I know that the most I will lose is $100, as it was the purchase price of my Call option, and if AAPL is trading below 105, I will have lost all this money. This is a purely speculative way to make a lot of money, but you can also lose a substantial amount of money too. If AAPL was trading at $99 and I bought the share, I would have only lost $1. But if it was trading at $99 and I bought the option, I would have lost ALL my initial investment ($100). Cool, but also risky. How do you know if a stock is going to go up? The answer is you truly don't, but you can make educated guesses via technical analysis in the short term, and look for trends. I won't touch on this, as everyone has their own methods, and they vary widely from person to person. I recommend researching the various technical indicators, and in time, you will learn what works for you.

Futures Futures contracts are contracts that obligate a buyer or seller to buy or sell something in the future at a pre determined date. Futures lock in a price of purchase in the future (hence the name; futures). This is where options and futures differ: options you don't have to do anything, futures you do. So that means that if you are trading a contract for 1000 barrels of crude oil, you will actually take physical delivery if you don't close out your position. There have been stories of banks that didn't know this, were trading 50,000 pounds of cattle, didn't close their position, and a convoy of trucks showed up to deliver a couple hundred head of cattle. Most often, traders close out their positions at the end of the day or at the end of a trend, so this isn't a worry. You would actually be retarded to take delivery of a contract, unless it was your intention (as with physical commodity traders such as Vitol or Glencore, but even then, they use these contracts almost exclusively to hedge price risk during transit).

Why trade futures contracts?

1. Hedging Price risk if you are a producer of a commodity. Farmers want to lock in the price of their corn so they know they will be making a certain profit in the future, and consumers that buy the corn want to know the price they will be paying for the corn. They will then write out a contract and lock in prices. The fluctuation of prices are then left for speculators to bet on.
2. Speculating

What is the purpose of derivatives?

Derivatives are actually supposed to make investments safer, not riskier. You can use options contracts to limit your downside and lock in profits on shares that you own. If you own a stock at 200, and you want to lock in profit at 190, you can buy a put option that allows you to sell 100 shares even if the stock falls all the way to $20 a share! If you are an oil producer, locking in a future price for your product is imperative to the financial stability of your company.

I personally speculate with Derivatives

I use derivatives to speculate on price movements. When oil gained 9% in one day, I was there to ride the wave and make money. When The election came around, I bought options in various underlyings to bet on a Trump presidency. The understanding I have gained over the past year has lead me to profiting on some big moves, making thousands, and also losing thousands of dollars as I gained my education. The learning curve of trading is big, and you will lose money in the short term. Consider it your college education, and learn from your mistakes quickly.

I started out completely illiterate with regards to derivatives and their functions. I lost money to learn. I was impatient in the beginning, and learnt about risk management with trials by fire. Why do I still trade today?

Trading is fun. Plain and simple. With proper risk management and an understanding of the markets, it has been profitable too. This thread will be all about derivatives trading, and helping each other out in getting better, trading strategies for derivatives, and learning more about these "shady" instruments. You know if the general public is afraid of something, it's probably pretty cool.

That being said, trading is not for everyone. Some can't deal with losing money. Some can't watch fluctuations in prices without pulling out their hair. But, understanding these financial instruments will make you a better investor, and able to truly say you know about something that the vast majority of people don't. And I find that fascinating in and of itself.

Let's open up this thread, and if you have any questions, I'll be happy to answer them! I by no means am an expert, but this is a thread to bring up the skills and abilities of the forum in the art and science of derivatives.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
(This post was last modified: 12-27-2016 12:39 AM by TheFinalEpic.)
12-27-2016 12:38 AM
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monster Offline
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RE: A Primer to Derivatives Trading
Do you have any trades currently on the books? Can you go into more examples of your past trades? Both wins and losses?
12-27-2016 12:40 AM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 12:40 AM)monster Wrote:  Do you have any trades currently on the books? Can you go into more examples of your past trades? Both wins and losses?

Currently have an order in to sell a CL contract at 53.00, looking for it to fall and take profit tomorrow. "Ticks" refer to a one cent move in a futures contract, and each tick is worth $10 for a crude oil contract. Different futures contracts have different tick sizes, for example, Natural Gas is $10 for every 0.1 cent move.

On the options front, I was the guy who bought Call options on the VIX and VXX volatility index just before the election on the stock market 2016 thread. This made me a few hundred bucks, I closed off some of the position, and the rest went to zero, as I wasn't expecting the Trump rally. There was huge volume on these options and on put options on the major indices as most people thought Trump would be catastrophic for the markets.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 12:47 AM
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britchard Offline
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RE: A Primer to Derivatives Trading
Thanks for making this, it really helped me to understand what all this was about. Couple of questions:

1. Is it ever worth selling your option rather than 'cashing it in' for the stock, and if so how do you know when to do so?

2. Is your option set for a set date in the future, or is it for any time in the future?
12-27-2016 06:04 AM
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Vincent Chase Offline
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RE: A Primer to Derivatives Trading
What broker options are there for derivatives trading online?
12-27-2016 11:28 AM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
Britchard, thanks for giving it a read! To answer your questions:

1. Most definitely it can be worth selling an option you own before the expiration date. Many people even say trade options that expire in excess of a week into the future. Options are priced based on many factors, but they all have time value that decays as expiration approaches, and if the option moves in your favour, intrinsic value. Intrinsic value is very easy to understand, if you bought a 100 strike call option and the underlying stock is trading at 102, you have $2 of intrinsic value. As options decay over time, the faster a stock moves, the more uncertain the community as a whole is, and what I previously mentioned all come into play. In fact, the earlier you sell an option after owning it, the more you can stand to make. Do keep in mind that liquidity is important, as many options trade with a volume of a few thousand as opposed to millions of shares, sometimes there is nobody on the other side of the trade, depending on the underlying, the strike, and expiration date.

2. All options expire on an expiration date. Usually this is the third Friday of the month, but also can be every Friday for weekly options. You can trade all options up until the market close on that date. There are 2 exercise types, American and European. American allows you to exercise (ie exchange for stock) at any date until the expiration. European is far more structured in that you can only exercise the option on the date of expiration. Most options traded on the American exchanges (CME, CBOE) are American style.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 11:41 AM
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monster Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 06:04 AM)britchard Wrote:  Thanks for making this, it really helped me to understand what all this was about. Couple of questions:

1. Is it ever worth selling your option rather than 'cashing it in' for the stock, and if so how do you know when to do so?

2. Is your option set for a set date in the future, or is it for any time in the future?

1) Yes, you almost never cash an option in for the underlying stock.

2) Options are set to a standardized schedule in regards to the expiration. The longer the expiry is, the higher the premium you pay. It's the third Friday of the month. http://www.marketwatch.com/optionscenter/calendar
12-27-2016 11:43 AM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 11:28 AM)Vincent Chase Wrote:  What broker options are there for derivatives trading online?

Most online brokerages will allow options and futures trading. You will need a margin account for selling options, and for purchasing futures. Margin simply means you put up money that the brokerage holds in trust so that they ensure all parties are paid out for both winning and losing positions. The minimum margin requirement is set by your brokerage, but most often, its $2000 USD or equivalent currency.

Just let me know if I understood your question correctly.

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12-27-2016 11:45 AM
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booshala Offline
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RE: A Primer to Derivatives Trading
I lost my shirt several times dabbling in options trading and E-mini's and decided that my personality is ill-suited for this type of trading, but nice info and great writeup nonetheless.

How do you go about with the tax situation in Canada? Are you a "professional trader" with profits being booked as regular income? Or are profits being booked as capital gains? I read somewhere that Canada doesn't distinguish between short term and long term capital gains, it's taxed all the same.
12-27-2016 03:18 PM
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tomtud Offline
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RE: A Primer to Derivatives Trading
Kudos to the op as I am on the brink if diving into the options world. I am a big tasty trade follower on YouTube and a few others option alpha, Wyatt research.

Before any of you get started I'd recommend that you read a tonne. Also there is no need to spend anything to get special stock picks. My recommendation is to learn how to do it
yourself. To each their own.

Good luck to all and remember any advice here is for educational purposes. Check out the book the complete guide to option selling. There are many out there. Personally, I am reading a tonne on option selling because I find that the risk reward suits my pallet.

@booshala,,,best is to speak to an accountant for Canadian tax code regarding trading the market. Sorry to hear you lost your pants. Many have burnt their account in this arena. I have paper traded for sometime now and feel confident that selling options is the way to go. From iron condors to credit vertical spreads. I am not yet comfortable selling strangles as the risk isn't defined. However, with options one can always roll out to the next expiration cycle to extend your break even or make a losing trade into a winner. I plan on staying small (risking 1-3 lots / contracts) this way if there is a 2 standard deviation move I won't kill my
account with the loss. Starting balance will be
$10k USD.
Strategy: find stocks or etf's with high volatility. IV percentile above 50% which allows me to collect more premium the further out of the money (OTM) I go. Sell premium above 84% chance to finish OTM. Therefore extrinsic value (time) is on my side. The option I sold decreases in value each day until expiration.

This is just scratching the surface as it's important t know if there are any binary events happening (earnings) etc.
(This post was last modified: 12-27-2016 03:36 PM by tomtud.)
12-27-2016 03:21 PM
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The Beast1 Offline
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RE: A Primer to Derivatives Trading
My problem isn't how these tools work, it's how to apply them.

How do you anticipate such moves like the one you mentioned above? How do you price your movements? For example, you mentioned speculating that stocks would have gone down on a Trump win.

How do you guestimate how much they will fall or rise?

Excellent post by the way.
12-27-2016 05:30 PM
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RE: A Primer to Derivatives Trading
@theBeast1: Isn't that the million dollar question. If I could forecast magnitude, I wouldn't even care about direction.

@tomtud: I would highly suggest selling premium on ETFs only. There are events you cannot see coming with individual stocks.
12-27-2016 05:48 PM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 03:18 PM)booshala Wrote:  I lost my shirt several times dabbling in options trading and E-mini's and decided that my personality is ill-suited for this type of trading, but nice info and great writeup nonetheless.

How do you go about with the tax situation in Canada? Are you a "professional trader" with profits being booked as regular income? Or are profits being booked as capital gains? I read somewhere that Canada doesn't distinguish between short term and long term capital gains, it's taxed all the same.

Currently I am using capital gains to book profits, but they do cap out at a lifetime maximum, in which I will begin treating it as income. I'm not sure of all the intricacies, I give this to my accountant at the end of the year to deal with.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 07:06 PM
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monster Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 03:18 PM)booshala Wrote:  I lost my shirt several times dabbling in options trading and E-mini's and decided that my personality is ill-suited for this type of trading, but nice info and great writeup nonetheless.

Same here, only ever managed to lose 1000s on options. Not to say I never made good trades, but the bad ones wiped all profits I ever made out several times over.

Options are pretty dangerous. They're a leveraged instrument afterall.
12-27-2016 07:12 PM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 03:21 PM)tomtud Wrote:  Kudos to the op as I am on the brink if diving into the options world. I am a big tasty trade follower on YouTube and a few others option alpha, Wyatt research.

Before any of you get started I'd recommend that you read a tonne. Also there is no need to spend anything to get special stock picks. My recommendation is to learn how to do it
yourself. To each their own.

Good luck to all and remember any advice here is for educational purposes. Check out the book the complete guide to option selling. There are many out there. Personally, I am reading a tonne on option selling because I find that the risk reward suits my pallet.

@booshala,,,best is to speak to an accountant for Canadian tax code regarding trading the market. Sorry to hear you lost your pants. Many have burnt their account in this arena. I have paper traded for sometime now and feel confident that selling options is the way to go. From iron condors to credit vertical spreads. I am not yet comfortable selling strangles as the risk isn't defined. However, with options one can always roll out to the next expiration cycle to extend your break even or make a losing trade into a winner. I plan on staying small (risking 1-3 lots / contracts) this way if there is a 2 standard deviation move I won't kill my
account with the loss. Starting balance will be
$10k USD.
Strategy: find stocks or etf's with high volatility. IV percentile above 50% which allows me to collect more premium the further out of the money (OTM) I go. Sell premium above 84% chance to finish OTM. Therefore extrinsic value (time) is on my side. The option I sold decreases in value each day until expiration.

This is just scratching the surface as it's important t know if there are any binary events happening (earnings) etc.

TastyTrade is a pretty decent show to get yourself started with selling premium, as it comes down to simple statistics and probabilities with credit spreads. Learn about the different option strategies, but you also need to learn by fire I believe. You can paper trade all day long, but the emotion and feeling doesn't really come into play until you have real money on the table.

My advice would to be completely avoid earnings dates if you're selling premium to start. I was burned by Facebook's earnings call earlier this year, even though they produced stellar numbers, one thing ruined it all, in that they forecast slower growth into the future.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 07:13 PM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
(12-27-2016 05:30 PM)The Beast1 Wrote:  My problem isn't how these tools work, it's how to apply them.

How do you anticipate such moves like the one you mentioned above? How do you price your movements? For example, you mentioned speculating that stocks would have gone down on a Trump win.

How do you guestimate how much they will fall or rise?

Excellent post by the way.

I don't really anticipate the point to which a stock will fall or rise, nobody can time tops and bottoms, and if they claim to, they're full of shit. I do however look for momentum and hop on the elevator to book profits. I use technical indicators for this information, and trade based on a strategy that I've established over my experience. Look into the various technical indicators available to you, and find the one or two that mesh with your style. You may not win everytime, but you will win more frequently, and that's all it takes (along with good risk management) to be a winning trader in the long term.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 07:17 PM
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RE: A Primer to Derivatives Trading
Thanks for all the feedback!!!!

The best part about the ETFs specifically when you compare SPY vs SPX is for tax purposes (Americans only I believe but look into it if you are a Canadian or other). One advantage of the SPX is that it behaves as a European style option in that it is cash settled and all puts and calls are settled on expiration day. That means no early assignments. Gives you time to roll to the next cycle in order to turn a loser into a winner or scratch.

I hear you guys that selling premium is best avoided during binary events. Sorry to hear about your FB loss f.epic. I am tempted to use a credit ratio spread around binary events in hopes to collect twice the premium. 1st in the sold premium and 2nd if the underlying falls below the sold calls and above the bought call.

One of the best income producing methods IMHO is by selling vertical credit spreads on commodities. Of course you will need a margin account to sell anything naked. My takeaways are:
1. Selling premium far OTM is the way to go. So you can at least sleep at night if your stock position moves against you somewhat.
2. Selling commodities. These don't behave like stocks where a board of a company decides on the future etc. That's why an ETF
( SPY,SPX, RUT, IWM) and commodities are more stable in some regards. Corn vs crude oil are both commodities but one is more volatile and riskier.

Personally i prefer options over say the emini or forex during a day trade is that I don't have to be glued to the monitor all day. Using all of those indicators when I can just use for example the ADX or RSI indicators to judge trend direction and overbought/oversold status.

It's a zero sum game. Even if I sell options 1 standard deviation OTM 84% chance of success I will suffer one or two 2 standard deviation moves which will wipe out all of my earnings. This is why according to tasty trade it is vital to:
1. Sell when IV is above 50%
2. Stay small according to account size.where you don't trade no more than 5% of your account in a single trade.
3. Trade underlyings where the bid ask spread is tight.
4. Only trade options with a lot of volume.
5. Optimal option duration is 30-45 days.
6. Manage your winners to 50% profit. Rinse and repeat. By doing this you hopefully don't fall into the zero sum game. Tasty trade did a study where it did show that your winners do increase and your profit / loss per day is greater the shorter you hold onto your options. Holding until expiration didn't increase P/L per day. In fact you made more holding it for less.
7. As for losing trades. If you can roll your position great. If you need to close your position for a loss (hopefully not maximum loss) fine just as long as you remain small it wont kill your
account.

I will start a trading journal shortly. My goal is to grow my account enough so that I can replace my day job to trade options for a living.
12-27-2016 09:33 PM
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TheFinalEpic Offline
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RE: A Primer to Derivatives Trading
Don't get me wrong, you can most definitely play binary events! The Implied Volatility spikes as the date draws closer, and you can sell ridiculously out of the money options and collect a fair premium on them, while capping your risk with a spread. That being said, you can just as easily get burned on it as well.

You won't be glued to the monitor if you play a system with proper stop losses in place and a bracketed profit taking order. Look for key levels (whatever they may be for you) and place your orders around them.

Here is where most go wrong about trading: they risk far too much of their account in a single trade, and they don't look into their risk/reward ratios.
I've seen people risking 10% of their account on a single option strategy (ie. they stand to lose $200 on a $2000 account) to make $30 or $40! That is at 5:1 risk to reward ratio! This is idiocy.

Limit all trades to 1-2% maximum loss. That means that if I'm trading a Crude contract, and I have 10k in my account, the most I will risk is 10 ticks or $100. You should also look to trade 1:3+ risk to reward ratios. For every $1 you risk, you stand to make more than 3. That means you have to be right a lot less of the time while still making money. I dare you to wash an account out by trading in this methodology.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-27-2016 11:12 PM
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Post: #19
RE: A Primer to Derivatives Trading
Thanks for addressing my question TFE. I'm American, so we get much better tax rates on long term cap gains and qualified dividends, and my portfolio is heavily tilted towards those tax advantages. I think if I lived in Canada though, I'd be much more inclined to day trading and throwing my hat in the derivatives ring again.

I'll admit that I bought $1000 of out of the money SPY Jan '17 puts a few weeks before the election thinking that if Trump won the market would crater... obviously, that didn't happen and they're at a penny each now. Still, I made $1150 on prop bets for a Trump win, so I'll call it a wash. Still glad I partially hedged my portfolio, especially because the $1000 loss is heavily outweighed by the upswing in my portfolio since the election.
12-27-2016 11:24 PM
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jj90 Offline
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Post: #20
RE: A Primer to Derivatives Trading
I highly suggest not using stop losses on a spread. 1st off, if you are selling verticals, the max loss is already capped. 2nd and probably the more relevant, you have 2 legs that goes into the price of a spread. That's 2 chances for a bad print to stop you out. Keep in mind, options are not terribly liquid.

@tomtud: While the board of a company may direct actions the company takes, careful about drawing conclusions between that and the stock price.
12-27-2016 11:57 PM
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TheFinalEpic
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Post: #21
RE: A Primer to Derivatives Trading
(12-27-2016 11:57 PM)jj90 Wrote:  I highly suggest not using stop losses on a spread. 1st off, if you are selling verticals, the max loss is already capped. 2nd and probably the more relevant, you have 2 legs that goes into the price of a spread. That's 2 chances for a bad print to stop you out. Keep in mind, options are not terribly liquid.

@tomtud: While the board of a company may direct actions the company takes, careful about drawing conclusions between that and the stock price.

I don't recommend using stops on option spread either, especially when selling premium. You can actively manage them much more effectively, you know your max loss, and you can let them work over the time period in your favor. In the early days, I would use them, get stopped out, and then subsequently watch the trade expire where I would have made max profit. Patience is key.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-28-2016 02:08 AM
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edlefou Offline
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Post: #22
RE: A Primer to Derivatives Trading
Like monster and booshala, I've also lost money with options. My losses were in the mid-four figure range. Once was on Microsoft; the other time was on gold.

Here are some questions about the nitty-gritty:

1. Is this your main means of supporting yourself?
2. How many open positions do you have at any given time?
3. What's the size and duration of your average position?
4. What's your absolute, after-tax, after-fees dollar return for the past year (at least give us a rough idea: high-four figures, mid-five figures, low-six figures, etc.)?
12-28-2016 03:13 AM
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TheFinalEpic Offline
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Post: #23
RE: A Primer to Derivatives Trading
(12-28-2016 03:13 AM)edlefou Wrote:  Like monster and booshala, I've also lost money with options. My losses were in the mid-four figure range. Once was on Microsoft; the other time was on gold.

Here are some questions about the nitty-gritty:

1. Is this your main means of supporting yourself?
2. How many open positions do you have at any given time?
3. What's the size and duration of your average position?
4. What's your absolute, after-tax, after-fees dollar return for the past year (at least give us a rough idea: high-four figures, mid-five figures, low-six figures, etc.)?

1. No, I'm still in my early 20s, and own businesses as well as sell real estate, I don't see myself using trading as my main means for at least a few more years.
2. Between 5 and 15. Now, that can be multiple contracts in each position. I would be hard pressed to maintain more than 20-25 and still be serious about making sure I am disciplined.
3. 2-3 contracts for futures (4-6k margin, depending on the asset, could be 50-200k under my control.) Option, usually 5+ contracts, or around $500-800 per. All definitely depends on the situation, as with duration. I've held positions for seconds all the way up to a couple weeks.
4. I'd be more inclined to look at % gain than dollars and cents, as that is a better indication of performance. Up around 40% this year.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
(This post was last modified: 12-28-2016 11:07 AM by TheFinalEpic.)
12-28-2016 11:05 AM
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edlefou Offline
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Post: #24
RE: A Primer to Derivatives Trading
(12-28-2016 11:05 AM)TheFinalEpic Wrote:  
(12-28-2016 03:13 AM)edlefou Wrote:  Like monster and booshala, I've also lost money with options. My losses were in the mid-four figure range. Once was on Microsoft; the other time was on gold.

Here are some questions about the nitty-gritty:

1. Is this your main means of supporting yourself?
2. How many open positions do you have at any given time?
3. What's the size and duration of your average position?
4. What's your absolute, after-tax, after-fees dollar return for the past year (at least give us a rough idea: high-four figures, mid-five figures, low-six figures, etc.)?

1. No, I'm still in my early 20s, and own businesses as well as sell real estate, I don't see myself using trading as my main means for at least a few more years.
2. Between 5 and 15. Now, that can be multiple contracts in each position. I would be hard pressed to maintain more than 20-25 and still be serious about making sure I am disciplined.
3. 2-3 contracts for futures (4-6k margin, depending on the asset, could be 50-200k under my control.) Option, usually 5+ contracts, or around $500-800 per. All definitely depends on the situation, as with duration. I've held positions for seconds all the way up to a couple weeks.
4. I'd be more inclined to look at % gain than dollars and cents, as that is a better indication of performance. Up around 40% this year.

Thanks for the answers.

40% is a very good return after fees and taxes, although the dollar return is important too, maybe even moreso.

For example, if you're consistently making 40% per year on a $100K portfolio, you're making $40K, or $32K after tax, which is around $2700 per month, which is enough to be location independent.

If you're making 40% on a $1K portfolio, then there's still a long way to go. Based on the size and number of your positions, it sounds like you're around $10K.

I couldn't achieve anywhere near that kind of return consistently via derivatives, so I'm interested in following your progress. You should post the details of some of your best and worst trades if you want to.
12-29-2016 04:32 AM
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TheFinalEpic Offline
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Post: #25
RE: A Primer to Derivatives Trading
I'll definitely be posting some of my best and worst trades so we can all learn from them in the new year, I think that'd keep me both accountable and in the game.

Here's the thing though with % gain, you can take that to investors and raise money for management. That would be the end goal, to find a few higher risk tolerance individuals and build a portfolio with serious AUM.

"Money over bitches, nigga stick to the script." - Jay-Z
They gonna love me for my ambition.
12-29-2016 11:06 AM
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