FAQ - Options

For option, which indicator is more important, volume or Open Interest?
QJ said...
First we notice the obnormal VOLUME on option moves, then verify on next day it is BUYTOOPEN or SELLTOCLOSE via OI change. plus IV change as well to make conclusion.

Intra-day-ISE
IV and OI data will have to wait after mkt close and next day, to try figure out if the volume is buy or sell

based on the ISE report,
in the past couple of days, you can see the call volume on equities is much larger than put;
on the other side, the put volume on all indices & ETF is much larger than call.
today, the pattern on equities stay the same, but the pattern on indices&etf has changed.

CBOE option data: http://www.cboe.com/data/IntraDayVol.aspx
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Option Trading Tips - Collar

What is the bear spread?
Wahaa said...
Bear call spread : selling lower call option.buying higher call option.
When to use it? If you expect some stock will trade under some price by OE. (My opinion)
For risk/reward, just google bear call spread.

StariX said...
For those are interested in Options spread, a nice introduction:
http://evilspeculator.com/?p=6558
BTW, the software used in the link above is thinkorswim

Wahaa said...
OIH stock up $4 eariler. If you buy 100 share with $8800 and you make $400 today.
I only had 10 contracts of spread.it produces $600 profit with much smaller capital. For people who don't have time to trade everyday and like to "死克" sometimes. It worths look into it.

Case study
Puts on the iShares Ultra Short S&P 500 Fund (SDS) are active Tuesday. The leveraged fund moves inversely to the S&P 500 and, when falls when the equity market moves higher. One strategist might be looking for a move lower in the ETF (and therefore a move higher in the equity market), as June puts were actively traded. Most of the activity appears to be part of a substantial condor, where the strategist sold 10000 June 49 and 50 puts, while buying 10000 June 56 and 10000 June 45 puts. If this is an opening condor, it is a bearish trade that yields its best profits if SDS closes between $49 and $40 at the June options expiration.

TA_Wen said...
Qj: for the SDS condo: I think the max gain will be if SDS closes between 49 and 50. For 1 set of (56p, -50p, -49p, 45p), the gain is (as a function of SDS price x @ Jun OE):
0 if x > 56;
56 - x if 56 > x > 50;
6 if 50 > x > 49;
6 - (49 - x) if 49 > x > 45;
2 if 45 > x;
From the close price of SDS options, for buy to open 1 such condo, the premium needed is:
3.6-1.3-1+0.25=1.55.
So max loss: 1.55*100*10k=1.55million, max gain: 6million

For option trading, did you still set up stop? If yes, how to determine the stop?
I normally very careful on option, try to get better entry and take profit quick. I use stock's support/resistance to decide if I need enter/exit/rollover options. For example, I bought XOM Apr and Feb puts, I exited Feb puts at open to take quick profit, but leave Apr puts, sure now under water. IF XOM breaks above 82-83 resistance, I will exit XOM and find a chance to roll into later month and high strike puts.

max pain
http://www.optionpain.com/MaxPain/Max-Pain.php

TA_Wahaa said...
Last night when ERTS reported Q4 loss, I have been thinking how to get out with profit. I didn't feel comfortable to hold it until OE to see it would stand up above $20. (They might). This morning, when it went to higher 21, I bought back the put with higher strike price since it was cheaper. When it dropped under 20, I sold the put with the lower strike.

FAS and FAZ is always only 0-3 day play. Never think about to hold those things, those are not stocks.
look for real troubled banks and get 1-2 puts at a time on those extrame bounces (Jan10 puts)

Could you give more instruction on swing trade if possible because many people like me do not have eought time to do DT and lack of ability to act so fast?
Yes, I can do that, Here is the one: buy AAPL Jan10 leap calls any strike between 125-140 and AAPL will need to see 145 for SPX to hit 1000.
Thanks very much!