Any Options traders here?

[Megafauna]

As you know the profit potential for options is tremendous since you can make several hundred percent when the underlying stock only goes up or down 5% to 30%! I understand they can be very volatile and risky too which is why you have to be careful.

So does anyone trade options here and how successful have you been?

[smaskell]

Tantalizing temptress...

As you know the profit potential for options is tremendous since you can make several hundred percent when the underlying stock only goes up or down 5% to 30%! I understand they can be very volatile and risky too which is why you have to be careful.

So does anyone trade options here and how successful have you been?

Ah buying the option. Singing the siren song of huge leverage and huge profits. Personally I've done well and I've also done poorly. The upsides are obvious. The problem is in addition to correctly guessing direction, you also need to be correct on the time frame. At this point I've decided I'm better at being an option seller than option buyer. Some of Mr. M's picks work well for me as an option seller, some don't. I typically use a covered call approach and shoot for a little lower profit target and a smaller time frame and use the option premium to mitigate some risk and/or lock in a profit. Since Mr M picks are banking on a 15% increase I buy the stock but don't sell the option until the stock has moved up a ways so the premium is higher. As soon as I sell the option I know my max profit. If the stock retreats I can buy it back if it's low enough or just wait for expiration and sell again when the stock advances. Since I have to buy in lots of 100 I'm probably a little heavier than many but the sold premium and being a quality stock make up for it.
My two cents worth.
Scott

[Megafauna]

Ah buying the option. Singing the siren song of huge leverage and huge profits. Personally I've done well and I've also done poorly. The upsides are obvious. The problem is in addition to correctly guessing direction, you also need to be correct on the time frame. At this point I've decided I'm better at being an option seller than option buyer. Some of Mr. M's picks work well for me as an option seller, some don't. I typically use a covered call approach and shoot for a little lower profit target and a smaller time frame and use the option premium to mitigate some risk and/or lock in a profit. Since Mr M picks are banking on a 15% increase I buy the stock but don't sell the option until the stock has moved up a ways so the premium is higher. As soon as I sell the option I know my max profit. If the stock retreats I can buy it back if it's low enough or just wait for expiration and sell again when the stock advances. Since I have to buy in lots of 100 I'm probably a little heavier than many but the sold premium and being a quality stock make up for it.
My two cents worth.
Scott

But Mr.Market's picks are 90% winners!

For example if he came out with a pick now then isn't almost a sure bet that if you bought the calls that expire in March they would go up anywhere from 30% to 100%+?

When was Mr.Market's last pick and what was it?

[smaskell]

But Mr.Market's picks are 90% winners!

For example if he came out with a pick now then isn't almost a sure bet that if you bought the calls that expire in March they would go up anywhere from 30% to 100%+?

When was Mr.Market's last pick and what was it?

They're all winners if you have the luxury of time. MrM's picks go beyond the 6 week mark two thirds of the time. Even though the plan is to sell in 4-6 weeks he has stated he picks quality stocks and stays with them until the target is reached regardless of time frame. They also frequently go down before they go back up. Your option will take an immediate hit and might waste all your time value while the stock recovers. Also, not all of MrM's picks even have options traded on them. You can make money buying options on MrM picks and I'm sure there are many on this list that do. I just think it takes a lot more trade management and skill than most realize.

Cheers,
Scott

[Megafauna]

They're all winners if you have the luxury of time. MrM's picks go beyond the 6 week mark two thirds of the time. Even though the plan is to sell in 4-6 weeks he has stated he picks quality stocks and stays with them until the target is reached regardless of time frame. They also frequently go down before they go back up. Your option will take an immediate hit and might waste all your time value while the stock recovers. Also, not all of MrM's picks even have options traded on them. You can make money buying options on MrM picks and I'm sure there are many on this list that do. I just think it takes a lot more trade management and skill than most realize.

Cheers,
Scott

Ok, so you're just saying be careful and watch the underlying stock closely. I take it it's best to buy the calls for the next month if a MM pick came out now?

What is Mr.Market's current pick and when did he call it?

[smaskell]

Ummmm...

Ok, so you're just saying be careful and watch the underlying stock closely. I take it it's best to buy the calls for the next month if a MM pick came out now?

What is Mr.Market's current pick and when did he call it?

Ummmm... Yeah. That, and a lot more.
There are many variables involved and most have to be answered by you and your goals.
MrM's current pick isn't that hard to locate. They're pretty plainly labeled in the discussion forum.
Just for an example though his latest is EBIX and he bought on 02/02 @ 23.53. You have 2.5 weeks to feb options expiry. MrM is holding for 27.13. Will you? You have to decide what strike you want. 25? 26? 27?. The further out strikes are cheaper but how confident are you that the stock will move enough in the given time frame? If not, you can go with March but those have lots of time value price left and so won't move as much in the near term. There are a myriad of possibilities of varying risk and reward combinations. Only you can decide which work best for you.

Scott

[Megafauna]

Ummmm... Yeah. That, and a lot more.
There are many variables involved and most have to be answered by you and your goals.
MrM's current pick isn't that hard to locate. They're pretty plainly labeled in the discussion forum.
Just for an example though his latest is EBIX and he bought on 02/02 @ 23.53. You have 2.5 weeks to feb options expiry. MrM is holding for 27.13. Will you? You have to decide what strike you want. 25? 26? 27?. The further out strikes are cheaper but how confident are you that the stock will move enough in the given time frame? If not, you can go with March but those have lots of time value price left and so won't move as much in the near term. There are a myriad of possibilities of varying risk and reward combinations. Only you can decide which work best for you.

Scott

I would get either the Feb. or Mar. $25 or $26 calls. They are all up nicely.

You know why the calls are more expesive the further you go out?? You would think they'd be cheaper the further out you go since there is more uncertainty.

The ones in Feb. you would think would be MORE expensive but they are cheaper.

[smaskell]

It's the seller...

I would get either the Feb. or Mar. $25 or $26 calls. They are all up nicely.

You know why the calls are more expesive the further you go out?? You would think they'd be cheaper the further out you go since there is more uncertainty.

The ones in Feb. you would think would be MORE expensive but they are cheaper.

It's called the time value of money. The seller is the one assuming the risk, not the buyer. Buying the option doesn't obligate you to exercise it. Selling the call option obligates you to sell the stock at a set price. Say the stock is @36. If I sell you a Feb call option 40 strike I'm (possibly) betting the stock won't go higher than 39.99 in the next 11 days. If I sell you the March 40 I have to assume that risk for the next 6 weeks. I'm going to want more money from you to carry that extra risk. How much more? Depends on how volatile the stock is. That's where (theoretically) the Black-Scholes pricing model comes in. That and where the market makers/specialists think they can make a buck...

Scott

[tiedyed1]

re: options with MM picks

Megafauna, I enjoy options and actively trade them in a separate account I call my gambling account, as I am prepared to lose it all and not jump out any windows. In this bull market I have done very well with my purchases of calls. However, I have also seen over 30 years of trading and always remember losing it all when trading options too.

I have a separate account I enjoy working with picks from Mr. Market as well as other sources.

Based on my experience I rarely buy options on Mr. Market picks as the time frames can really stretch out much longer than the optimistic 4-6 weeks. Not that a pick doesn't reach its goal in 4-6 weeks, or even less; but that most take longer.

Take a look at Ernie's home page where you can get a better idea of the wonderful track record as well as the average timeframes. http://www.mrmarketishuge.com/huge/

While many of the recent winners were 6-8 week positions, others were longer. As previously mentioned you will pay a time premium to go out 2-3 months and need to take that into account.

Now, while I am not trying to contradict myself, I have purchased calls on some of Mr. Market picks; but they were in the money calls, 3-4 months out, where I would try to minimize my time premium.

For example:
Instead of buying 100 shares of AZO at 233/sh ($23,300) I purchased 2
contracts of the Feb 220's, and for every dollar the stock went up my options went up too and the further you are in the money the lesser time premium you will pay. Sure 2 contracts (200 shares) was still a few thousand dollars and I could have lost it all if the price tanked; but even if the stock did not go up I still had my $13 intrinsic value.

There is so much more to this and I strogly suggest paper trading options for a while and have patience learning.

Best of luck;
-Adam
tiedyed1

[steelman]

I have made money on every one of $$$MM's$$$ picks as option plays if they are optionable. I have been trading options for about a year and a half, mostly buying and selling calls. If you are long or bullish on a stock, buy a call that is the next strike price out of the money and buy the expiration that is 30-45 days out. I have done better taking quick profit within the first 1-3 weeks of the trade because of time decay rather than holding out for huge returns. I don't necessarily buy the day $$$MM$$$ releases his pick. I use chart indicators for entry and exit but his picks are dead on. The companies are fundamentally sound. Options have much to do with momentum, in either direction.

[Megafauna]

It's called the time value of money. The seller is the one assuming the risk, not the buyer. Buying the option doesn't obligate you to exercise it. Selling the call option obligates you to sell the stock at a set price. Say the stock is @36. If I sell you a Feb call option 40 strike I'm (possibly) betting the stock won't go higher than 39.99 in the next 11 days. If I sell you the March 40 I have to assume that risk for the next 6 weeks. I'm going to want more money from you to carry that extra risk. How much more? Depends on how volatile the stock is. That's where (theoretically) the Black-Scholes pricing model comes in. That and where the market makers/specialists think they can make a buck...

Scott

If you are talking about a call with a strike price of 40 and you are selling it and you don't want it to go above 40 (currently 36) then don't you mean you are selling that option SHORT?

Or with options you don't need to say selling an option short? When you sell an option it is understood you are shorting it and you obviously don't need to own it before you sell it right?

[Megafauna]

Do you guys ever see that show Options Action on CNBC? It's on every Sat./Sun at 5:30 AM ct. LOL..I know that's early.

They said their play for the week is the AMZN put spread. Couldn't you just get AMZN puts and get basically the same result?

[smaskell]

Yes but...

Do you guys ever see that show Options Action on CNBC? It's on every Sat./Sun at 5:30 AM ct. LOL..I know that's early.

They said their play for the week is the AMZN put spread. Couldn't you just get AMZN puts and get basically the same result?

Ha. 5:30am on a Saturday would definitely be going to the DVR at my house...

I'm not familiar with the program and you didn't say what kind of put spread but generally the reason people use spreads is to limit their exposure in exchange for a profit cap. Something that might be attractive if optioning a very volatile stock. Also, you know immediately what your maximum gain or loss will be when the position is entered. More attractive as your portfolio gets larger and you have more to lose...

[Megafauna]

Hey guys, are any of you guys trading, paper trading, or just following the option calls for Mr.Market's latest pick, HS?

I am paper trading the Apr.16 $40 calls and I got in at .35. Isn't that the best call to get or you guys have any other suggestions?

TIA

[smaskell]

No easy answer

I am paper trading the Apr.16 $40 calls and I got in at .35. Isn't that the best call to get or you guys have any other suggestions?

An impossibly open question. The thing about options is while there are a lot of wrong answers, there is no single right answer either. With MrM picks, while he says he will sell 4-6 weeks he actually holds until the target is reached regardless of time frame. That's OK if you own stock but not if you own options. Now you have an absolute deadline. You know you're not going to lose more than $35 per contract but if it doesn't move in your favor soon enough you can lose it all. The bid-ask spread on thinly traded OTM options is also huge. Looking right now there is a .15 difference between bid and ask. That's almost 50% of your option. Your option has to gain .15 just for you to break even. The current delta on that option is .16. That means the stock has to move $1 for your option to move 16 cents. So HS has to move to $38.5 for you to break even. Not a big deal if you're confident that it will hit $42 in 4 weeks but time is your enemy. MrM doesn't use technicals when opening his positions but in my opinion when buying options timing is everything. Good Luck.