Hello, I'm the previous user from (Where you might find something you'd like to know about asked already) This is the continuation thread, where I'll attempt to answer as much as a I possibly can. Of course to reinstate, I trade stock options for a living and this is pretty much meant to be an options trading geared thread discussion wise, but It's fine for anyone to ask me (or another user with similar methodology / knowledge) questions they might have. I appreciate the positive feedback from the previous threads.
( Wasn't able to create the thread as early as I would have liked to so I'll only be a available for 4-5 hours from now to answer questions )
why does probability distribution have anything to do with options trading?
Jordan Clark
Never trade naked contracts, word of advice.
Preferably I'd sell an OTM put ( With a prob.ITM / delta value of 65-80 ) as well as having 45-30 days till expiry. As well, purchasing another OTM put with a cheaper premium crediting my account. Let time decay and IV overstatement benefit you, and actively manage the trade ( ie don't let it just expire ) since you could end up turning a decent profit before expiry, which is what I usually do anyways. That's just a brief synopsis, there's other aspects to determine if the trade is a winner from the start with simple calculations but using probability of contracts expiring OTM and a large amount of trades at that allows one to average to a profitable position, albeit slowly. It might seem like I repeat myself a lot when it comes to strategy, but it's just because I don't stray off the beaten path of my methodology. As I've said before, it's all about having an emotionless methodology that you can follow step by step.
It's the basis for how the probability of contracts expiring within a certain range is calculated. If you didn't know already, though the market is random, it's balanced regarding the probability of a security rising +$1-$100 or lowering $1-$100 in a shorter time frame versus the probability of a security rising +$1-$100 or lowering $1-$100 in a larger time frame This is how Prob.ITM and Delta become reliable values ( Which they have been mathematically proven to be )
If you took the distribution graph and flipped it on its side with the climax of the bell curve at the current candlestick of a security, it represents the probability of the security rising or falling a certain value, associated with the time it would take the value to actually rise or fall. ( More time expects larger moves to the upside or downside, and less time expects smaller moves to the upside or downside. ) I hope that helps.
Here's a video to help since visual demonstrations are pretty helpful.
Skip to 7:16 for the information you are regarding.
Kevin Myers
What's your opinion on options signal groups? I was in one for around 2 months and the signals that I saw live were roughly 75% profitable. Are these groups really as they seem? Just a talented trader giving entry and exits? I feel like there's something I'm missing. I understand that by being in these groups you slow your personal growth as a trader but I think it's something more nefarious.
Wouldn't you rather just come up with a reliable means of trading yourself? Being dependent on someones signals only ends bad in the long run, especially when you have no control over how they come to there conclusion, which just makes it harder to determine what type of risk you can actually go through with. So it'd be a strong no from me. Most people would agree since it's really for someone who's interested in just getting quick cash rather than learning the fundamentals / technicals of options, and applying them to your trading. Just stay away from them, after all they're not help responsible, and can be "sketchy".
It's just like what eToro offers, where's you can mirror another investors trades based off of there success. You have no control over anything besides listening or not listening. I personally just don't work that way, as do most traders who want to be successful on there own terms. Put in the time to learn and it'll be far more rewarding.
How long did it take you to go from noob to consistently profitable trader?
I've listened to the first dozen of OptionAlpha's podcasts, though have since been sucked back into the crypto casino. It's definitely something I can see myself understanding if I put in the work, I was just wondering if you could give an idea of the sort of timeframe to expect. I work a full-time job, if that changes anything.
Appreciate you sharing your knowledge over the past few threads!
Gabriel Thomas
Hello user one question What your pic shows to? it's a distribution from a Montecarlo simulation?
Hunter Reed
>How long did it take you to go from noob to consistently profitable trader?
I started learning about Technical analysis & Swing trading at the age of 17, though it didn't carry through with any success, then I went on to backtesting TA algorithms and began to form an interest in forex and using MetaTrader and all these indicators with different adjustments and it was a nightmare. Eventually I learned about options trading and studied for about a year and a half while working full time (I also had my good friend with me who had similar interests though he doesn't trade full time today ). Then I went on to paper trading and practicing managing trades with complex orders since I wasn't available all the time due to my line of work. I compiled step by step lists of all the favorable methodologies available to me through online resources, then learned about the Greeks, probability, beta weighting, volatility, properly pricing trades, simple management of existing contracts, and so on. It was a process of about 2. years (excluding the time I had learning about swing trading and TA which did help in some aspects). Regardless, I'd say it was about 1.5-2 years of education with half a year of paper trading (included in the two years) and testing methodology till I found one that worked theoretically on paper. Then, applied it to real trades, and went from there. It was a bumpy ride in the beginning since I was new of course, It's all about observation and understanding what the hell you're looking at. Years later, it's a blessing to have something that works.
Please reference this post / video provided with time stamp. It's pretty much the basis for how my whole methodology to trading works. Probability.
Leo Gomez
great reply, thanks. it seems like a steep learning curve, but once you crest that and have a strategy that works you're essentially set.
how much time do you spend per day trading/managing positions?
Brody Gonzalez
bump. emailed you last night optionsanon, thanks for the reply. using an options profit calculator to simulate a bunch of strats I laid out this morning after binging vids all night. I find it's a great visualization tool to see if my values/picks are somewhat smart. took your advice, got on tos, got into paper trading. gonna keep saving while I learn more about IV, HV, and beta-weighting. I'm feeling good about this. had a couple concepts "click" today and I'm ecstatic. wisdom comes ;)
Ryder Butler
It's really not that steep of a learning curve, don't let yourself believe it's overwhelming. Once you understand the basis, and you grasp the fundamentals of options, everything becomes much easier. In 2-4 months depending on how much time you dedicate, you'll understand the basics, in and out, without needing to reference anything from paper or online. This makes the rest of the learning process much smoother.
>but once you crest that and have a strategy that works you're essentially set.
Couldn't have put it better myself.
>how much time do you spend per day trading/managing positions?
Around 8-12 hours a week, a few hours a day though not every day. The bulk of that time is taken up scanning for properly priced trades, tight B/A spreads, and other measurements I'd find helpful to my strategy. Sometimes I'll work 24 hours in a week for whatever reason so it's not always consistent, but it does result in free time which I have no problem just redirecting back into advancing my knowledge about options trading and what I currently use.
>options profit calculator to simulate a bunch of strats >binging vids all night I like what I'm hearing.
> took your advice, got on tos, got into paper trading. gonna keep saving while I learn more about IV, HV, and beta-weighting Please keep my up to date with your progress and of course shoot me a question anytime. Now I love what I'm hearing. ( Also regarding HV, IV rank is superior to IV percentile. )
>I'm feeling good about this. had a couple concepts "click" today and I'm ecstatic. wisdom comes ;) Exactly the way I felt while I was learning, it's spectacular especially when you can visualize and understand what you can do with this knowledge. Makes me so happy to hear I'm not alone. Also thanks for the bump~
what is the advantage of selling options vs buying? I understand that buying has limited loss and unlimited potential gains, but selling is the opposite right? limited gains and potentially unlimited loss? What am I missing here? it seems like selling options is incredibly unsafe.
Jace Nelson
Actually based thread, thanks OP. I'm taking notes.
Anthony Nguyen
Selling options is practically better in every which way you can look at.
>potentially unlimited loss?
You must be regarding trading naked contracts ( ie Selling a Put contract / Selling a Call contract. ) Which is strictly forbidden in my mind and is pretty much gambling, so don't do it. I only trade spreads, which involve two or more contracts. ( though there are spreads which initially begin as a naked contract of some sorts with adjustments down the line but I'm not going to talk about that ) If you're not familiar with a credit spread, besides just selling a contract, we can purchase another contract as well with a lower premium than the one we had sold, which results in a credit to our account. This contract that we purchase acts as insurance against the downside that a naked position would have, negating the "unlimited loss" and as well, giving us a Max Loss / Max Profit, allowing us to further decipher is a spread is actually worth trading. More information is always helpful.
>limited gains
True, but this isn't about hitting the lottery, it's about consistency and averaging out to a winning position reflective of the Delta value you from which you sell your contracts at ( 70% being the "sweet spot" ), If you stick around these threads you'll of course pick up more information about my methodology. Of course if you'd like to know something specific, just ask. I hope that helps somewhat. Just remember averaging to a winning position is much more reliable and consistent then trying to hit a home run. The key word here is "reliable", especially when it comes to stocks/ stock options.
Key takeaway, never trade naked contracts. Selling contracts has more benefits than buying options consistency wise. IV having a huge factor in that of course.
How do I lower my delta without hedging/spending money
Aaron Smith
Also, I typically base my trades off IV rank/percentile. Literally all stocks have low IV percentile right now -- obviously for more complex strategies, how do I know I'm not fucking myself with low IV percentile? Should I just pray high IV is good enough for an entry?
Nicholas Perez
I don't know how you'd do that, I'm not sure if it's even possible. Either the trade is set up to be Delta neutral, or you make adjustments to a trade / portfolio to create a reflected neutral delta.
The IV value relative to IV Rank/Percentile should dictate the type of spread you're going to use. If for whatever reason you can't find a security to trade with a relatively high IV value, you'll have to adjust the type of spread since said value dictates what type of spread you should be using (Or at least it should if you trade as I do ). It's not ALWAYS better to sell options at a relatively high IV value, just a majority of the time. Adjust the type of spread you're using and still stick too your IV Rank / Percentile basis for trading. I can get that information for you regarding IV rank corresponding to Spread choice if you'd like, It's in one of my notebooks, I just have to find it.
>how do I know I'm not fucking myself with low IV percentile?
If you're following a written strategy / methodology with steps, the main adjustment here to make would be your choice of spread corresponding to IV. I hope that helps, if it doesn't, feel free to rephrase your question.
I'm going to bed shortly, however I'll likely make another thread tomorrow (or the next day) so just shoot me the inquiry regarding IV rank correspondence to spread type. I'll have it then for you friend.
Benjamin Miller
I have a brokerage account with $29k and recently allocated about $20k into around 20 different LEAPS expiring anywhere from 200-600+ days out. How fucked am i?
Kevin Sullivan
>Selling options is practically better in every which way you can look at. >Selling contracts has more benefits than buying options consistency wise. IV having a huge factor in that of course.
This is not true, stop peddling this shit.
In the long run, there is no statistical advantage in being an option writer or buyer. Options markets are efficient enough to price in IV, if option selling was a statistically superior strategy supply & demand would drive down the price until the arbitrage is eliminated, vice-versa for buying. In general, thanks to put-call parity, options are fairly priced (determined in the form of IV) therefore neither a primarily option selling or option buying strategy will provide an advantage.
>how do I know I'm not fucking myself with low IV percentile? you don't, trying to predict IV is like trying to predict future spot prices. No one knows and anyone who tells you they do is bullshitting. Shorting volatility when IV is low is obviously not ideal, even if it's a pure directional (delta) play.
