TraderWise

As of February 12, 2010, there's a new way to identify stock options which should make it easier to identify what option we're dealing with just by looking at the symbol. I think it's best to take a few examples to see what the new symbols are.

Let's look go into the option quotes at The Options Industry Council, choose a few stock option symbols and see if we can decipher them:

YHOO101218C00016000

YHOO means YAHOO INC (NASDAQ)
101218 means that the stock option expires on 12/18/2010

It's earning season again and you know what that means... speculators moving the value of an entire corporation (yes folks, there are real businesses behind these 3-4 letter symbols!) up or down 10-20% based on 8 seconds of headline reading of a 90 day period of business.  While I enjoy getting updates on business I simply hate the student (lemming) body left reactions, although I understand so many of the retail crowd love the rush of the big gamble.  I'll leave that activity for Vegas.

I did not expect this level of selling today.   I thought we'd hover near the opening print and then try to make a run for that upside gap either very late today or tomorrow.  Technically, I should have laid on some index shorts via ETFs or puts once we broke S&P 1192 and kept them until/unless that level was broken, but due to my inclination on how I thought the day would play out I chose not to.  Can't win 'em all, but I am definitely caught off guard by the velocity of this move.  Once the POMO of the day did little to mark up the market, the selling  came on.

Readers often ask me the truth about options and the advisability of buying puts and calls on stocks.

Let me begin by saying that options are tools, nothing more. Tools can be used to build something. Or they can be used to tear something down.

The key is to understand and master your tools and, more importantly, not destroy wealth when your intention is to create it.

Let’s start by defining our terms…

The Difference Between Put & Call Options?

Here are the differences between put and call options:

Let’s build on my previous option trading blog. Now that my universe of stocks is smaller, it’s time to use the most powerful tool I own - a trained eye. I click on symbols and I look for very tight price action. I start with a 1W (one week) chart because I want to know that the momentum is there right now. If it is, I will zoom-out and look at the 1M (one month) chart. If that looks interesting, I will zoom-out to the 1Y (one year) chart.

In today's option trading blog I will address some important concepts for the novice option trader. Options trading gets so much press these days that it's hard for traders to determine where to go and who to trust. I believe there is a natural progression to the whole process and it can't be rushed. Options are not a get rich scheme that you can jump into. Do people make a lot of money trading options? Yes, they also lose a lot of money. The risk and reward is elevated and every mistake is magnified.

Repeat everything from this post just last week, at SP 1150 [Mar 16, 2010: Away We Go], and simply change it to SP 1170.   Not much more to add - this is simply the same trade repeated over and over... and over... and over - expecting the "obvious" to fail like it used to in the old days, but it never seems to anymore. Back into long index positions - will stick with it unless 1170 is broken as support.

(I've added BGU to my normal array of TNA and SPY calls - in this case April 118s) 

Throughout the day I've been selling in 5-6 pieces the SPY calls I added yesterday as the market has weakened.  I was looking for a breakout once we cleared S&P 1170 which was my view of the "top of the move".   Instead we've enjoyed a reversal, so having an overweight in near term options when the market is not going your way is a very bad thing.  These were very much in the green yesterday, and today have caused a nice drawdown.  These were SPY 118 Oct calls...

This option trading blog nearly concludes my series on "How I Trade Options". After all of the research and analysis has been completed, I step back and I evaluate my level of confidence by breaking it into three categories; the market, the stock, recent performance. My option strategy will depend on where I am in the confidence spectrum. At the highest extreme I would be buying front month out of the money options. At the low end I would be selling out of the money naked put options on a stock I like fundamentally - in a scaled manner.