/biz/ - Business & Finance

>>58295921
Options have three known values - time to expiry, volatility, and distance from the underlying price. Calls are bullish and puts are bearish. Because it is a derivative with a fixed expiry, it also loses value over time.
Using the black-scholes model (which there are better models), you can decompose the contract into the greeks, which are delta (price movement), theta (time decay), gamma (delta movement from price), rho (>interest rates), and vega (volatility).

You can combine long and short puts and calls at various strikes and expiries to have more control over your risk exposure. Going long a stock is the same as going long delta. Writing options has its own risks, but you can eg benefit from lack of price movement over time

>>57956956
You can take the partial derivative of the Black-Scholes pricing model and solve it to model how the option price should vary as these inputs change. Solving for each variable, you get the greeks. These are the sensitivity to things changing, eg Delta describes how the contract value will change as the stock price goes up and down. Theta is negative if you're long is time decay. Vega is volatility and Gamma is how Delta changes w.r.t price. Think of price as the "position", delta as the "velocity" and gamma as the "acceleration". There are also second order greeks (that only market makers really worry about), which are how the greeks themselves change over time. Rho is how it changes from interest rates, but even a 2-year LEAPS contract with the interest rate hikes barely moved things. Nobody cares about Rho.

IV and volatility are hard to quantify, but I always imagine it as the "value needed to make the rest of the formula work". It's the only thing you don't know ahead of time (since you can control the strike and expiry date you enter at). It's also thought of as the premium for the option seller, the risk involved for writing the contract. It also means that on the buy side, it can be quite risky. Using ERs as an example, the IV is lower before and after, but higher during. Like I said above, it's possible to time the exact price and expiry with earnings, but still lose money because of IV crush. People who don't understand the math side of this will lose every single time. Surprises can happen, but they're just common enough to keep people hooked even though it's a losing way to do it long term. Hence why there are spreads like condors and calendars.

>>57916813
>>57916745
Also I see you said "a few hundred". 60 shares is $204, so we can calculate it with 60 delta.
If you're going to use options as a hedge, I'd recommend maybe doing something that just buying raw puts. There are many different spreads you can construct that want to go to long, short, or negate the effects of time, volatility, or price. Gamma (large price movements) inverses Theta (time decay), and having different dates on the legs lets you go long or short on Vega (volatility). If you hold the contract until expiry, it might expire worthless, but then Vega/IV/volatility becomes irrelevant, only the price matters at that point.

>>57653848
Do a bull credit spread and you only have to post margin for the difference of strikes, usually

>>57636091
I like to use optionstrat.com, it has a fairly decent calculator, but you need to pay for a subscription to get live greeks and flow calculation. If you get super into it, it's great, but there are other better free tools.

Never open a spread with infinite/undefined risk. Be aware that you can have the best spread open, but the short leg can get exercised early and you might have to take possession of the shares or sell them.

Pic related is helpful. I compiled it from a prop firm's trading video. You can choose to go long or short on theta, delta, or vega. Because options have defined risk, you can choose exactly how your position is exposed, and you must accept some risk to receive some reward. For example, you can write a credit bear/bull put/call spread, which has little upfront cost, and is directional (theta); one short finances the long, and depending on how it is set up it can be bullish or bearish. These are great because if you hold it until expiry, you don't care about IV/volatility/vega and you don't care about theta/time decay.
Many traders quote 25 and 50 delta, and you will often find walls at these strikes.
Be careful around ERs too - contracts go up in price (IV) and you could buy an OTM call, have price blow past it, win the trade, and still lose money. If you want to fiddle with options around ERs, you could get one that doesn't care about volatility.

>>57636137
There are only a handful of people on Reddit who will make it. Everyone else is too meme and emotionally driven. Good trading comes from being consistent, not gambling. Sure, he could have made it, but for every person that does, thousands fail.

>>57622279
You need to look at your trade psychology, my friend. If you have even the simplest technicals like an MA and go with the trend, you'll be right about 50% of the time. By having appropriate position sizing and risk management, you'll be able to keep trading almost forever. By having good stops and profit points, eventually you'll go from having a bunch of big wins and huge losses to having a bunch of small wins and losses that cancel out, and the occasion large win that keeps running.

With options it's still the same concept; you have delta of course, so if you're doing synth futures, it's roughly the same as trading in lots of 100 (which is not necessarily what you want to do since you should scale position sizes to ATR). Rather, with options I would focus on credit spreads which expose you to positive theta (writing CCs or bull/bear credit spreads), or do things like condors or calendar spreads if you expect an increase or decrease in IV.

Seriously, figure out a system, write it down, paper trade it until you follow it to the letter and are consistently profitable

>>57622280
>Doubled since 1996
A company is supposed to double in value every 7 years or so. It took the product 4 years to double in price. Even if the price is steep and they walk it back by a dollar, it's still really attractive margins, especially if they can reduce their input costs.
A lot of fast food places will probably move to a subscription model in the near future.