Official Investing Thread

Do you gamma hedge at all?

 

I pretty much do a couple of these trades each qtr. I usually do them in NFLX, PCLN, and AMZN. A couple of times these trades have worked out big time but too many times I lose on both sides and get hammered.

 

Figure out how to track the delta of your strangle (standard black sholes will be ok). Then as the market moves (going into the number) you can make money by hedging your gamma (buying stock verse your puts on the way down or selling stock verse your calls on the way up). This way if the options end up worthless you will have at least made money trading the stock. The amount of stock you should buy or sell at the time depends on the delta.

right now it probably has a very small delta so nothing to do but wait for the market to move.

 

I wish I understood what you guys are talking about.

 

In trading options its a race against
1) how fast the market moves (also known as gamma)
versus
2) time (also known as Theta).

right now NFLX is trading ~ $703 and the earnings come out Friday morning. If the stock stays the same price then tomorrow the options will decrease in value by the amount of THETA that they have.

What if NFLX goes to $680 overnight? His put options will be worth considerable more so he could either 1) sell his options or he could 2) buy some amount of stock as a hedge. With #1 he exits his position with #2 he still has potential to make money off of a move on the earnings. If the stock were to bounce back up to $700 he would make the $20 on the stock he bought at $680 and still have the potential to make money off the earnings move.

What im trying to say is that right now he is just buying the strangle and he is hoping the stock moves hard in either direction on Friday. Its pretty much a coin flip. but by using gamma hedging he can increase his odds of making money.


Also FWIW the straddle for NFLX friday expiration is trading $61. This implies that the stock will move that much before the close Friday. So, its gonna move one way or the other off of the earnings.

 

if there was ever a time to re consolidate student loans or refi... it was a few years ago, but your LAST chance to get rock bottom rates is within the next 2-3 months.

 

I didn't realize that the NFLX split was happening today. I decided to get out of the strangle trade this morning.

 

Just curious, if you had one option last night did you have 7 options this morning?

I work on indexes and we dont deal with splits and dividends so im not super familiar with those events.

 

Yeah I had 7 times the options. If I knew the split was occurring before the earnings I would never have made the trade in the first place.

 

But it should not matter, right? Everything should be adjusted so that you have the same trade on?

 

I bought 5 NFLX 102.5 calls for $2.65

I tried to turn it into a call spread by selling the 110 call but my dumb ass brokerage wont let me get credit for the long 5 calls i have and thinks im trying to go naked short. Additionally, I cant sell any stock verse the long calls i own. (this is at Bank of America)
Going to look at think or swim or something else which will let you be a little more creative.

I can only lose $1k on the calls and think its a coin flip so i will let it ride at least until after the earnings. Just trying to learn more about equity options trading as i dont have much experience dealing with splits, dividends and takeovers.

 

Good luck with the options.

 

Honestly I mostly just play options in volatile stocks before earnings and once in awhile with takeover rumored stocks. It really is a complete gamble which once in awhile hits big but most of the time loses.

 

I got back in a strangle trade with NFLX. I bought the 94.64 puts at 3.30 and the 100.36 calls for 3.40.

 

Its implying ~ $9 move

We will find out in a few minutes here.

FWIW i put in a limit order to sell my options if the stock moves more than $9. So i purchased at $2.65 and put in a limit sell order for $7.50.

Im travelling tomorrow so might not be here to trade out.

Good luck

 

$105

 

this is where it sucks to not be able to short the stock
i am long 500 shares but cant sell them out

 

They beat by 2 cents with in line rev and they see 7 cents next qtr vs estimates of 5.

 

NFLX is trading 109.

 

im up $5k if i can find some way to exit the trade.

 

You should hopefully make some money in this trade.

 

I wish they had options trading after hours.

 

Seems to be settling down in the 108 range right now.

 

I called and tried to short 500 shares of stock and they wouldnt let me. said i can only short between 9 and 4.

Hopefully I get lucky and the stock holds until the morning. Definitely need a think or swim or interactive brokers account.

 

You definitely need to have an account somewhere that allows you to trade pre and post market.

 

Hopefully tomorrow brings a huge short covering rally to push this to 115.

 

With my strangle I needed a much bigger move than this to really cash in. If it stays in this 108 range I will probably eek out a small profit but nothing to write home about.

 

Yes, for both of us we are going to be hurt by the fact that we cant trade the stock right now. You also have shares of stock to sell and we would both have all night to trade the stock back and forth. Its free betting at this point.

One of the reasons i did it was to learn and i just learned that I need to have the right tools to work with.

Yours should be a break even at worst i would think. The implied move was $9 and at a price of $108 it would have moved $10. But again we are giving up a lot in opportunity cost in not being able to trade the stock.

 

I have been trading the stock since the close. I just wish they had after hours options trading as well.

 

The stock is really fading now and its already below 107.

 

OK just looking at your trade. you have a guaranteed winner on your hands. How many options did you buy? I'll help you get short the correct amount of shares if you want

 

I got in and out of the stock a few times and made a small profit. As long as the stock at least hangs around here my options trades will be mostly a non event. You should have a solid profit as long as nothing crazy happens before the open tomorrow.

 

assuming you bought one of each

You paid out $6.70 thats the most you can lose. So your breakeven is =$100.36+$6.70 so basically $107. Your put has a zero delta now so it is totally irrelevant and you wouldnt be long any shares verse it. Im trying to guess the call delta. It has to be really high because at $108 its $7.64 in the money with two trading days until expiration. I would think it has a 75 delta. So for every 1 option contract you own you would want to sell out about 75 shares of stock ( assuming the stock is trading here at $107.50)

 

You can also think of it like this. What do you think the percentage chance is the stock will go below $100.36. Then take the inverse of that number and there is your delta. Now that i think about it i would think the chances of the stock going back down below $100.36 before Friday is pretty slim maybe 15% or 10% chance? That would put the delta more like 85 or maybe even 90. SO if it were me i would be selling out 85 to 90 shares of stock for every option i owned.

I the stock goes higher you add to your profits small. But if it goes lower you will make money off the short stock and STILL own your options.

Im out for a while. Good luck

/Nerd talk

tradercane

 

And whats the deal with oil? Mainly Seadrill and WTI.

 

Oil is going to be under pressure for a long time IMO. I think people playing for a quick rebound are going to be disappointed. Much of the price spike was due to most people believing in Peak Oil Theory which has been found to be false (or at a minimum premature). Since oil previously spiked there has been huge investment to be able to handle the increased supply of shale oil. That capacity will limit any significant price rise in the immediate future.

 

NFLX is trading at 110.50 or so right now so the trade definitely worked out.

 

I re-fi'd to a flex rate a couple years ago and am considering re-re-fi'ing to a fixed in August. But with only 13 payments (and change) left to make, I'm not sure it's worth it.

 

Im selling right on the open. Sometimes you get lucky ..... not being able to trade the stock made me some extra money this time. The stock is really jumping around right now, $1 at a time it looks like.

I know in the long run, or the more often i trade, the better off I would be hedging.

 

Yeah as soon as I mentioned it trading at 110.50 it dropped a point. I pretty much jinxed it but you still had a great trade and I will at least make a little.

 

im thinking my call options will be worth about $9 and yours around $11. We will see.

 

Sold mine at 7.25.

the straddle only opened up at 3.5 which seems low to me. I thought it would open up between $4-$6

 

I sold my calls at 9. So I made about 2.5 points on the whole trade.

 

Bought VDE 12% higher than where it is now in my retirement acct.

 

I've been buying F lately. Hope it does me well.

 

I guess I should have held onto my NFLX options a little longer.

 

We pulled out way early on that one.

That's a big move, about twice the expected move (and still a day to expiration. The longs won decisively.