1,600?? ok man.. seriously.. let me tell you something if you havnet figured it out.. if you can consistently return 20% a ****ing year... you ARE A ****ING GOD...and you will be managing 10 billion dollars.. and rich beyond your wildest dreams... gotta love the newbs..LOL

What laswyguy said.

In case that didn't sink in, here is a gentler version: swinging for the fences with options is the surest way to blow up your trading account. Even with good money management principles (only putting maybe 1% of your capital at risk in any individual trade) you can still slowly bleed money waiting for the big score.

I'd start out with covered calls or maybe sell some puts on a stock you'd like to own at a much lower level.

I'm not really looking to trade continuously ... this is a lotto ticket.

Barbell strategy, someone called it?

Either way, it's a calculated gamble and I'm going to pull the trigger this upcoming week.

OCT SPY 105 Puts = $0.37

I can buy 7 contracts for $259+, if SPY hits 80 that's $17,500 from only 250.
Then re-invest long for next year and wait for it to double.

That would be $35,000 from only 250 in less than 18 months.

Yeah, yeah ... I know it's a dream scenario, but not a bad lotto ticket. :)

How much is it to buy another year out? Eg; 2013?

(My .02: You're delusional)

Gamma wrote..

My .02: You're delusional

I expect to hear that, no worries Gamma.

I'm interested in this year because I believe the crash will happen before the end of the year.
I am a little torn whether I should buy OCT or DEC ... DEC 12 is the farthest out I would go.

OCT 100 Puts = $0.25
DEC 100 Puts = $0.75

I only made the "delusional" comment in briefest terms because I suspect you know the incredibly long shot nature of your bet, but I will try to quantify same for you. Frankly, I have no particular objection to tossing ~$300 to the wind (~~cost w/commishes for 7 puts) on a lotto bet.

ivolatility shows a delta of .002 on Oct 80 SPY puts. In very rough terms, that is the odds of your bet going into the money. Now, you don't necessarily have to go ITM for the bet to "pay" = be profitable at some level. But what you DO need to have happen is quite amazing.

But really, what makes this a dopey bet is two things:

The fair value of those puts is about 2 cents. You're paying almost double that.

The implied volatility of those puts, at 37 cents, is about 54%. ABOUT FOUR TIMES current actual volatility.

Basically, you are about eight times overpaying for those puts. So, when you combine the incredibly rare event known as a flaming market crash with the notion that you are badly overpaying for them, your chances of success are subatomic.

If SPY got to 90, with 30 days to go, it is September 20, 2012, you got the direction and timeframe quite right, but the market didn't dump quite as gargantuanly as you thought and volatility blew up some, you might get 50 cents out of them.

What those puts would need to really flower like you are imagining is a flash crash, and I do not exaggerate. You would need ultra-violence. A mere dribble down would not do it. You'd have to get volatility up big time, and if you did, they could go to a tad over a buck.

But you can try. Lord knows, those MF'ers will sell them to you!

Sounds like the "all in" on a 2/3 down version of options speculation :)

So are TD Ameritrade and Etrade the top 2 choices or do you any of you guys prefer those or others?

Oh and one other newbie question ... SPY options are cash settled, right? So if I buy 10 contracts, and I exercise them ITM, I won't have to buy 1,000 shares of SPY would I?

I do know that selling is usually better than exercising because of IV + TV ... I think.

Ok I went with TD Ameritrade.

Quote:

But you can try. Lord knows, those MF'ers will sell them to you!

yes they will... it will have to be a most glorious crash to profit from those.

Quote:

Oh and one other newbie question ... SPY options are cash settled, right? So if I buy 10 contracts, and I exercise them ITM, I won't have to buy 1,000 shares of SPY would I?

No. These are not index options. These are stock options on SPY ETF. If they are $0.01 in the money they will be automatically exercised and you will own long stock.

Quote:

Remember, on expiration, thinkorswim will automatically exercise any equity option that is $0.01 or more in-the-money.

American-style options can be exercised as soon as they are purchased and all the way up to the expiration date. European-style options can be exercised only on the last trading day before the expiration date. All equity options traded in the U.S. are American-style. But some index options are American-style (OEX), while others are European-style (SPX, NASDAQ). It's very important to know precisely when an option expires, and how it is settled.

Basically, settlement is what you get if you exercise an option. If an option is stock-settled, you will get a long position in the underlying stock if you exercise a call, or a short stock position if you exercise a put. U.S. equity options are stock-settled. If an option is cash-settled, you will get cash in the amount of the difference between the strike price of the option and the settlement value of the underlying index. The OEX and SPX index options are cash-settled.

https://www.thinkorswim.com/tos/displayP....

Make sure you have a sell order in GTC or kaboom .

That reminds me of a funny story. Friend of mine used to be mildly uncanny at "expiration" plays on stocks. Buying OTMs with like hours of life left. Once he did this on CNX, a coal company. Thursday-Friday, he built up a position of I'm gonna say 135 qty 15-25 cent calls. Play didn't work, he went home Friday with like 75 of them he wasn't able to sell Friday 'eve, dead dogs worth nothing, abandoned. This was during the commods frenzy in 2008. If you'll recall, coal stocks like ANR, CNX, WLT, PCX were absolutely en fuego then, worth minimally 4x what they trade for now. Since then, these coals have been utterly butchered.

News comes out over the weekend about Chinese use of coal and CNX lights the f**k up, gapping up 4-5 pts Monday morning. My pal ends up with something like 7500 shs CNX in his account and a $950,000 margin call. This was at Scotttrade, too, where they are not especially used to such things, LOL, and his broker was having a serious heart attack. He ended up selling off the shares and made about $22K on the deal.

Go read ya some Taleb. Worth your time. Fooled by randomness or black swan.

LOL. And just hope it doesn't drop before it's all settled, hehe.

@Pokerplayer, I forgot to write this (and Gamma just posted about it). You need to research margin calls and understand that too. If those were exercised you would get large margin call. They would ultimately liquidate the shares because it looks like you don't have the cash to cover it, but who knows what the price will be. You also would be responsible for interest on that margin.

Make sure you read all of the disclosure documents. When you setup the account they should have given you a booklet on trading options.

You don't normally get margin calls unless you sell option contracts or naked short stocks.. For newbs, I recommend you only buy call or put contracts and not get into writing them. worst case you***** away the cash you used to buy the option.

Yeah when I signed up for the account today, I chose cash / options, no margin, and I don't plan on writing any, just buying puts / calls. If I'm wrong and lose the premium, no big deal, but I don't want anything to do with getting a margin call for more than I put up.

Sounds like you'd better just paper trade options for a while before committing any capital.

It's a known risk and that I like. The downside as others have pointed out is the market remaining irrational longer than you are solvent. You cam***** away many many option premiums especially if you buy the more expensive in-the-money options.

Antone wrote..

Sounds like you'd better just paper trade options for a while before committing any capital.

If you hypothetically believed the market was about repeat 2008, and you were willing to bet a few hundred bucks on that, wouldn't long puts be the safest way to maximize return?

Edit:

Yeah I hear you Eighty, I am torn between OCT and DEC. Wouldn't surprise me at all if I bought OCT and they expired just OTM and the market went to hell the very next week.

Is it because of the election that NOV options aren't listed?

Hey, it's your money. Do as you please. If you want to throw your money at some options that have a high unlikelihood of expiring ITM, go for it. To me that's gambling, but yeah, sometimes it pays off big. Personally, I like to hit a lot of singles and doubles instead of always swinging for the fences, but that's just me.

"Is it because of the election that NOV options aren't listed?"

No, it's because options belong to certain calendar "series" (and "series" may not be the correct term) but nominally, options on equities belong to months 1-4-7-10 or 2-5-8-11 or 3-6-9-12. However, in any given month, options will be available for the CURRENT month and for NEXT month no matter which series the opts belong to. If there are no Nov options today, there will be in the (option) month of October or very shortly before.

You can buy leaps into 2013. Not related to the election. I thnk I said it on this thread and it should be clear to any option trader but you have to be right on 3 things at the same time...timing, direction, magnitude. Anyone one will sink you and I've been wrong many times. I thought the repeat of 2008 was coming inI 2010 and it cost me 20k or so being wrong. On the sidelines watching all the games but I'm not convinced the next collapse is pending. Too many tricks yet to be played, too many governments in the game now. I'd always rather bet on a stock and not an index and I have few if any stock ideas these days. Call me "tradless in Atlanta" lol.

Volume = 5,000 today on $0.07 SPY OCT 89 puts ... such an even number with no volume anywhere around that strike price ... is it safe to assume that's one person with $35,000+ to burn making the same wild bet as me?

never safe to assume ****. 35,000 is a rounding error for the big boys. read nothing into it