Bought BP October Puts

[CaptTurbo]

Betting, literally, on the hurricane season and Obama hammering these guys.

 

[jw7]

Betting, literally, on the hurricane season and Obama hammering these guys.

Well, I would not do that. When you take options you do realize that even if you hit you don't get any capital gains protection? Any gain will be fully taxed as ordinary income.

And you are right, it is a bet, a gamble. What is your strike price and what was the option cost?

Good luck. What you are betting on is that you are smarter than the market. Maybe you are and good luck, but options scare the crap out of me. BP already lost 2/3 of its market cap and all info is priced in IMO.

 

[CaptTurbo]

Well, I would not do that. When you take options you do realize that even if you hit you don't get any capital gains protection? Any gain will be fully taxed as ordinary income.

And you are right, it is a bet, a gamble. What is your strike price and what was the option cost?

Good luck. What you are betting on is that you are smarter than the market. Maybe you are and good luck, but options scare the crap out of me. BP already lost 2/3 of its market cap and all info is priced in IMO.

Strike price is 20. Paid 2.15. Expires Oct 10.

Also bought C call. Strike price 7.50 for 29 cents expires Jan 2012. I really like this one.

I wouldnt say the BP put is betting than I am smarter than the market. You could say the same for the guy who bought the 30 put when it was 40. I am actually going with the market.

 

[CaptTurbo]

If I hit Ill keep rolling the put. BP will go BK for protection to remain a company. Claims will over take them.

 

[CaptTurbo]

Investors make no sense. Claims for $ from BP continue to mount yet the stop has gone up 10 bucks on a new cap that 1) may not work and 2) evenif it does probably still doesnt save BP in the long run. Should have taken a longer put.

 

[conraddobler]

Investors make no sense. Claims for $ from BP continue to mount yet the stop has gone up 10 bucks on a new cap that 1) may not work and 2) evenif it does probably still doesnt save BP in the long run. Should have taken a longer put.

Not investing advice but take it for what it is, free ramblings.

Most of the people who make money on options do so with complicated straddles, butterfly's etc, not purely directional bets.

The reason I asked when you bought them was that the time to buy them was right after the accident, or before, but before would be reserved for people in a club I'm assuming you don't belong to, namely the one that knows things are going to happen before they happen.

This kind of sure thing is exactly what Wall Street thrives on.

Read a lot about Japan and how time and time again they would start rumors of a companies "usually a banks" demise and then once the selling hit a peak they would inject rumors that later came to fruition of a bailout of some sort.

The connected would profit from this insanely.

They knew the saving was comming and it was done to a lesser extent with simple news and rumor cycles on more mundane stocks.

They would in essence control the spin on a stock.

The entire market IMO is subject to this right now, I particularly love the internet headlines that tell you why the market went up or down in a sentence, that's just hilarious.

At the very peak of gloom you can tell they're ready to take it back up and it'll work both ways at the peak of the euphoria they'll run it back down and this works on individual stocks too, especially high profile news stocks like BP, things control stuff beyond mere market forces IMO.

One final non investment advice thought.

Options that don't turn your way immediately are usually best sold at some predetermined max pain threshold.

There are countless strategies on this but a good rule of thumb I use is no more than a 5% loss in value and I'm out, period.

I use this strategy because it forces me to focus very hard on my entry point, when I enter an options bet I want to get into the clear on value fast, I do not want to go way underwater then pray for a mircale, I want to be operating to the good as fast as possible and if it turns bad on me from the start I want to get out fast, even if I will be proven right later it dosen't matter, it's not emotional, it's pure business.

I understand what you're saying about buying longer puts, but still would you buy them if you knew the stock was going to rocket higher shortly after? Wouldn't it be better given the unknown, to buy them, realize something was wrong soon, then get out, let the tide wash in then catch it as the tide is washing back out again given your long term thesis?

I've entered a bet about 5 or six times before letting it run because I kept missing the entry point, sometimes I give up too soon, sometimes I get it right off the bat, the point is to me there isn't much point in taking pain when you could just sell out and start over.

The trick is to make your picks, use a shotgun approach and then cut your losses on your losers fast and let your winners run, just take it for free non-investment advice.

 

[Russ Smith]

I can only add the more I read about options the more they scare the daylights out of me.

I agree with Conrad that it's just tough to win when the rules you're playing by don't apply to others in the same stock.

Case in point yesterday Johnson and Johnson announced they were buying a bay area company called Micrus Endovascular which makes something connected to treatment of strokes. Apparently there had been rumors for weeks of a possible deal and people had been buying in hoping to reap the benefits and longer term stockholders thought their patience would finally pay off.

The final offer from J&J turned out to be a 6% bonus above the current price, not a typo, SIX percent! There are already 2 major lawsuits being filed, a shareholder investigation is attempting to be launched, and there's a call for a special shareholder meeting where they can hold a vote to oust the board of directors.

The obvious reason for suing is the BOD didn't get fair value for the company to its investors. I'm betting the people that bought the stock under 17 in May and sold it at 23 yesterday feel pretty good now and I'm betting a substantial amount that did that knew about the deal and knew what J&J's price ceiling was so they knew in advance what it would cost and what their profits would be.

I think even I could make money in the market if I always knew what was going to happen in advance.

The idea of making a killing off BP's demise sounds great, but it's just so risky.

 

[CaptTurbo]

You cant just sell an out of the money option. You lose everything if you dont hit your strike correct? At least that is my understanding.

And 5% is a pretty low threshold. Options can move 30% in a few hours.

 

[jw7]

You cant just sell an out of the money option. You lose everything if you dont hit your strike correct? At least that is my understanding.

No that is incorrect. I mean you bought an out of the money option, so someone had to sell it to you, right?

Right now, BP Oct 10 $20 puts are selling for about $0.69. Meaning if you have 100 puts you could sell them for $69. Now take out your commisions and it is not a lot. Depending on how many shares you have it might just be worth it to hold and hope instead of cutting your losses.

Does not look too promising. What you are betting on is that BP will lose 1/2 its value in the next 60 days.

 

[CaptTurbo]

Does not look too promising. What you are betting on is that BP will lose 1/2 its value in the next 60 days.

Well to be fair it has gone up 50% in 2 weeks lol

 

[conraddobler]

You cant just sell an out of the money option. You lose everything if you dont hit your strike correct? At least that is my understanding.

And 5% is a pretty low threshold. Options can move 30% in a few hours.

A few hours is an eternity in options, if you are entering the trade correctly the object is to get the 30 percent on your side. However since it's a pure directional bet that's why I'd hold the losses to 5 percent, that means I could literally be stopped out minutes or seconds after entering the trade, that's on purpose on a direction bet, either I caught the wave right or I'm out, you are playing with dynamite, if you hear the fuse going throw the damn stick.

I've seen swing traders who would take much more pain than 5 percent, maybe 10 to 20 max but past that the only time they do it is lottery ticket puts or calls they planned on hero or zero status for.

Holding to maturity on options and banking big is very rare, extremely rare.

Stocks on the way to death will often double in there somewhere, why sit there and take that pain on the way to the end? If the technicals say you are in danger of that, sell out and take your profits and wait for the bounce to peak then buy the same options again and ride er down again.

Again, when something looks for sure it almost never is, especially in the timeframe you think it is.

I learned this the hard way during the crash and would of made a ton more had I had better timing.

Timing in options and money management are everything. I would never suggest options for anyone that hadn't studied them so much they knew all about every aspect of the greeks, and if you don't know what I mean then you shouldn't trade options.

Honestly from trial and error and some study when you bought those and I asked when I was tempted as heck to buy calls because you were making a classic mistake of being late.

If you're really smart a lot of times you'll be almost 180 degrees out of sync with the market, you'll feel the urge to buy when you should sell and sell when you should buy.

That's completely normal, it just means you're using logic and intution which you get from news too much and not factoring in the extra step the market has on you.

The market is ahead of the news, by the time you read it and make your decision based on your feelings you get from it then someone smart/savy is using that to sell into you.

You have to know how it works to have any hope of success and 90 to 95 percent of active traders lose money, none of this is investment advice.

 

[conraddobler]

I can only add the more I read about options the more they scare the daylights out of me.

I agree with Conrad that it's just tough to win when the rules you're playing by don't apply to others in the same stock.

Case in point yesterday Johnson and Johnson announced they were buying a bay area company called Micrus Endovascular which makes something connected to treatment of strokes. Apparently there had been rumors for weeks of a possible deal and people had been buying in hoping to reap the benefits and longer term stockholders thought their patience would finally pay off.

The final offer from J&J turned out to be a 6% bonus above the current price, not a typo, SIX percent! There are already 2 major lawsuits being filed, a shareholder investigation is attempting to be launched, and there's a call for a special shareholder meeting where they can hold a vote to oust the board of directors.

The obvious reason for suing is the BOD didn't get fair value for the company to its investors. I'm betting the people that bought the stock under 17 in May and sold it at 23 yesterday feel pretty good now and I'm betting a substantial amount that did that knew about the deal and knew what J&J's price ceiling was so they knew in advance what it would cost and what their profits would be.

I think even I could make money in the market if I always knew what was going to happen in advance.

The idea of making a killing off BP's demise sounds great, but it's just so risky.

Actually Russ to me and it's just my opinon, none of this is investment adivce, you seem to me to be a promising options trader.

Primarily because you're so cautious.

The idea is to identify a target, then devise a scenario of expected price movement, then develop an options strategy to exploit it and then manage the position.

Honestly it takes a lot of understanding of markets, options and risks and risk management but personality wise just for example IMO you'd make a perfect options trader, the ones who blow up are pure gamblers.

From what I've seen you study some biotechs and druggies and play the news/announcements just using stocks, if you knew what you were doing with complicated optons strategies you could capture more for yourself when you're right. It also implies you are specializing which is an excellent strategy, since you can only hold so much information in your brain at one time and the more you know about a sector the more chances are in your favor.

Think or Swim has a trading platform and a play account along with a ton of options training you can take, all free, anyone who wants to mess around with it should do so first with play money until they understand how to structure options plays to capture returns, then start with very tiny plays and kick the tires before you ever invest any real money.

I'd also say to keep it very small, like 5 percent of your total accounts, so that you can't blow your foot off while learning and then after a year or more you can raise that to like 10 percent if you're good and making money.

A lot of people play the biotechs and druggies this way because the news drives the stock so much, if you build the trade right a large swing up or down will make you money, the loser would be a dud and the stock more or less just sits there. Which incidentally after you learn options frontwards and backwards, you'd learn you can even play the dud if you want.

You don't have to get the direction right to make money, just the size of the move.

Options are great tools just like any other trading tool, if you use it for the right job your chances of success go up, you just need to understand them completely before you use them, they are lit sticks of dynamite in the wrong hands and if you get cute they'll lose the entire investment in a flash.

That's why most good traders rarely just bet purely directionally with them and if they do they realize they could lose it all and are ok with that risk.

 

[CaptTurbo]

OK so this is contrary to my understanding. Whats the purpose of in the money and out of the money than? Seems if you can profit regardless than what is the purpose of the strike price?

 

[Russ Smith]

Actually Russ to me and it's just my opinon, none of this is investment adivce, you seem to me to be a promising options trader.

Primarily because you're so cautious.

The idea is to identify a target, then devise a scenario of expected price movement, then develop an options strategy to exploit it and then manage the position.

Honestly it takes a lot of understanding of markets, options and risks and risk management but personality wise just for example IMO you'd make a perfect options trader, the ones who blow up are pure gamblers.

From what I've seen you study some biotechs and druggies and play the news/announcements just using stocks, if you knew what you were doing with complicated optons strategies you could capture more for yourself when you're right. It also implies you are specializing which is an excellent strategy, since you can only hold so much information in your brain at one time and the more you know about a sector the more chances are in your favor.

Think or Swim has a trading platform and a play account along with a ton of options training you can take, all free, anyone who wants to mess around with it should do so first with play money until they understand how to structure options plays to capture returns, then start with very tiny plays and kick the tires before you ever invest any real money.

I'd also say to keep it very small, like 5 percent of your total accounts, so that you can't blow your foot off while learning and then after a year or more you can raise that to like 10 percent if you're good and making money.

A lot of people play the biotechs and druggies this way because the news drives the stock so much, if you build the trade right a large swing up or down will make you money, the loser would be a dud and the stock more or less just sits there. Which incidentally after you learn options frontwards and backwards, you'd learn you can even play the dud if you want.

You don't have to get the direction right to make money, just the size of the move.

Options are great tools just like any other trading tool, if you use it for the right job your chances of success go up, you just need to understand them completely before you use them, they are lit sticks of dynamite in the wrong hands and if you get cute they'll lose the entire investment in a flash.

That's why most good traders rarely just bet purely directionally with them and if they do they realize they could lose it all and are ok with that risk.

I figured out I didn't know what I was doing when I got burned with SPPI several months ago. CEO said a week before the FDA decision they'd been in contact with the FDA all along and they'd been working closely with them, everyone expected approval the only fear was it might not pop because approval seemed so obvious. The FDA didn't approve, asked for more data that will take several years because SPPI used old data they'd got when they acquired the drug(something that wasn't readily available info to someone like me).

My sister just got burned today on Vivus (VVUS). she bought awhile back at 12.50, drug for weight loss, very good trial results but some safety risks. People complained of some short term memory loss and there was some risk to pregnant women which everyone sort of ignored since pregnant women don't normally go on prescription diet pills while pregnant.

FDA advisory panel today voted 7 to 5 to NOT approve(not the final FDA decision but they usually go with the panel). Stock was at 12.11 halted all day and is now at 5.26 afterhours having traded as low as 4 in AH trading.

Boy am I glad I stopped trading biotechs it might have been me.

Now if SWD was buying options on VVUS falling he'd be a happy man today.
My sister, not so happy.

 

[jw7]

OK so this is contrary to my understanding. Whats the purpose of in the money and out of the money than? Seems if you can profit regardless than what is the purpose of the strike price?

Well, that is exactly what an option is. A derivative contract to buy or sell a security at a given price on a given date.

The contract is it's own instrument and has value derived from the spot price, the strike price and the time until expiration - and that fluctuates reflecting the spot price moves, and is bought and sold separately from the underlying security. And it does not have to be in the money if there is sufficient time to expiration.

For example, your puts right now are virtually worthless due to the runuip today. But if some horrible news came out and BP dropped to $21 tomorrow, there would be a huge increase in price. However, if we were in October and it did not go below $21, the options will decline in value as a $20 put is worthless at expiration if the price is $21.

But seriously, your last 2 questions are fundamental basics of how options work. E*Trade would not let me trade options without signing a separate agreement that says I know what I'm doing and won't sue them.

You sure you still want to go down this road? I would seriously do a lot more research first.

 

[conraddobler]

Well, that is exactly what an option is. A derivative contract to buy or sell a security at a given price on a given date.

The contract is it's own instrument and has value derived from the spot price, the strike price and the time until expiration - and that fluctuates reflecting the spot price moves, and is bought and sold separately from the underlying security. And it does not have to be in the money if there is sufficient time to expiration.

For example, your puts right now are virtually worthless due to the runuip today. But if some horrible news came out and BP dropped to $21 tomorrow, there would be a huge increase in price. However, if we were in October and it did not go below $21, the options will decline in value as a $20 put is worthless at expiration if the price is $21.

But seriously, your last 2 questions are fundamental basics of how options work. E*Trade would not let me trade options without signing a separate agreement that says I know what I'm doing and won't sue them.

You sure you still want to go down this road? I would seriously do a lot more research first.

Pretty much that.

It's like finding a bundle of high explosives and tinkering with them before going to high explosives school.

 

[Yuma]

Pretty much that.

It's like finding a bundle of high explosives and tinkering with them before going to high explosives school.

Hillary Clinton was quite successful in her first option trade! LOL!

 

[conraddobler]

Hillary Clinton was quite successful in her first option trade! LOL!

Which is astonishing because she did that without any insider information too, apparently.