Comments on: Conservative Moves http://theoptionguru.com/blog/2010/03/conservative-moves/ Covered Call and Option Spread Trading for Income Tue, 07 Sep 2010 18:04:00 -0700 hourly 1 http://wordpress.org/?v=3.0.1 By: Jeff W http://theoptionguru.com/blog/2010/03/conservative-moves/comment-page-1/#comment-801 Jeff W Fri, 05 Mar 2010 18:09:16 +0000 http://theoptionguru.com/blog/?p=1590#comment-801 Sean,<br><br>Welcome to the Option Guru's blog. You seem to be experiencing many of the same things I did when I started out. I would like you to answer a few questions but first here is some general information you could use:<br><br>To get the best price you need liquidity. You should not trade any options that don't have at least 500 Open Interest at your strike. I used to run scans and ended up trading stocks with low volume, low open interest and very wide bid/ask spreads. Stay away from those. I have a watch list that I exclusively use for all my option trades - all of them very popular, more volatile than the market average and heavy trading on options. My list is about 50 securities, ETFs and a few tradeable indexes.<br><br>If you are just doing Calls and Puts right now, then you should look at strikes with a delta of at least ±0.80. This will give you the most movement in relation to the underlying. It also means you will probably be deep ITM and it will cost you a bit more, but it will be worth it.<br><br>As soon as you can, start to 'practice' with spreads. Although they limit your gain, more importantly they limit your risk. There is no magic book or seminar or set on-line courses that will make you a good option trader. Only time, practice and documenting what you are doing and analyzing the result will do it. My two favorite authors are Jeff Augen for the mechanics and Mark Douglas for the psychological. Both have authored several books in their field.<br><br>Questions:<br>1. Who is our broker? I have used InteractiveBrokers, optionsXpress and thinkorswim - all give me almost instantaneous fills if my limit is reasonable. InteractiveBrokers often gave and additional price improvement.<br>2. When you say stop and limit order, do you mean on your entry order?<br><br>Let me know as soon as you can.<br><br>◄ Jeff ► Sean,

Welcome to the Option Guru's blog. You seem to be experiencing many of the same things I did when I started out. I would like you to answer a few questions but first here is some general information you could use:

To get the best price you need liquidity. You should not trade any options that don't have at least 500 Open Interest at your strike. I used to run scans and ended up trading stocks with low volume, low open interest and very wide bid/ask spreads. Stay away from those. I have a watch list that I exclusively use for all my option trades – all of them very popular, more volatile than the market average and heavy trading on options. My list is about 50 securities, ETFs and a few tradeable indexes.

If you are just doing Calls and Puts right now, then you should look at strikes with a delta of at least ±0.80. This will give you the most movement in relation to the underlying. It also means you will probably be deep ITM and it will cost you a bit more, but it will be worth it.

As soon as you can, start to 'practice' with spreads. Although they limit your gain, more importantly they limit your risk. There is no magic book or seminar or set on-line courses that will make you a good option trader. Only time, practice and documenting what you are doing and analyzing the result will do it. My two favorite authors are Jeff Augen for the mechanics and Mark Douglas for the psychological. Both have authored several books in their field.

Questions:
1. Who is our broker? I have used InteractiveBrokers, optionsXpress and thinkorswim – all give me almost instantaneous fills if my limit is reasonable. InteractiveBrokers often gave and additional price improvement.
2. When you say stop and limit order, do you mean on your entry order?

Let me know as soon as you can.

◄ Jeff ►

]]> By: Decker http://theoptionguru.com/blog/2010/03/conservative-moves/comment-page-1/#comment-800 Decker Fri, 05 Mar 2010 16:48:16 +0000 http://theoptionguru.com/blog/?p=1590#comment-800 Hello Jeff, my name is Sean and I happened to stumble upon your videos on youtube which directed me here. Although I have a little over a year of stock trading experience, I'm an options novice. I only started trading them since last week, starting simply with holding ITM Calls or puts (around 2-3 months out) for a few days and I've been making some encouraging progress. I plan on moving into hopefully more enticing income generating set ups like bull put spreads, naked puts and covered calls once I get more comfortable with the options environment.<br><br>My first big shock and worry with options is the time and uncertainty involved with having your orders filled. I attach a stop and limit orders to my trades yet it's hard to tell if an order will execute despite having the trigger value within the bid/ask spread. Maybe I'm just spoiled with having fast fills on my orders when dealing with stocks. Is this relatively normal for options or am I just choosing options with poor liquidity? What advice would you give or what materials would you suggest I read? [Eating the bid/ask spread too often leaves a bad taste in my mouth].<br><br>Again, thank you very much for taking your time to put your knowledge on the internet. I will be coming here often to hopefully bolster my education and eventually, income.<br><br>Yours Sincerely,<br>Sean Hello Jeff, my name is Sean and I happened to stumble upon your videos on youtube which directed me here. Although I have a little over a year of stock trading experience, I'm an options novice. I only started trading them since last week, starting simply with holding ITM Calls or puts (around 2-3 months out) for a few days and I've been making some encouraging progress. I plan on moving into hopefully more enticing income generating set ups like bull put spreads, naked puts and covered calls once I get more comfortable with the options environment.

My first big shock and worry with options is the time and uncertainty involved with having your orders filled. I attach a stop and limit orders to my trades yet it's hard to tell if an order will execute despite having the trigger value within the bid/ask spread. Maybe I'm just spoiled with having fast fills on my orders when dealing with stocks. Is this relatively normal for options or am I just choosing options with poor liquidity? What advice would you give or what materials would you suggest I read? [Eating the bid/ask spread too often leaves a bad taste in my mouth].

Again, thank you very much for taking your time to put your knowledge on the internet. I will be coming here often to hopefully bolster my education and eventually, income.

Yours Sincerely,
Sean

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