Details On The Trade
Options: A whole other level of risk/reward.
Buying an option, you have a ‘right’.
Selling (to open), you have an ‘obligation’.
There are plenty of horror stories selling options. A typical example, is this one.
However, when buying options (to open), as Dr. Elder has said, you have to jump through ‘three hoops at once‘; get it right on the stock, direction, and time.
He goes on to say, working the options market is counter intuitive. Traders naturally gravitate to long-dated, in-the-money options so the trade has time ‘work out’.
His method’s the opposite; short-dated, out-of-the-money.
So, what exactly does that look like?
The XBI, Short-Dated, Put
The situation on biotech, its reversal, first covered here, is a well-known topic on this site.
Using that information, especially this update and this one, probabilities were high for downside the next session.
With that, we have the following.
Biotech XBI, 1-minute
Time stamp on the entry from the broker states: 15:35:10, shown on the chart.
Time stamp on the exit is: 09:31:43, also shown.
Note: Entry was executed as the price of XBI was rising (for nine-minutes), with option value declining.
That rise does not look like much but we’re one day before expiration; option value is fluctuating significantly.
Perfection vs. Effectiveness
After the entry, we see later, there’s a 1-minute ‘blip’ higher before that blip was reversed.
Waiting for entry could have been better from a lower price standpoint.
That blip could have easily gone the other way, option value rising rapidly, low-risk (entry) opportunity gone.
Looking at the chart, one could say that ‘it’s not perfect’ and that’s true.
However, for being in the market just 29-trading minutes, gain of +160%, one could say, it was highly effective.
Stay Tuned
Charts by StockCharts
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
The Danger Point®, trade mark: No. 6,505,279
The Danger Point® 
Beautiful work Paul!! Seriously your work on this and other tickers with your analysis is awesome man. David really has to be proud looking down on this!!! I am learning so much from carefully reading your work (I am really going to study this post on options because I really do not understand them) and just want to say a big THANK YOU once again for all the hard work and effort this takes. Have a Blessed day and can’t wait for the next post (s)! Richie
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Thank you again, Richie,
I appreciate that you are spending time with the posts on this site. That’s exactly how they are intended to be used.
Since our trading coach (Weis) is no longer with us, I basically have to coach myself. In a sense, that’s what you are reading.
At this stage of the game, with as old as I am, I doubt there’s anyone out there, I would at first, trust, and second, would have extensive knowledge of the market where they could help me with ideas or discuss scenarios.
With that said, working with options is a step-up level of complexity. It might seem simple at first. I mean, how complicated can an ‘Option Table’ be, right?
Once you execute a few trades though, it starts to get real muddy: things like the spreads, open interest, volume, high prices prior to an earnings release, momentary trading halts during a Fed speech, rapid decay just prior to the close and on and on it goes.
The game really is geared toward the writer (seller) of options but as this post said, your life can be ruined by one adverse move if you’ve sold an ‘obligation’. No thanks.
I suppose there are plenty of option YouTube type videos available. This is one that might be useful. I hope the ‘link’ works on this reply. If not, you might have to cut and paste.
Options Trading Link: https://www.youtube.com/watch?v=HctT6rgL7iw
All for now,
Best regards to you,
Paul
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