good evening I want to talk about spreads a dnoptions for about an hour great User [eric /206.98.11.181] joined forum at Mon Mar 20 21:07:39 EST 2000 first are there any questions? hi eric and should I stat with ptions or spreads first? good evening eric.... Good evenging mrj gary, and all hello eric does anyone have a preference? n User [amos /62.0.147.41] joined forum at Mon Mar 20 21:08:47 EST 2000 your call gary User [Peggy /206.173.161.56] joined forum at Mon Mar 20 21:08:52 EST 2000 spreads or options first hi peggy evening, all hi peggy first person to say that is what we start wiht hi amos hi hi amos options how was breakfast with the Pope? hello, Amos k steve did u have a question on optins in particular by the end of this week hopefully I will be having options on the website the oj, sugar, and coffee it will be about all types of strategies options are all low on theri on options and when to use them relative volatility, it that a precursor ? yes.. lets start with options do you ever use options instead of stop to protect profits ..."synthetic" i think how is an option priced? based on futures price not often steve but I do to a degree yes peggy time to expire, volatility, an option is based on Priced to the future the time correct erice does everyone understand volitility? no, again, please k similat to increased price action each market has it s own volitilty and they are based on what they did on a historical bases peggy, a high volatility option is like super pms :) right steve and sal lol so let say corn trades generally in a 10 cents trading range over a certian period of time if corn now trades in a 20 cent ranges and the market is trading activly this will increase the volitity o of an option thus in ccreasing premimum it is like the delta the rate of change and speed if a market stays in a small trading range the volotity is low so if corn has a 10 cents range the volitity is small volititly is based on a percentage number so it may be 10 percent if it now trades in a 20 cent range the volitity maybe at 15 percent this increase in volitity is what an option buyer doesnt want to see unless he is in the market in the right direction one doesnt want to buy a market where the volitity since the volatility is inc'g, a break out is anticipated? is in creasing this means the "move" has lready begun I will exlain peggy k so when does on want to buy an option? during low volitilty when do we get low volititly sideways action with in narrow trading range right sal the smaller the trading range the less the volititly what have we always said about a market that goes sideways.? that this is the cause for the market it is building a cause and at some point when a move occurs buil the longer sideways the larger the move so llonger sideways decreases volititly but will increase the eventual move understand volititly? 90 peercent of all options expire worhtless you want to buy on low voititly expecting a move and sell at high volititly so at a BC or SC it is a great time to sell options because volititly is at the greatest level any questions so far? n make sense? y yes so har far out of the money do u want to buy an option? and how long of time User [sherri /207.112.162.135] joined forum at Mon Mar 20 21:25:32 EST 2000 hello, Sherri hi sherri hi everyone hi sherri more thanthirty days and near at the money you never want to buy an option with less then 30 days left till expiration this is when the lose their value the fastest steve is correct.. also you want to buy an option as close to the underlying future than u can buy say cocoa is trading at 878 what option strike price should u buy? 880 875 850,900 closet one for sale well cocoa trade in 50 point increments? closest so 900 would be the one, right sal and steve what if you cant afford a 900 call what should u do but a 1000 call instead? if you expect dcoca to go to 1020 call spread look for another trade right sal and could be right as well steve but lets take sals idea for a sec which option is more expensive the 900 call or 1000 call? 900 correct but is it really more expensive ? n lets take an example 900 call is 600 dollars what would be a good guess that the 1000 would be priced at? 200 hundred maybe? 40 okay will will take 40 or 400 dollars so the money that you would pay for a 900 would be more BUT it would take a move above 1000 to really allow the 1000 call to apreciate pit trader and exp traders but the at the money and sell out of the money options because the out of the money are over priced relative to at the money the at the money will act like a future and an out of the money will require a quick monet to gain much value in you buy a 900 call and sell a 1000 call what dioes that mean>? it means you have the right to be long at 900 and someone can take it away from you at 1000 if you pay 200 dollras for it what is your risk to reward>? there is a 1000 dollr move from 900 to 1000 you pais 200 for the spread paid you can make 1000 - 200 (what you paid for the spread) or 800 so this is a 4 to 1 ration ratia ratio yikes lol :) it is certainly a good way to play a market you want to sell the option to an area where u think the market will end its move too last week for clients I bought may corn and sold call options against them I will explain this stategy this week when u buy an option you have limited risk to what u paid for the option when u sell an option short u have limited gain unlimite risk so you want to buy an ption with realy more tha 40 days and as close to the money that you can afford option are dependant on time so if the market slowly goes up and you have call options u may lose money as the market goes in your favor this has happened to me many times the ideal time to buy an option is when u have discoverd accumualtion or distribution and the trading range is getting smaller or coiling and volititly is low you wanmn to buy oprtions here User [JamesW /209.186.134.26] joined forum at Mon Mar 20 21:42:22 EST 2000 welcome james questions on options so far thanks, Hi everyone gary, how bout this okay buy a atm call if down, delta is 50 so loss is less than future, get out if up sell option to crate spread (higher price for leg) create good night all User [mrj] left forum at Mon Mar 20 21:44:43 EST 2000 nite mrj nite, MrJ that is a good way to play it it is a more comlicated strategy at this point ot go over Gary, can you explain Sal's example a little more, please if you buy a call and the market moves u lets say cocoa at 900 call the marjket is at 878 and the market moves to 960 sell the 1000 call against your postion to lock in a profit if the market goes down when u lose half the premiumum get out okay peggy? k is there a name for that? sal's chicken strategy if it makes money it is called a proit :) if not it is called a loss profit it is called a bull spread when u buy the 900 call and sell the 1000 call as time goes on I will explain more on options and stategies it will be put on the site this week so it will help explain and I will go over them gary, the CBOT has lots of free let on options lit. that is why I got it from :) any more questions on options User [lmarsh /12.14.197.172] joined forum at Mon Mar 20 21:51:41 EST 2000 hi lmarsh evening, lmarsh k hi folks, sorry late what I wnated to do was tokep class fairly short tonight so I will let amos talk on the montly grain chart for a bit and I will be sending charts tomorro a Q please mondays are slower days for class so I dnt want to go in much detail okay peggy can I shop for option prices after closing? what do u mean? on a wesite? y at first american www.bohl.minot.com fadc.com cbot.com k thanx sal amos can you tak about grains for a few minutes? please remeber tomorrow the FOMC meets i am as tired as you today, but I will. First I want to make one qualifying comment about options. to raise interest rates so be careful Yes I am very tired thank u please do... In my opinion, unless you understand Delta, Gamma, Theta and to a lesser degree Vega--you should not use options. It is a whole different game. As Gary said 90% of all options expire worthless. 95% of players BUY options and they lose money. According to Wyckoff the only correct time to buy options is during Mark up Or Mark Down--that is when options move. So. It is a differend game, it dpeneds very littl e ;on price change and cboe does not agree with 90 % but thats another day depends on the 4 varialbes mentioned. CBOE is marketing options--. sal, do you know Phillip Morris to ever agree that smoking is bad for you? good point i was referring to exercise All I am trying to say is that Options are strictly a VOLATILITY game. Unless you understand volatility--you should be very carefull about opttions. and if i sold em i want them to expire worthless, so the sellers are happy for expiring Now if you want me to go back to long term charts- I will. please sal, the selling of volatility is selling insurance. Insurance companies are very rich--but they uinderstand risk taking, actuarials etc. Does any one have a question about long term charts? ? curious, as to all the ways they help you decide your trading plan amos I did post a question, I think last Thursday, how come trendlines on 30 year charts work? Echo? Forest? trees? yes, and you made a comment somthing like,"The CM may use different charts to buy, sell" Sound? User [Fibo /204.119.225.67] joined forum at Mon Mar 20 22:05:00 EST 2000 hi fibo Historical,Cyclical, seasonal, Psychological support and resistance points sorry amos, sprained wrist again, slow typing hi fibo hi, Fibo hello everyone hi fibo Ok. I "ll pretend, I never asked it. hi fibo I ask again, why , or how come that long term trendlines work? User [Randy /204.246.241.144] joined forum at Mon Mar 20 22:06:28 EST 2000 it's what cm uses to buy sell? did you see my answer amos? hi randy... hi all yes Steve, did not understand it. brb CM look at it supply and demand lines that is just about the only logical answer. lmarsh and eric are right. They work because many people understand that at $4.50 "Them Beans Is Cheap" I spend many thousands of hours in my life pouring over long term charts--and it very well said fibo is simply striking how markets tend to come to long term charts. the more pivots that hit a trend line it means more once it is violated If you put a 30 year chart of the S&P--the "Crash" of 87 hit almost exactly the long term shallow uptrend line. SteveF--we are operating here under the assujpition the "people" do not move markets. People do not look at long term charts. The powers that be DO. a ha If you believe that the powers that be--look at long term charts--then you have a reason to use them, because we want to emulate their way of thinking. I am trying to pound this idea. It may sound "natural" but it is not. User [lmarsh /12.14.197.172] joined forum at Mon Mar 20 22:10:59 EST 2000 Most people are short sighted. Most people are impressed by what the market did yesterday. I am and have thick glasses to prove it The news is a hungry beast, it needs to feed the screens with incessant unstopping "NEW" information. But the truth is that the CM operates mostly on the long term horizon. :) It is very difficult to trade on that horizon. We cannot trade every few months Gary will die and this chat room will be void. But if You take into account the fact the long term charts--are always :) humming in the back ground and you should ask yourself go on amos EVERY DAY--what is the long term chart saying--then when the particular point froze? on the long term chart- CONVERGES with you weekly and daily analysis--you are froze out that much more powerful. ?