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There's a lot that goes into choosing a position to open. Some relevant notes from scattered sources follows:
US indexes and ETFs have tax advantages when holding short term. Symbols like SPX, NDX, IWM, SPY, RUT, XLE, QQQ, TNA, and GLD have those advantages.
Basic decision making process:
Is the option liquid? (Tight bid/asks) - No? Look elsewhere.
Open interest and volume can also help with this.
Spread of 1-5 cents is a good metric.
Does the option have multiple months of expirations? (Weeklies) No? Look elsewhere.
Don't want to get locked into underlyings that we can't roll if needed to recover from losses.
Much of this can be controlled by fixing a list of symbols that meet this criteria.
Is the company large enough not to be taken over? No? Look elsewhere.
Take overs greatly affect stock prices -- we want predictability to a degree.
If company can be bought out, that's a no go.
Does the company operate in an tangible space vs intangible? No? Look elsewhere.
Technology (as an example of intangible) is too hard to properly value.
Companies that tangible have calculable assets that make the stock price a better refection of the company's value.
Is the company NOT in biotech or pharma? No? Look elsewhere.
These companies sleep in bed with the government -- they can change way to quickly.
Is the IVR higher than normal? No? Look elsewhere. (I use 25 and above, above 50 is optimal)
IV is a mean reverting thing. After a spike it will often retrace back to the mean.
Cheatsheet that can help:
Checklist:
IVR = Is it favorable?
Bin = Have you checked for binary events?
Liq = Is it Liquid?
T/O = Is it a take over target or subject to some kinda FDA ruling (essentially kills any BIO tech stuff except the ETF)
Chart = Is the trade in line with technicals, specifically support/resistance.
Avoid companies with scheduled binary events. They do increase IVR, but also make the underlying price very unpredictable.
To choose strike price:
Probability of success is determined by delta: stick between 8-28 (75%-92%) (or 10-20 if more risk averse).
Anywhere from 45-60 days out is preferable. (Need to find explanations as to why.)
Account requirements depending on IVR:
IVR 0-24 Deploy 15% of capital
IVR 25-49 Deploy 35% of capital
IVR 50+ Deploy 45% of capital
(Though this may be if you're trading strictly on margin (Tier 3 instead of Tier 2). Difference is that on Tier 3 margin requirements can change. I'm not positive, but I believe they're fixed for Tier 2.)
Types of trades:
Verticals since not Tier 3 (cannot do naked)
Preferable for current market conditions anyways
Iron condors?
Need to look this one up again and see if its viable
Spreads?
Really just need to look up different trade types and when to use them all.
Fundamentals/technicals really aren't needed if you choose index funds. If choosing another symbol, may be more necessary.
Support/resistance analysis can be used to form a bias as to if it'll go up or down -- but with thetagang analysis it may not be that necessary anyways.
The text was updated successfully, but these errors were encountered:
There's a lot that goes into choosing a position to open. Some relevant notes from scattered sources follows:
US indexes and ETFs have tax advantages when holding short term. Symbols like SPX, NDX, IWM, SPY, RUT, XLE, QQQ, TNA, and GLD have those advantages.
Basic decision making process:
Cheatsheet that can help:
Checklist:
Avoid companies with scheduled binary events. They do increase IVR, but also make the underlying price very unpredictable.
To choose strike price:
Account requirements depending on IVR:
(Though this may be if you're trading strictly on margin (Tier 3 instead of Tier 2). Difference is that on Tier 3 margin requirements can change. I'm not positive, but I believe they're fixed for Tier 2.)
Types of trades:
Really just need to look up different trade types and when to use them all.
Fundamentals/technicals really aren't needed if you choose index funds. If choosing another symbol, may be more necessary.
Support/resistance analysis can be used to form a bias as to if it'll go up or down -- but with thetagang analysis it may not be that necessary anyways.
The text was updated successfully, but these errors were encountered: