Since late 2016 we have entered the age of disclosures! Fasten your mental safety belt and enjoy the ride! Heretic

Saturday, March 21, 2009

Playing the almost expired put options

Did anyone notice how cheap are some put options a few days from expiry? I don't think their price truly reflects the volatility, which makes them a viable game.

For example, 10$ strike put options against GE could have been bought for 0.14$ last week, at the time when GE stock price was 10.5-11$.

Interestingly, GE stock went down to 9.3$ on the day of expiry (last Friday) which made this a very lucrative play. This is not the first time that I noticed this phenomenon: in almost every case of my last 12 months option trading, the underlying stock almost always seemed to have experienced an unusually steep drop on the option expiry date (third Friday of a months, every third months for a given stock). Accidental?

As my friend Dozent says: every single conspiracy theory that we discussed in the past (except reptilian aliens 8-:) ) proved to be correct! I am curious!


mark said...

Hey, Stan.

There is some new discussion on Peter's blog under the cholesterol within nation studies comments. It's the third most recent post, currently.

Thought you'd like to see it.


Stan (Heretic) said...

Holy smoke,you are right! Peter's new comment on LDL and CHD is excellent!!! Other replies are very good too. Thanks!


mark said...

Yeah, great discussion.

Stan, if I wanted to learn about put options and economics stuff, how would you recommend I go about it?

I have perused your archives from Stan Invest, but some of it's over my head.


Stan (Heretic) said...

Hi Mark,

I would not recommend to play options or stock until you learn more and gain more practice.

It's all about an ability to predict and prediction is an extremely difficult skill to master, especially prediction of the future! 8-:)

How would I recommend to start?

Study first and develop a mental technique of detachment and reconnection to your whole self: Yoga, TM, Silva etc. Then read all Ayn Rand.

Then, read one of the books on technical analysis in stock trading and start playing double ETF's - both bull and bear ETF's selected by individual sectors and commodities. Concentrate on only one or two sectors, those that you understand the most.

Do not buy any of the individual companies' stock at all! Never do that! Play options only occasionally on a very small scale. The trick is to find options put/call that are trading cheap in a downside or upside trending sector.

Never commit more than ~300-600$ (1000-2000$ if you are more wealthy than average) to any one single play, in the first few years. Expect to keep learning for at least 5-10 years before you become proficient enough to be able to risk more money.

Always err on the cautious side.

Never believe anything you see published on the individual companies, especially - never believe nor read companies' financial reports!

The only true figure about any business at all time, is their stock price. Anything else is almost always false, and whatever happens to be occasionally true - is only so by accident!

Good luck,

mark said...

Thanks, Stan.

"It's all about an ability to predict and prediction is an extremely difficult skill to master, especially prediction of the future! 8-:)"

lol. I'll take it easy and dig into Ayn Rand first.