Horizontal length of entire MOB bar

[Harndog]

Options trading as a business

-Options trading and trading off the floor as a business is money management.
The basic economics of the options business is options sellers win 95% of the time. (The option expires out of the money)
-As this is the case, the proper business question is: how as a business do I manage my position and cash flow?
-Most brokers post 10/87 do not allow you to sell options naked. So how you you make money in a business where the game is difficult and you cannot pursue a basic money making strategy of selling options?
-The basic answer is spreading. By using calender spreads, you can sell near options and hold longer term options against them.
This strategy is a cash flow strategy. If I buy 10 Jan 2005 @4 how do I maintain the value of my investment (10*400=4,000) while I wait for my bet to pay off?
-You do this by using standard deviation to estimate what option might go in-the money and sell nearer term options (Jan 04's) for "Y" to bring in some cash. Then, use a options pricing model to repurchase your short options when the cost of being short the options is greater than the benefit of remaining short these options.
-Also, my rule of thumb when I was on the floor was - when an option reaches a .25 it stops going down. This was my money management stop - as buying these shorts in allow me to sell other options with more meat.
As the investment experience of the members of this bulletin board vary, my basic recommendation is to avoid options unless you have a very, very good understanding of these instruments.

[MR]

Originally posted by jkeech Thanks Marc for the comprehensive response.Who could I ask then who would know if a very long MOB line should be interpreted as the possibility of the date blowing out way past the date bars?

John, I have searched the manuals, publications and reviewed the excellent video tapes where they talk in detail about the MOB. I cannot find any reference to it taught to be interpreted the way you are using the MOB.

I believe it is possible you may be misinterpreting the MOB and drawing some option related conclusions about it that it may not have been intended or totally designed to communicate. Because I do not trade options I don't feel it is my place to tell you this, because people do find other ways of using these tools successfully in ways they were not fully designed to be used. Was wondering outloud, is someone is teaching this idea and where do they base their conclusions from? I am personally inclined to look at the MOB more as a simple support and/or resistance idea within the Elliott Wave framework, Type 1 and 2 setup way of thinking. There may be derivations of its use. I am just not familiar with this idea you are discussing at the beginning of this tread.

I have shown hundreds of examples at Trader's Outlook over the past few years of how we might use the MOB and combine it with other tools to enhance a trade setup picture. Click here to be linked to Trader's Outlook; look up the 'archived' files for illustrations

You can find in these archived files examples where we will draw horizontal lines from the upper and lower part of the MOB and extend the lines out as a visual support or resistance reference point. You can see from the attached chart a recent example were the MOB stopped [see below GC Q3 hourly example] Notice also it is not just the MOB being used to define the trade setup idea, but also notice it is not an overwhelming number of tools and studies being used.. . just a coupl simple manual Fib EXT and RET calculations, a simple breakout MOB, Wave 4 Channels, PTI helpful, the 6/4 DMA.

John, you really do ask some good questions here... and because I, too, would like to delve deeper into the MOB subject I am going to be working behind the scenes the rest of this week trying to add more illustrations and ideas to see if we can better communicate how you can try to use the MOB in your trading. It is going to take me a fair amount of time, so please be patient with me. This could end up becoming a big tread, but I feel compelled to continue the MOB topic. More to come....

[Harndog]

A reply to Marc

Was wondering outloud, is someone is teaching this idea and where do they base their conclusions from?

Personally: I first was attracted to Advanced Get, because I though it might be, it could be ====the Holy Grail!
My thinking was "I can use this MOB thing and it's price projections to give me future price projections."
I could then make the BIG $.
As an options trader, I could used the MOB & Ellipse to give me price projections and low risk entry points.
This did not happen as if the game was this easy - everyone could make money and 95% of people lose.
Harndog

[MR]

Harndog-- Agree and appreciate your comments on MOB and Ellipse. They are excellent tools, but as they are not holy grails by themselves. It is the totality of the Type 1 and 2 setup tools that add value and improved odds of success to trade idea.

MOB is good for price projections. Ellipse has a clear price and time relationship. The MOB does have the time or 'hash' marks built into it as a helpful area of concentration guide. But there could be more added to a setup consideration.

John-- Point of clarification: as an option trader, you may not want to just look at the 'length of a MOB' and determine when it visibly ends the support and resistance value stops. The GC Q3 hourly is an example of this. It can still have value, depending on the setup, which is one reason why some of us draw horizontal pencil marks extended outward into the future to help us visualize better the possiblities.

Another thing: When looking to apply a MOB i never ever just look at only one time frame. Cross-referencing the idea to at least one more step higher can help. Sometimes MOB's applied on the same pivots at different time frames can really offer more insights.

[gspiker]

-Most brokers post 10/87 do not allow you to sell options naked. So how you you make money in a business where the game is difficult and you cannot pursue a basic money making strategy of selling options?

Well I don't know about "most" but for all three of mine it is strictly based on account size. If you have enough $, they will let you do just about anything.

-The basic answer is spreading. By using calender spreads, you can sell near options and hold longer term options against them.

Which is one of MANY strategies you can use with options and make money. There are many others, some of which, similarly to calander spreads use the mechanics of option pricing to make profits, others are using options as a trading tool on normal, highly accurate signals. All are valid.

[jkeech]

Many many thanks MArc and others for your helpful input.

I'm actually an Optionetics client and am only interested in options now, having found all other instruments to be not ideal for me.

Marc in the 2nd chart below - how did you know when to stay in and when to exit - as there many 6/4 DMA breaks to the downside during this rather long 5th wave up?

[MR]

.

Originally posted by jkeech Many many thanks MArc and others for your helpful input.... Marc in the 2nd chart below - how did you know when to stay in and when to exit - as there many 6/4 DMA breaks to the downside during this rather long 5th wave up?

John,

I only grabbed the GC hourly as a quick example of a MOB still having value after the fact. If you review the little text comments added below it, it could add a little more insight. The chart ends up showing a combined 6/4 DMA and aggressive pivot-to-pivot Ellipse study application. Combined these two techniques in this aggressive manner is like using a trailing stop with a double variable added to the equation. In some cases the 6/4 DMA may have been violated briefly. Some would get stopped out then. But a more talented trader could attempt to be smarter than others by adding another layer to the equation with aggressive Ellipse applications could add a second filtering out of minor breaks. This is not something taught. It is something I discovered on my own. When I believe there still is potential, I sometimes try this combined technique. It could be used this way to reduce premature trailing stop exits, or possibly integrated into a part of some sort of a more complex money management strategy for bigger unit trades. Just an idea I wanted to share with others.

How do you know how to stay in and when to exit? There are other ideas.... the biggest way is what I would call "keeping perspective."

Do me a favor.... take a piece of paper, load up a daily chart, then place that piece of paper overtop almost all the daily chart except say five data bars. When you look at those five data bars what does it show you or tell you? Probably not much, right!?

In the same way when we glance at say the hourly Gold example we really don't know how much potential really exists. Not if we are only looking at only recent action, which is the equivilent of monitoring five daily data bars to make a trade decision. We need the perspective of more than just the immediate action if we truly wish to optimize a trade for any bigger potentials. How do we gather a bigger perspective?

One way, we compress our hourly data bars tightly together so we can see more of the previous hourly price movement. But the real way is to do what I teach over and over again.... the importance of cross referencing to a higher time frame. This is where we gain a true greater perspective.

Cross referencing to a higher time frame adds that missing perspective the hourly might not show.

An artist when he paints always starts with painting the background and then works in the details.

Try to think like an artist. Observe your surroundings and capture its essence in you brain. That means observe the historical data for previous patterns and precedent, then try visualizing the possiblities and what it could clearly be showing you. For example, try to paint a picture of possible supports and resistances within an Elliott Wave way of thinking. Apply observable technical analysis brush strokes to your picture. When you do this the greater potentials from the abstract background begin to stand out more in the details of the variable time frame, such as this hourly picture.

I don't want to elaborate too much in this tread on cross referencing. If interested in reviewing more, please double check some recent examples or writings at the Advanced GET User Group, located in File Sharing. Some of this information is under the "Cross Reference" folder.

Click here to link to Advanced GET User Group site

Click here to link to "Cross Referencing" folder