This section shows how to use the Optionetics Platinum web site to find Buy Straddles that have high odds of making a profit.

An outline of the approach is as follows:

1. In the Welcome page, choose a past date from the date list.
2. If your desired date is not an option either click All Dates or click My Personal Data and change the "Access from date" to the earliest date possible
3. In the Welcome Page, click on Create A Rank List.
4. In Create A Rank List, click on cheap stocks and save the stocks to List 1.
5. In Edit My Rank List, move the top 10 stocks from List 1 to List 2.
6. Search Buy Straddles in Quick Search using the low volatility stock list (List 2) created from the List maker. Use at least 60 days or more to expiration for the option and look for option combos costing less than $1000.
7. Check the high odds Quick Search ranked stocks for reasonable quotes.
8. Click on the desired Buy Straddle option combo ranked by Quick Search to get to the Risk Graph.
9. Save the trade shown in the Risk Graph Analyzer.
10. Name the trade in the My Matrix section of Edit My Trades.
11. Perform a single day analysis of the trade in Edit My Trades to help place the trade with a broker.

The date used in this example is 06-01-99. If this date is no longer available, follow along using your own chosen date.

We want to buy a straddle as well as pay a cheap price for it. A straddle consists of buying a call and a put at the same strike price. Cheap prices can be found by ranking today's options using the Rank Engine in Create My Rank List. The above button shows the Create My Rank List screen.

If you are following along in the Optionetics Platinum web site:

• Set the date in the Welcome Page to a date in the past. This example uses: 06-01-99. (You would normally leave the Welcome Page date at today's date).
• Click on Create My Rank List.

At the top in Create My Rank you will see "Input to Ranker comes from". Choose the "top 500 stocks by volume" (should be the default). We are going to: Click the "cheap" button so the number of stocks in output will go to the A selection.

The choice of "top category" in the A selection of number of stocks in output depends on how cheap you want the options to be, and how many stocks there are in the cheap category on a day-to-day basis. If you leave it at the default (top category), you may not get ranked stocks. However, the few stocks that show tend to have higher odds of making a profit. For this example, the default "Top Category" does not need to be changed. The rest of the default settings are okay. The output from ranker goes to List 1 (the default).

Click the "cheap" button for the percentiles IV ranker criteria. The ranking can take a while depending on site usage. (1 minute is the usual amount but higher is possible).

The 06-01-99 low IV percentile ranking is shown using the above link. There are 36 stocks that were at historically low IV's on that day as shown by the 1 number under the 1-20 rank column. Create My Rank List has already saved them in Rank 1, the default Rank list. You may get a different list. We may have updated the stock lists or improved our volatility estimate equations. If the stocks discussed below do not appear in your online Optionetics Platinum web page, follow along using stock lists that you created.

We are going to reduce this list to the top 10.

• Click Welcome Page at the top of the page 2.
• Click Edit My Rank List on the Welcome Page.

• Click and hold down the left mouse button and drag it right over the first 10 stock symbol names that appear in List 1.
• Release the left mouse button and click the right mouse button.
• On the options list that occurs, click the left mouse button on "copy".
• Go down the web page and just below "Choose which list to use" and change it to List 2.
• In the text box below that, click your left mouse button in the text box.
• Click your right mouse button and select "paste". The 10 copied stock symbols should appear.
• Click the save button and the List 2 display will show the stocks that now reside in that list, which include:

Click Welcome Page at the top, and set the Quick Search parameters on the Welcome page to the following:

I predict Rank list 2
will Not Go Sideways
over the next 0 days then randomly thereafter.
Rank trades that expire between 180 and 200 days
Find trades based on Expected Profit
while risking no more than $1000.

We want Buy Straddles with more than 180 days to expiration that do not cost a lot of money to purchase.

Click the "Quick Search" button making sure that your date has been selected in the date selector.

Option pricing is based primarily on stocks randomly moving into the future. If you are new to options perform trade finding with predicted stock movements of 0 days. For example, the standard Black-Scholes assumption of complete future random stock movement. If you are an experienced trader and/or have read Chapter 2 in our help manual, deterministic price prediction can be used to find trades that match your future expectations.

It is often difficult to find cheap straddles that go this far into the future, and this represents buying opportunities.

Your top ranked Quick Search list may not match the ranked result shown by clicking the above link. The top ranked stock was Kmart (KM), followed by BEA systems (BEAS).

The KM trade is a straddle that uses a half strike of 17.5. We turn on half strike searching for Stocks with prices below 20. The half strikes often have stale data and low volume. We recommend avoiding them if possible. (Note: Searching for low priced straddles will often lead you to only low priced stocks). The trade information is shown under the Strategy column and the Composed of column.

The KM trade was back tested and yields a small profit. The BEAS trade is a straddle close to the closing price with good odds (above 1:1), reasonable volume, open interest, and option prices that appear to be reasonable. We are going to use the BEAS straddle to continue this example.

If you are suspicious of bad quotes, you can check option prices by using Create Option Tables. Tables can generate an option skew chart for the date and stock symbol you enter on the Welcome Page. Bad quotes will not follow the Implied Volatility trends in the skew charts of the other good option quotes. If an option has bad quotes, the online quotes reported will be significantly different from the bad quotes when you call your broker or go to his web page. The trade may no longer be attractive when the latest, more accurate, quotes are used to analyze the trade.

The total cost and max lost for the BEAS buy straddle is $883.

Click the stock Buy Straddle link on the Optionetics Platinum site web page to go to the Risk Graph analysis for the stock trade. In our case it was a BEAS stock straddle.

The BEAS straddle Risk Graph example is shown using the above link. BEAS has risen from the 15's to the 20's and option volatility has decreased. If you are following along on the Optionetics Platinum web site:

• Click the volatility checkbox in the graph control box.
• Click the "update the chart" button to see the drop in volatility recently in the option price.
• Go to the bottom of the Risk Graph Analyzer and save the trade.

We are long a Dec99 20 call and a Dec99 20 put with 199 days of trading left before the options expire. We want BEAS to move away from the current 20 close price in either direction. Liquidity for BEAS is on the light side.

You should now be in "Edit My Trades". If not, go to the Welcome Page and click on "Edit My Trades". In Edit My Trades, do the following:

• Go to the Multi-Day analysis section in Edit My Trades and put any date that occurs after June 1, 1999 and before Dec 16, 1999 for the "end of day".
• Click on the Multi-Day analysis button.

An important part of option trading is the exit criteria. This is something not extensively discussed or analyzed in the web site. Optionetics Platinum is focused on trade entry criteria.

At the money Stock options tend to have similar profit and loss characteristics, since they all use 100 shares of stock as the underlying. Profit taking seems to accelerate after a trade is more than $400 dollars profitable, and most trades seem to be closed out if profits exceed $900. In our case the target expected profit is $509. This is not an unreasonable profit. The $509 number was the Expected Profit value shown in the Quick Search ranked stocks web page.

It appears that taking profits above $509/option trade is a reasonable exit strategy and works for this trade starting on Sept 27, 1999. However, patient traders experienced a wild ride.

Click the above link to see the analysis.

The BEAS stock price exploded towards the end of 1999 and the peak profit of the trade went as high as $9253. This is a greater than 1000% return.

Another time for exiting an option trade is when the profit is double the cost of the trade. The price double exit strategy occurs on 10-29-99 for the BEAS trade.