17 Reasons to trade options

[ironchef]

From the little I know of you,that was my impression.Its very difficult to transition from position trader who overlays/hedges with options to "derivatives/vol trader"..

I know it is difficult. Being trying hard for several years now.

So, where do I start? Read Sinclair a few more times, or read Colin Bennett, which @sle told me to read, a few more times?

Actually I think @luckyfnlou gave me some ideas.

 

[ironchef]

Apology to @trader221 we hijacked your thread.

We all have our reasons to trade options, probably all different but all valid. My posts warned newbies that to be successful, we had to bring the right weapons to fight a fair fight.

If I trade derivative/volatility, I bring a pocket knife to a gun fight. If I trade position, I bring a revolver.

Best to you.

 

[ssekeba]

OPTION MONEY MAKERS RESPECT

 

[Pkay]

Rule #1 in NOT trading options - Know your enemy, you're up against the best of the best in the trading business. Traders who've been honing their skills for years if not decades. They're the ones selling you the options. Ask yourself how long you've been in the option business versus them? If that a fair fight for the majority? Nope. But of course, always a few exceptions to the rule.

Rule #2. Transactions costs are hard to beat over a long period of time, bid-offers spreads paid away and away, time and time again...

Rule #3. Do you properly understand VOLATILITY and the role it plays in the pricing of options? Do you understand how it moves? I'd hazzard a guess at least 50% of the new Robin Hood traders don't. In fact they won't even have heard of it. If you don't understand the critical role of volatility then your money ain't going to remain yours over the coming year.

Rule #4. If in doubt, look to Rule #1.

On your rule 3, volatility, do you mind expanding on this? Are you referring to being a buyer of volatility is low and a deeper if it's high? Thanks.

 

[Pkay]

Do you mind expanding on what trading a position work options means? Thanks.

 

[Pkay]

If one trades directional, high vol simply means the underlying moves a lot. So I often buy when vol is sky high.

I thought that the perceived wisdom is to sell premium when volatility is sky high and buy when volatility is low? Thanks.

 

[ironchef]

I thought that the perceived wisdom is to sell premium when volatility is sky high and buy when volatility is low? Thanks.

I said I was a directional and not a vol trader. If you trade vol, you want some delta neutral set up, then you take advantage of vol reversal. If you trade directional, your selection criteria is usually not volatility.

Professionals love vol trade but it is an approach requiring deep understanding of options and complicated (for us amateurs) to master.

 

[taowave]

Why not trade directionally and incorporate vol should the opportunity present itself.Direction and Vol are not mutually exclusive,nor does trading vol imply one has to be delta neutral.

Unlike man,not all delta's are created equally

I said I was a directional and not a vol trader. If you trade vol, you want some delta neutral set up, then you take advantage of vol reversal. If you trade directional, your selection criteria is usually not volatility.

Professionals love vol trade but it is an approach requiring deep understanding of options and complicated (for us amateurs) to master.

 

[ironchef]

Why not trade directionally and incorporate vol should the opportunity present itself.Direction and Vol are not mutually exclusive,nor does trading vol imply one has to be delta neutral.

Unlike man,not all delta's are created equally

Definitely.

The ideal directional set up is when vol is very low, underlying hits bottom and you know a reversal is coming. Not kidding, sometimes it happened.

 

[Pkay]

I said I was a directional and not a vol trader. If you trade vol, you want some delta neutral set up, then you take advantage of vol reversal. If you trade directional, your selection criteria is usually not volatility.

Professionals love vol trade but it is an approach requiring deep understanding of options and complicated (for us amateurs) to master.

OK thanks, I see where you are coming from. I suppose the only thing is that, with high vol, you are paying more for the premiums? Thanks.