17 Reasons to trade options

[ironchef]

Hi there,when you say high vol,are you talking historic or implied??

Curious to why you choose to buy high vol,and if you have backtested it..

I think "switching" is a big mistake..

Just luck.

If I tried to trade vol when vol is high, i.e., trade combinations like spread or fly (like @destriero), I don't know how to be profitable. On the other hand:

On Mar 23rd, I looked at ABBV, @ $63, PE ~ 11 dividend > 7.5% volatility was sky high because stock dropped like a rock from $97 in Feb. This is a company with strong growth and highly profitable. So I bought some stocks and juiced it with some long calls. I thought it was a reasonable bet. I also long FB and MSFT calls at the same time, same reasoning. I mentioned these in some of my posts at the time.

No fancy recipe, mathematics or backtests, just some simple logic and got lucky this time.

 

[ironchef]

I think "switching" is a big mistake..

Cater to your strengths and comfort level..Eliminate your weaknesses..

It is really not a strength.

Most years ended OK but I don't want to live like this, a +/- 40% swings every year.

I want to be like @destriero, steadily printing money.

 

[luckyfnlou]

It is really not a strength.

Most years ended OK but I don't want to live like this, a +/- 40% swings every year.

I want to be like @destriero, steadily printing money.

Chef... do you finding yourself buying single options or putting on spreads and more complex strategies? Just curious about your trading style.

 

[ironchef]

Chef... do you finding yourself buying single options or putting on spreads and more complex strategies? Just curious about your trading style.

Only single, buy/write call/put depends on my opinion of the underlying. Never made any money with spreads or flies or condors or calendars...

 

[smallfil]

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.

Hedge funds and the big boys also, buy options. Nobody talks about it but, where do you think the huge option interests come from? And at times, they would have multiple strikes being bought all at once. There are more monies to be made buying options than selling them. Like multiples of them. For every $200 you make selling options, $1,000 or more being made buying those same options. As long as my trade is aligned with the trend, I am not worried. The big boys will drive that stock price as high as they want. I am just along for the ride.

 

[ironchef]

Hi there,when you say high vol,are you talking historic or implied??

Curious to why you choose to buy high vol,and if you have backtested it..

I think "switching" is a big mistake..

Cater to your strengths and comfort level..Eliminate your weaknesses..

I found this statement in Sinclair. I realized now I am a position trader, not a volatility trader:

For a position trader, context-adjusted volatility cones can be useful as they get to monitor volatility without having to continuously make markets. They can wait to establish a position as it reaches the highs (and the marketmakers will generally be eager to lighten up their positions at this point).

So that was what I did at times.

Best regards,

 

[traider]

what are context-adjusted volatility cones

 

[taowave]

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 found this statement in Sinclair. I realized now I am a position trader, not a volatility trader:



So that was what I did at times.

Best regards,

 

[luckyfnlou]

Only single, buy/write call/put depends on my opinion of the underlying. Never made any money with spreads or flies or condors or calendars...

I think it is possible to be a position & vol trader. I'll let the more pro vol traders comment on this but when I put on a bwb or spread trade it almost always favors a direction. The goal of being on the right side of volatility is giving your position some breathing room.

I completely understand having a directional bias. Visit me at 3:30pm on Monday & Wednesday and you will see I often look to take a short term directional trade.

Besides that... almost all directional trades are spreads or part of a bigger trade as I find picking the direction more challenging and would prefer to have some help from my friend theta.

I think you are trying to find a way to burn some theta in your trades. I'd suggest finding a strategy where you can pick a direction but also burn some theta along the way. Maybe a butterfly or the broken wing kind. Give burning theta a chance!

 

[ironchef]

I think it is possible to be a position & vol trader. I'll let the more pro vol traders comment on this but when I put on a bwb or spread trade it almost always favors a direction. The goal of being on the right side of volatility is giving your position some breathing room.

I completely understand having a directional bias. Visit me at 3:30pm on Monday & Wednesday and you will see I often look to take a short term directional trade.

Besides that... almost all directional trades are spreads or part of a bigger trade as I find picking the direction more challenging and would prefer to have some help from my friend theta.

I think you are trying to find a way to burn some theta in your trades. I'd suggest finding a strategy where you can pick a direction but also burn some theta along the way. Maybe a butterfly or the broken wing kind. Give burning theta a chance!

Your post is very helpful to me. Thank you for your help.

Regards,