regards to everyone at et. i joined this forum only last year and it has proven to be a great decision. i have been able to learn a lot about options from the most expert members in here, but i also prematurely thought i already knew enough to trade long positions in options with great profitability. i never bothered to ask some very concrete questions about the systems i’m trying to trade to the experts in these fora and i sure have paid for the mistakes i have made.
i have been trying to trade a strategy that looks like this, but with long calls and puts positions instead of long and short positions on shares. the following are some screengrabs with the results of trading one of my systems with positions of 100 nflx shares from 01-I-2018 to date:
initially i just had no idea which strike prices to choose and then for a long time i thought that i could maximize my returns if i concentrated on the options contracts which offered the highest proportion of deltas to monetary cost for the premium paid. i ran the calculations for the options chains of several different symbols and arrived at the conclusion that otm contracts with around 5 or -5 deltas were the best to buy as they had the best proportions of deltas to cost compared to all other contracts.
i have now learned that there is no way to trade long cheap options profitably. if one buys, let’s say, a short term 10 delta call contract one needs the underlying instrument to move several percentage points in one’s favor in a short time just to break even, and then keep moving several percentage points higher if one is to make any kind of relevant profit. if the price of the underlying is never bought significantly higher then the entire chain segment of p.o.s. out of the money calls will end up expiring worthless. in the case of puts it is the same story in the opposite direction, and all this ends up making a huge difference when it comes to the profitability of any system. in the case of my strategies, the percent of profitable trades will drop from more than 30% to far less than 10%; the profit of every winning trade will be reduced significantly; and all losing trades will end up destroying 100% of the premium paid. this will result in devastating losses when trading any kind of strategies with otm options contracts. even when the monetary cost of the premium paid is very low, the risk of the strategy is actually much higher as practically 100% of all positions will end up worthless. paraphrasing what mr. Robert Morse once wrote in a post in this forum, there are options which are similar to replacements for shares but out of the money options are lottery tickets at best, and i add that there exist no systems to make money buying lottery tickets. cheap options contracts are nothing but trash, they are really cheap compared to the cost of holding positions on the underlying instruments and that is for multiple good reasons. anyone who buys cheap options contracts has every single factor going against them every time, either a uselessly short period to expiration, or a ridiculous distance for the underlying to move in one’s favor for the contracts to become in the money, or both. i have learned my lessons and won’t ever be buying cheap options contracts again, i have figured that what i needed were options contracts that functioned like replacements for shares and now that those are the only contracts i’m trading there has been a significant improvement in my results. i decided to post this summary of my experience so far so that others won’t make the same mistakes i have made. if anyone is trying to trade strategies with long positions on options contracts, make sure to stay well away from all the "cheap" crap.
i have been trying to trade a strategy that looks like this, but with long calls and puts positions instead of long and short positions on shares. the following are some screengrabs with the results of trading one of my systems with positions of 100 nflx shares from 01-I-2018 to date:
initially i just had no idea which strike prices to choose and then for a long time i thought that i could maximize my returns if i concentrated on the options contracts which offered the highest proportion of deltas to monetary cost for the premium paid. i ran the calculations for the options chains of several different symbols and arrived at the conclusion that otm contracts with around 5 or -5 deltas were the best to buy as they had the best proportions of deltas to cost compared to all other contracts.
i have now learned that there is no way to trade long cheap options profitably. if one buys, let’s say, a short term 10 delta call contract one needs the underlying instrument to move several percentage points in one’s favor in a short time just to break even, and then keep moving several percentage points higher if one is to make any kind of relevant profit. if the price of the underlying is never bought significantly higher then the entire chain segment of p.o.s. out of the money calls will end up expiring worthless. in the case of puts it is the same story in the opposite direction, and all this ends up making a huge difference when it comes to the profitability of any system. in the case of my strategies, the percent of profitable trades will drop from more than 30% to far less than 10%; the profit of every winning trade will be reduced significantly; and all losing trades will end up destroying 100% of the premium paid. this will result in devastating losses when trading any kind of strategies with otm options contracts. even when the monetary cost of the premium paid is very low, the risk of the strategy is actually much higher as practically 100% of all positions will end up worthless. paraphrasing what mr. Robert Morse once wrote in a post in this forum, there are options which are similar to replacements for shares but out of the money options are lottery tickets at best, and i add that there exist no systems to make money buying lottery tickets. cheap options contracts are nothing but trash, they are really cheap compared to the cost of holding positions on the underlying instruments and that is for multiple good reasons. anyone who buys cheap options contracts has every single factor going against them every time, either a uselessly short period to expiration, or a ridiculous distance for the underlying to move in one’s favor for the contracts to become in the money, or both. i have learned my lessons and won’t ever be buying cheap options contracts again, i have figured that what i needed were options contracts that functioned like replacements for shares and now that those are the only contracts i’m trading there has been a significant improvement in my results. i decided to post this summary of my experience so far so that others won’t make the same mistakes i have made. if anyone is trying to trade strategies with long positions on options contracts, make sure to stay well away from all the "cheap" crap.
