Are options inherently a short-term trade?

.sigma

.sigma

Looking at option contracts... they die one day. And the structure of the contract makes time of the essence and loses theta daily (and becomes non-linear closer to exp).

So my question is, is it possible, do any of you trade options in a longer-term timeframe? I'm talking more than 45DTE and even wondering if trading 6 month/1 year until exp contract and make a significant return that compensates for all the small-time framed trades you would've done? So instead of trading 100 times a month just put on a few trades, up the position sizing if needed and sit back for the longer term? Does anyone do anything similar to this?
 
.sigma said:
Looking at option contracts... they die one day. And the structure of the contract makes time of the essence and loses theta daily (and becomes non-linear closer to exp).

So my question is, is it possible, do any of you trade options in a longer-term timeframe? I'm talking more than 45DTE and even wondering if trading 6 month/1 year until exp contract and make a significant return that compensates for all the small-time framed trades you would've done? So instead of trading 100 times a month just put on a few trades, up the position sizing if needed and sit back for the longer term? Does anyone do anything similar to this?
More...

Currently the 300 SPY call expiring June 30, 2020 has a last price of 22.40. The intrinsic value of the option is ~$10, assuming a current price of $310. So this means you are paying about $12.40 in time premium. Do you think by June 30, 2020 that the price of the option will be above $322.40? If so, then you can enter the trade and make almost 1:1 what you would have made had you bought the shares outright with some hand waving.

I use SPY options to swing trade the index on a short term basis and it is very useful. Always remember to buy a spread though, so you limit your downside.
 
There are very few universal truth's in trading,and "always remember to buy a spread" is most definetly not one of them...

The purchase of an option has a built in stop relative to the stock.You could also stop yourself out on a long option position based on the stock price or the option price.

Sure a call spread has less downside than the naked long call of the spread,but thats really meaningless from a trading perspective.Its like saying always covered write as it has less downside relative to the stock...What about the upside you are giving up when you are dead right?

From an option perspective are you taking Vol into account,i.e rich or cheap,skew,and are you saying that Delta isnt a factor when choosing a strategy?

Make believe a stock is trading at 100,the 2 month ATM call trades at 6 with a .5 delta,and the 2 month 110 call trades at 3 with a .25 delta...The 100 /110 call spread trades at 3 with a .25 delta..

Naked 100 call trades at 6 with a .50 delta,the 100/110 trades at 3 with a .25 delta.

Are you saying that its always better to buy a .25 delta than a .5 delta because the downside is less??

Why not compare equal deltas for starters??





nooby_mcnoob said:
Currently the 300 SPY call expiring June 30, 2020 has a last price of 22.40. The intrinsic value of the option is ~$10, assuming a current price of $310. So this means you are paying about $12.40 in time premium. Do you think by June 30, 2020 that the price of the option will be above $322.40? If so, then you can enter the trade and make almost 1:1 what you would have made had you bought the shares outright with some hand waving.

I use SPY options to swing trade the index on a short term basis and it is very useful. Always remember to buy a spread though, so you limit your downside.
More...
 
taowave said:
There are very few universal truth's in trading,and "always remember to buy a spread" is most definetly not one of them...

The purchase of an option has a built in stop relative to the stock.You could also stop yourself out on a long option position based on the stock price or the option price.

Sure a call spread has less downside than the naked long call of the spread,but thats really meaningless from a trading perspective.Its like saying always covered write as it has less downside relative to the stock...What about the upside you are giving up when you are dead right?

From an option perspective are you taking Vol into account,i.e rich or cheap,skew,and are you saying that Delta isnt a factor when choosing a strategy?

Make believe a stock is trading at 100,the 2 month ATM call trades at 6 with a .5 delta,and the 2 month 110 call trades at 3 with a .25 delta...The 100 /110 call spread trades at 3 with a .25 delta..

Naked 100 call trades at 6 with a .50 delta,the 100/110 trades at 3 with a .25 delta.

Are you saying that its always better to buy a .25 delta than a .5 delta because the downside is less??

Why not compare equal deltas for starters??
More...

I'm not an expert on options, it's only been this year that I've been trading them so I should make that clear.

You have a good point about comparing deltas. I like the idea of stopping yourself out with a position in the stock, but generally I use options as leverage and I don't want to use that much of my account for trading.

If you don't want to use a position in the stock, what are your other options?

As a swing trade, I'm not aiming for a home run. It just isn't practical. Generally, I look for the possibility of a ATR-scale move over the appropriate period.

For peace of mind, I'm willing to give up a little on the upside. Fortunately, I'm right enough that it works out.

As a recent example, I took a 315/310(?) put spread ATM DTE=14 on SPY before it tanked. Now, it went all the way down to 307 so it would have been nice to capture all of that. What would you have done in order to control the downside and maintain the upside?

Not to worry, I also rode it up from 307 to 312 lol. Last two weeks, Santa was in the house.
 
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Whats your typical holding period?
A 1 ATR is your "profit target"??

No stops?

Are the bid offer spreads on the verticals you are trading pretty tight?
 
taowave said:
Whats your typical holding period?
A 1 ATR is your "profit target"??

No stops?

Are the bid offer spreads on the verticals you are trading pretty tight?
More...

For swing trades, longest has been a week but usually a few days. Yes 1 ATR move is the profit target. Usually no explicit stops (but I have mental stops). I haven't been bothered by the bid/offer spreads.
 
the1 said:
Exactly! If your stops are getting hit you don't know how to trade. You should be taking yourself out of a trade manually but that requires a lot of discipline.

There are also other ways of managing risk. Study the relationship between two instruments such as the 10 year and 30 year. You have to consider the leverage, volatility, tick size, among other things. This is where you take your trading to the next level.
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This is how I think about stops btw.
 
So you are shooting for apx 3-8 percent..
You are trading short dated options,1.e 10 days or less to expiry??

Im not saying your strategy is wrong,just wanted you to compare apples to apples..And you could certainly make a case for cutting down on some of your theta with verticals
 
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taowave said:
So you are shooting for apx 3-8 percent..
You are trading short dated options,1.e 10 days or less to expiry??

Im not saying your strategy is wrong,just wanted you to compare apples to apples
More...

Yes, usually 2 weeks out. If I'm really convinced, I'll go ATM but otherwise I'll go about 1/2 ATR ITM.
 
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