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Basic Risk Questions Regarding Being Naked
- Thread starter chicagodon
- Start date
I am not an option guy at all so others may correct me, but IMHO, at least what I am more comfortable doing especially if I foresee a significant move is buying slightly OTM , so you get some leverage due to the fact that 1) option cost is lower and 2) if you are right, delta will increase as the option gains value (=more bang for your buck) but if you are wrong delta is lower than for ITM options so you also lose less per point. But probably what's more important is time to expiration. Avoid buying the nearby month.
And if you stay for more than a few days, implied vol can kill you if it drops, actually I have had this a few times in a spectacular way and I am wary of going long options outright now.
I would just look at the delta for a few day hold to gauge your risk, however, with options you cannot get out in after hours, so you cannot say for sure what your risk is .
And if you stay for more than a few days, implied vol can kill you if it drops, actually I have had this a few times in a spectacular way and I am wary of going long options outright now.
I would just look at the delta for a few day hold to gauge your risk, however, with options you cannot get out in after hours, so you cannot say for sure what your risk is .
Quote from chicagodon:
Ok thanks. Just more for my education, thought there might be some good material on the greeks. But yes, I am more of a swing trading directional approach.
McMillan's Options as a Strategic Investment expands a little more on the Greeks, ie he spells out what Natenberg might only infer in the graphs, and I found myself adding to my notes.
He also covers directional trading and directional spreads. Be warned though that it is a monster of a book that really falls in the category of Reference Encyclopaedia.
It wouldn't hurt to have it on your bookshelf. Someday when the markets are choppy and you get frustrated with directional trading, you might decide to explore options spreads.
I actually thought the same, buying a little out maybe 1-3% of the stock price with the idea of getting delta around 30, then when it goes ITM capturing 20 Deltas (not sure if that's correct lingo). Again option newbie besides a few college courses years ago.
Thanks for the book suggestion, I will take a look. I also saw this, Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit, but didn't know if it was worth $50.
Thanks for the book suggestion, I will take a look. I also saw this, Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit, but didn't know if it was worth $50.
Quote from justrading:
McMillan's Options as a Strategic Investment expands a little more on the Greeks, ie he spells out what Natenberg might only infer in the graphs, and I found myself adding to my notes.
He also covers directional trading and directional spreads. Be warned though that it is a monster of a book that really falls in the category of Reference Encyclopaedia.
After looking further into the books, this book seems to be the most recommended, thanks I'm going to order it.
well i would say "Options as strategic investment " is more of a basic book as someone said an encyclopedia, to have for reference. It's a must read - not necesarily from first to last page obviously) but after that you need to read more stuff, more practical stuff. His other book "Mc Millan on options" is more practical I would say but a bit outdated in terms of examples.
Then I would say that learning from the web with options websites, advisories etc takes you further as a trader.
It's a very steep learning curve and then when you finally enter the arena you find out reality may be a bit different than all the book teachings. That's why I am not an option guy, there are many subtleties to master - not to mention the rather silly linguo of the pros - and in the end except for one or two strats you 'd better get the market direction right just like all traders.
Then I would say that learning from the web with options websites, advisories etc takes you further as a trader.
It's a very steep learning curve and then when you finally enter the arena you find out reality may be a bit different than all the book teachings. That's why I am not an option guy, there are many subtleties to master - not to mention the rather silly linguo of the pros - and in the end except for one or two strats you 'd better get the market direction right just like all traders.