Best option strategies to learn ....

Ok,you passed the sniff test:thumbsup:

Without accounting for vol/skew,I'm not sure how you deem a vertical to have edge..

With that said,I think your approach and incorporating verticals works well for you and that could be a an edge..







Im pretty sure you dont feel that any vertical trading for less than half of the strike width has 'edge"..

Trade Theory said:
When I say being right, I'm referring to the underlying moving in the direction of your trade. So if you're trading a call debit spread, your bullish and a put debit spread you're bearish.

The topic of edge is highly debatable and even believing an edge can exist in the marketplace seems to be frowned upon around here. The counter argument would be the options are always priced perfectly and the reason you have favorable pricing is because its not a 50/50 chance that the underlying will move in one direction or the other. At the end of the day, the edge comes from a disparity between implied volatility and actual realized volatility. If you believe options are priced perfectly then take everything I say with a grain of salt as edge would not exist and you shouldn't even place a speculative trade to begin with. I believe otherwise.

It's a very beginner friendly trade. You don't need to worry about the greeks or volatility, and you cannot lose more than you put into the trade. The point of trading these tight vertical spreads is to learn price action. You'll see how the spread price reacts to time and movement in the underlying. Its also an easy way to understand risk and max profit. People swing trade stocks directionaly all the time, this is the exact same thing with options. It adds a time constraint to the picture as the underlying has to move in the direction of your trade before expiration. But it also takes away the high likelyhood of stopping out of your trade. Next time you were to buy a stock and set a stop, look at the options chain and check the "probability of touching" your stop strike price. The numbers would surprise you.
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Taowave, could you please explain what you mean when saying "less than half of the strike width" You mean a risk/reward ratio below 1:1? Thanks
 
Sure,5 point vertical as in the 100-105..The "width" is 5 points..2.5 debit for the spread would be 1 to 1 risk reward..

anycolour said:
Taowave, could you please explain what you mean when saying "less than half of the strike width" You mean a risk/reward ratio below 1:1? Thanks
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So what you're saying is that in a 5 point vertical of 100-105, if I could buy it for less than half of the width (If I'd pay less than $250 for the spread), that does not necessarily mean there is edge. Is that correct?

Could a vertical spread have edge where you pay MORE than half the strike width?

Thanks!
 
taowave said:
Ok,you passed the sniff test:thumbsup:

Without accounting for vol/skew,I'm not sure how you deem a vertical to have edge..

With that said,I think your approach and incorporating verticals works well for you and that could be a an edge..







Im pretty sure you dont feel that any vertical trading for less than half of the strike width has 'edge"..
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The vol skew is what brings the favorable pricing in the first place. When the implied volatility of the OTM strikes is skewed higher than the ATM strike, you're getting more premium on the short leg of the spread thus favorable pricing:
TSLA.PNG



You just gotta be somewhat decent at picking direction. I would even argue its a way of systematically identifying the favorable pricing due to the difference between implied and historic vol. From the "options are always perfectly priced" theory, this would technically be a contrarian trade.
 
anycolour said:
Great! I want to start journaling my spread trading on a spreadsheet. What data points should I gather (especially critical ones that might commonly go unnoticed)? (or if you have a template, I'd love to see it). Thanks
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I would just record trade date, ticker symbol, Profit/loss including commissions, average win amount, average loss amount, and win %.
 
Thanks for everything @TradeTheory. Two last important question for now: Could you please tell me and/or give me an example of a couple of the best strategies for trading earnings reports (or any other kind of report, e.g., jobs and unemployment for /ES, grains stocks report for corn futures, etc) with options?

And, best strategies for more short-term option strategies, maybe even for day trading.

Thank you!
 
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anycolour said:
Thanks for everything @TradeTheory. One last important question for now: Could you please tell me and/or give me an example of a couple of the best strategies for trading earnings reports (or any other kind of report, e.g., jobs and unemployment for /ES, grains stocks report for corn futures, etc) with options?

Thank you!
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Stay tuned on my small account trade journal for earnings report trades. I'm not gonna go into it now but I'll be posting some butterflies on some of the more liquid names in the next few weeks when earnings season picks up. I don't trade many futures outside of index futures such as /ES /NQ /RTY but once in a while I'll trade /GC or /CL. Other than earnings I usually try to stay away from the binary event/report. Usually I'll just trade futures as a hedge in managing a delta neutral strategy. I've got a buddy who trades nothing but hog futures and he makes a killing in that market. But if you're less than $25k and want to practice day trading without having to worry about the PDT rule then futures is the way to go, especially with the micros being introduced.
 
Sorry for the newbie question again....

Still learning of course....I have a paper trading account with IB, yesterday I sold to open 10 contracts on AMD Jan 31st 47 Puts. The mid price for the puts were $1,60 I put market and got filled at 1 cents. Of course that means I am losing close to $1,600 straight away. My question is how lightly could this happen with a real money account?

https://gyazo.com/c273592fc1a1764698f857cfd1a09d8e
 
Almost impossible..
AMD is pretty dam liquid with tight markets.Even if you accidentally typed in to sell at .01,on a 1.60 option,you would probably be filled at 1.55 ish..

tradingpoker said:
Sorry for the newbie question again....

Still learning of course....I have a paper trading account with IB, yesterday I sold to open 10 contracts on AMD Jan 31st 47 Puts. The mid price for the puts were $1,60 I put market and got filled at 1 cents. Of course that means I am losing close to $1,600 straight away. My question is how lightly could this happen with a real money account?

https://gyazo.com/c273592fc1a1764698f857cfd1a09d8e
More...
 
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