best way to do a 3-5 day directional play

D

dac8555

I have read the books but i wanted some practical feedback please.

I am not a very sophisticaed options trader, i would simply like to use them most effectively for 3 to 5...maybe as long as 10 days speculative directional moves.

Traditionally i have been buying slightly in the money calls and puts with about 1 month exp...not very successfully...for ETFs mostly. DIA, SPY, QQQ and the like.

Due to the time value degredation, I am looking for confirmation that the best way for me to play this is to be as close to exp. as possible and slightly in the money? or is it better to be deeper in the money?

I have noticed that the % change can be quite different..and i am thinking it is due to volatility?

thanks.
 
personally, i like the e-mini futures for that purpose, because time degradation is not a factor (a spy put can be down a lot on a flat day), bid/ask spread is tight, *liquidity is very high*, their movement is very highly correlated with the index, and there isnt the complication of strike prices etc
 
Go deeper ITM. I assume you are just picking the 1st or 2nd strike ITM which depending on the underlying(actually vol) can still contain some significant TV. Go for at least a delta of 90.
 
AAA is dead on. If you desire to trade directionally using options, you need to be well versed in the greeks since by understanding such exposures, you can "construct" trades that have pretty favorable risk reward scenarios to accomodate your outlook in the possible movement of the stock. Case in point given certain volatiliy scenarios , IV of diff months, a diagonal spread inter month might pay off a heck of a lot more than a simple spreads or outrights. Bottom line, - no shortcuts in options, quite the opposite.
 
>> Due to the time value degredation, I am looking for confirmation that the best way for me to play this is to be as close to exp. as possible and slightly in the money? or is it better to be deeper in the money? I have noticed that the % change can be quite different..and i am thinking it is due to volatility? <<

If you get the short term direction right and catch the move, ignoring other factors like time decay and IV change, ITM's will have a higher $ gain than OTM's but OTM's will have a higher percentage gain. Which is better depends on your timing and the size of the move.
 
Try adding the "in/out $" ticker to your watchlist, after a while you'll get a feel what's cheap and expensive. Trading otm near exp is dangerous because ppl tend to trade in size and that bad luck tends to be 10x worse with a 50% spread. GL :p
 
Quote from dac8555:

I have read the books but i wanted some practical feedback please.

I am not a very sophisticaed options trader, i would simply like to use them most effectively for 3 to 5...maybe as long as 10 days speculative directional moves.

Traditionally i have been buying slightly in the money calls and puts with about 1 month exp...not very successfully...for ETFs mostly. DIA, SPY, QQQ and the like.

Due to the time value degredation, I am looking for confirmation that the best way for me to play this is to be as close to exp. as possible and slightly in the money? or is it better to be deeper in the money?

I have noticed that the % change can be quite different..and i am thinking it is due to volatility?

thanks.
More...
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Probably best to sell them, but you said buy, for a 5 day swing trade, may have a chance with MORE time than front month options.

Especially with QQQQ 4th quarter & January trends usually;
interesting how much better QQQQ ITM options[ like DEC,JAN contract ]calls or even puts do better than SPY,DIA puts/calls.
Especially 4th quarter usually .

And QQQQ is more liquid also;
any front month option really strarts to rip [decay] buyers last half of contract:cool: OTM even more so as last trder said.
 
I don't recommend trading something you don't understand.

Here's a free tool that will help you get a handle on how options behave:

http://www.cboe.com/LearnCenter/Software.aspx

After this, you may want to use software or a website to model potential positions before putting them on. There are freebies but the best ones will cost you. But it will be cheaper than trading in the dark.

P.S. No offense but it you don't take the time to learn enough about options so you can trade them on your own, there's no way you'll succeed (in the long run).

Quote from dac8555:

I have read the books but i wanted some practical feedback please.

I am not a very sophisticaed options trader, i would simply like to use them most effectively for 3 to 5...maybe as long as 10 days speculative directional moves.

Traditionally i have been buying slightly in the money calls and puts with about 1 month exp...not very successfully...for ETFs mostly. DIA, SPY, QQQ and the like.

Due to the time value degredation, I am looking for confirmation that the best way for me to play this is to be as close to exp. as possible and slightly in the money? or is it better to be deeper in the money?

I have noticed that the % change can be quite different..and i am thinking it is due to volatility?

thanks.
More...
 
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