Buy 'em or Spread em??

[Sell 'em]

It is Sunday here in Asia and I don't have access to data for my own work, so hoping someone can answer this question off the cuff from experience. I'm speaking of very liquid Kospi options, so please disregard commission and spread issues - I'm not talking about illiquid markets. Question is this:

For very short-term, intra-day trades, is it generally more profitable (% of available margin) to simply buy options, or instead to buy a debit spread??

Buy 'em or Spread 'em??

Yes I'll do my own homework in the morning, but looking for an early read on this.

Thanks.

 

[dagnyt]

Quote from Sell 'em:

For very short-term, intra-day trades, is it generally more profitable (% of available margin) to simply buy options, or instead to buy a debit spread??

Buy 'em or Spread 'em??

Yes I'll do my own homework in the morning, but looking for an early read on this.

Thanks.

1) When trading options on a very short-term basis, the fewer trades the better. Minimizing slippage is important. Thus single options are better than spreads.

2) I hope you are using max margin as a benchmark rather than as something you do.
Day-traders cannot afford to use maximum margin because it imparts far too much pressure to succeed - and that leads to poor, made-under-pressure decisions.

Although I believe 'buy-em' is right for your situation, please take this into consideration when reading my opinon: I never buy naked long options.

Mark
http://blog.mdwoptions.com/

 

[Sell 'em]

Quote from dagnyt:

1) When trading options on a very short-term basis, the fewer trades the better. Minimizing slippage is important ...

Thanks for the reply Mark. I remember you from the old Yahoo board, so appreciate the input.

I'm not entirely a greenhorn, and recognize that in almost all circumstances, and particularly from a US perspective, we generally share the same sentiments: simple is better, selling beats buying, etc. That said, the Kospi options are unreal in terms of spreads & liquidity. A pip on many OTM options is only US$0.74. For near-the-money it is a whopping US$3.70. Except for the first and last minute of trade I've never seen space between the bid and ask. To top that off, commissions are a percentage of option value, vs. the typical fixed charge.

So I'm having some success buying options on an intra-day basis. Thinking about whether it is possible to juice my returns when the stars align. For example when a big move just begins in my favor, does it make sense to let it ride, or better to turn the long-option position into a larger debit spread by scaling in?

I guess the answer is that it will depend on the deltas, and whether I can avoid slippage. Something I need to explore.

 

[dagnyt]

Quote from Sell 'em:

Thanks for the reply Mark. I remember you from the old Yahoo board, so appreciate the input.

I'm not entirely a greenhorn, and recognize that in almost all circumstances, and particularly from a US perspective, we generally share the same sentiments: simple is better, selling beats buying, etc. That said, the Kospi options are unreal in terms of spreads & liquidity. A pip on many OTM options is only US$0.74. For near-the-money it is a whopping US$3.70. Except for the first and last minute of trade I've never seen space between the bid and ask. To top that off, commissions are a percentage of option value, vs. the typical fixed charge.

So I'm having some success buying options on an intra-day basis. Thinking about whether it is possible to juice my returns when the stars align. For example when a big move just begins in my favor, does it make sense to let it ride, or better to turn the long-option position into a larger debit spread by scaling in?

I guess the answer is that it will depend on the deltas, and whether I can avoid slippage. Something I need to explore.

I should bow out here. This is something you want to discuss with a day trader, and I'm sure SPIN will have some good advice.

Mark

 

[spindr0]

Quote from dagnyt:

I should bow out here. This is something you want to discuss with a day trader, and I'm sure SPIN will have some good advice.

After an intro like that, I feel like Rodney Dangerfield tripping on my own foot as I enter the room.

 

[spindr0]

Sell 'em,

I don't know the first thing about Kospi options and it probably doesn't matter. Mark's answer would be my general answer as well:

1) When trading options on a very short-term basis, the fewer trades the better. Minimizing slippage is important. Thus single options are better than spreads.

Since you indicated that you're doing very short-term, intra-day trades, spreads are going to diminish your position's gain and add additional slippage and commissions. In order to counter that, you'll have to do larger size and whether that's more or less effective will depend on the size and win/loss ratio of the scalps that you're nabbing. Only you can determine that.

And FWIW, for intraday I have come full circle and for the most part trade underlyings rather than options since the spreads tend to be smaller, the liquidity is higher and you don't have that nagging less than 1.00 delta drag.

 

[spindr0]

Quote from Sell 'em:

Thinking about whether it is possible to juice my returns when the stars align. For example when a big move just begins in my favor, does it make sense to let it ride, or better to turn the long-option position into a larger debit spread by scaling in?

Keeping some powder dry and scaling in as a position moves in your favor is another good approach. Just make sure that you have a good method for keeping track of your position's net P&L as well as where break even is (either an accurate tally by your broker or a spreadsheet that calcs the result of each add'l buy or sell). As you scale into the long position you could also convert earlier purchases into spreads but that's a bit of a different approach than intraday scalping where you want to grab as many scalps as fast as you can.

 

[Sell 'em]

Thanks guys. Something I'll explore a bit more ...

 

[Sell 'em]

Just FYI, the spreads were definitely inferior to a straight-up position ... but I guess everyone but me already knew that.

 

[IV_Trader]

Quote from Sell 'em:

Just FYI, the spreads were definitely inferior to a straight-up position ... but I guess everyone but me already knew that.

are you trying to start a war here ? Delete immidiatly !