You're right but let's not overwhelm stockmarketbeginner at this point. Otherwise, he'll give it all up and start selling on Ebay :->)
buying stocks vs. options for short term trading
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You're right but let's not overwhelm stockmarketbeginner at this point. Otherwise, he'll give it all up and start selling on Ebay :->)
While I disagree with this in the detail, it is geared towards false leverage traders looking to capitalize on price movement. Since that's the OP's apparent question, the articles are accurate.
Trading options for price moves is much more expensive, because you're paying larger spreads and higher commissions (plus you're sometimes over a barrel trying to exit and end up paying extortionate spreads). Sometimes you end up having to hold to expiry and exercise / get assigned.
I'm guessing you're thinking they'll offer extra protection I the event of a big adverse move...and they do. But it comes at a steep cost. Also, some adverse moves will end up costing you more than a stop would as volatility rises and spreads widen.
As someone else pointed out, learning these lessons the hard way will be far more effective than anything anyone will tell you (I've done it!), but it's a hell of a lot cheaper to learn from others. If you keep positions small though, there's a ton you can learn just by trading and watching how the trade develops, and quite cost effectively too.
The short answer though, if you don't have the cash to trade the outright, options are not going to help.
I am a put selling fool.The whole "picking up nickels in front of a steamroller thing".Some high volatility, rich premium, some good looking support...... get in there and sell a 30 delta put on a down move if your bullish. Check out both strategies (buying a call)if your looking to get into options a bit. Also a quick little trade hack....if your selling a 30 delta put,your "probability of profit" on that put is 70%. If you sell a put right at the money you're at 50 delta (give or take) and your "POP" is 50%. Anyways,say the stock price is 50 bucks. Sell the 47.50 put with 30-50 days to expiration.If I'm correct, i do believe the stock price can go down a little, absolutely nowhere, or to the moon . All of which will be profitable either immediately or before the option expires. Your risk is at and below that 47.50 strike. Breach that strike and you can roll out in time, roll down your strike, both, or put in an stop or limit order right off the bat to sell that put when you reach a predetermined pain threshold. There are obviously many pros and cons to buying calls, selling puts, trading straight stock. Too many too list here!!!!!! As a general rule I do like that 70% POP on a 30 delta put. It is a real number. Also like the fact that the stock can move THREE ways and still be profitable. Not the case with buying options. Not the case with trading straight stock. Know where your risk is. Have a detailed risk management plan. No deer in the headlights, black swan wiped me out, I should have never sold those puts bullshit as your account disintegrates. If you get a 5 STDV move down and your puts are blown through before the market even opens and you get wiped out. Then you we're trading too big.Maybe not diversified enough. Maybe an offsetting position or two would have helped. Maybe a 5 lot instead of your normal 30 lot because your dealing with undefined risk.Maybe stick to ETFs to take away most of that single stock risk. Dont let anyone scare you away from options with an article or ghost story or two.Trade em up
You swing trade stocks and options. You day trade index futures.
good luck
good luck
Your general perception of the benefits of swing trading options is correct but a few points I would point out ( to add to those already stated) ...
While not impossible you will find it hard to consistently get over a 50/50 win loss on your directional calls on the underlying security.
So that means that to have a positive expectancy the size of the wins need to exceed the size of losses.
The good news is that the optionality (or non linear nature) of options can help with that but only if you can minimise losses, which takes a lot of discipline. To help contain losses do not get greedy with your expiration dates. By that I mean go out far enough where a bad directional call does not drop your premium 50% right out of the gate. START SMALL !
comagnum,
I think it is too much of a blanket statement that nearly all retail options traders (e.g. folks like me) lose money and lose big (4.5% of capital per month or 54% a year according to your article).
If you mechanically sell covered calls, CBOE's own back tests indicated your return would be comparable to buy and hold but with a much better risk adjusted profile. If you sell cash secured puts, your return would be better than buy and hold:
http://corporate.morningstar.com/ib/documents/methodologydocuments/ibbassociates/cboe_spbuywrite.pdf
What about retail doing our own buy-write and put-write?
I did that when I started trading options in 2013, mechanically selling monthly covered calls and puts. I did hundreds of trades in a six months period. Net result: I did a little worst than buy and hold, mainly because of commission and bid/ask slippages. Of course it is only one data point.
If a new options trader starts by selling covered calls and be conservative, find the right conditions to enter the trade, he/she may not make a lot of money but likely would not be losing 4.5% a month.
We should warn new traders that it is not a risk free proposition and get rich quick scheme but telling them they are nearly guaranteed to lose money is maybe too harsh.
Regards,
Or if you like the basic buy/write strategy there a CEF/ETF's that do it for you...why work so hard ?
So you can graduate and go to better strategies. Can't do that by being lazy.
Long options give you 2 things: leverage and limited risk.
Under normal market conditions (VIX > 11, SPY not up 17% YTD) maybe. But in today's market, I'm not sure that's true. When SPY IV is around 6% of its historical average, it probably makes more sense to be buying calls vs. selling puts. Especially if one is not confident about the longevity of this bull market. Although I tend to sell options a lot more often than I buy, there are times where it makes sense to get long options or long spreads especially when considering downside risk. And that's a good thing even for the option seller for the same reason that casinos go out of their way to publicize and advertise jackpot winners. From the perspective of the seller, if no one ever won, the premiums would be a lot lower.