buying stocks vs. options for short term trading

[spindr0]

Adding to ironchef's reply...

From the CBOE:

The CBOE's BXM index represents the returns of a monthly buy-write strategy where the S&P 500 is bought and one at-the-money call is written. Over the past 30 years, the S&P 500 has returned an annual rate of 9.9% with a standard deviation of 15.3%. The BXM has returned 8.9% with a standard deviation of 10.9%

The CBOE's BXMD index represents the returns of a monthly buy-write strategy where the S&P 500 is bought and one call 30% out-of-the-money is written. Over the 30 past years, the S&P 500 has returned an annual rate of 9.9% with a standard deviation of 15.3%. The BXMD has returned 10.7% with a standard deviation of 13.2%

These stats belie the claim by SJOptions that trading options is a losing proposition. In neither case did the trader/investor lose money over the long haul. The BXMD outperformed the market.

 

[spindr0]

When SPY IV is around 6% of its historical average, it probably makes more sense to be buying calls vs. selling puts.

When IV is higher, spreads offer a greater credit and therefore lower risk. So that implies that selling is better than buying at that time. But with higher IV, you get higher delta and therefore, the likelihood of greater movement and more binary results (win or lose) so does the latter offset the former? Since I am a finite set (I'm not trading all 500 SPX components), more random results would push me toward buying over selling. And since I'm not statistically clever enough to know that answer, I'm just guessing.

Unless one is selling puts to acquire stock or buying long options out of outright directional conviction, I'd recommend spreads at all times.

 

[ironchef]

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.

Good comments.

My short options give me more stable income, less ups and downs than the long shots.

 

[murray t turtle]

The Fact is nearly all pure option traders lose money. You may want to look over these articles - at least to get a different perspective. I know it's tempting. My friend worked at the largest U.S. broker at the time and had warned me to steer clear of options since the net positive accounts for pure options traders is horrendous.

Stock trading is not a zero sum game, trading options is.

http://sjoptions.com/portfolios/option-traders-lose-money/

https://seekingalpha.com/article/3993162-3-pitfalls-options-trading

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If one has to use leverage; options may work.
but who gets the dividend-hint its not the option buyer??

Options is not like getting the mail @ all, in auto ;actually the US PO uses autos all the time to get mail................................................................... I am glad i bought some option books before i did them .One good idea is worth the price of most books; even though one few books i returned was daytrading options. I know many have made real money with REAL ESTATE options; but i never did that =too much leverage for too little time for me.

 

[spindr0]

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If one has to use leverage; options may work. But who gets the dividend?
- hint its not the option buyer

Why do you think that the dividend is relevant?

 

[murray t turtle]

Why do you think that the dividend is relevant?

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Many times its not; tek stocks for example But if they pay dividends i want it if i chose to hold it long enough

 

[spindr0]

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Many times its not; tek stocks for example But if they pay dividends i want it if i chose to hold it long enough

Makes no sense to me since it's yield not total return and if non sheltered, it's an unnecessary taxable event. In addition, it's priced into the options.

 

[ironchef]

One good idea is worth the price of most books; even though one few books i returned was day trading options.

What is the title and author of the book on day trading options? I like to learn how to day trade options.

Regards,

 

[spindr0]

What is the title and author of the book on day trading options? I like to learn how to day trade options.

First you need to learn about options. Try "Options As A Strategic Investment" by McMillan. You can pickup a used older version for $5-$10. Buy the more expensive latest edition if/when you graduate to more sophisticated strategies.

 

[Kevin Schmit]

One thing that I don't think has been mentioned on this thread is that you can skirt pdt rules trading options much more easily than with stocks. For example if you have a view on direction trade a call vertical and instead of exiting box it off with a put vertical. Unwind the next day (avoiding pdt) or just hold the box til expiry. Similarly for a view on vol, trade call fly and offset with a put fly (two boxes).

N.B. some slight pin risk on the hold-to-expiry vs unwind the next day, but lower transaction costs.

Edit: forgot to mention that if a stock you are daytrading (using options) is about to go ex-dividend you may risk getting assigned on the hold to expiry.