Day/S-T Trading w/ Options

B

BobbyMurcerFan

DeMark and McMillan have written that options may make good vehicles for day trading.

But I look at the spreads and liquidity of even the actively traded contracts and I wonder if these guys are right. I mean day-trading usually entails taking fractions of a point.

Since most options have delta's less than 1, wouldn't the transaction costs, spread + commissions, eat away too much at a one day move in option price (which in $ terms will be less than that of the stock)?

I realize options offer leverage; when a $1.00 call rises to $1.50 that's a 50% move. But it's also only a $.50 move that will be significantly decreased once spread and commissions are lopped off.

So, do any of you have opinions on whether or not options are suitable for day (or few day) trading and rules of thumb on which options would make the most sense to use? (I imagine near-terms with strikes close to ATM.)

Thanks again. No more options questions for today. :)
 
understand that options almost by nature take time to develop,,
it is a basic race of time against movement and only time will tell.
most option positions take weeks to develop and have several "legs". To day trade them would seem difficult, there is not enough liquidity to get enough high probability trades day in and day out basis. You would need to spread your option derivative risks and manage them according to what you want to bet on.
 
You said it. Liquid current or next month ATM options. If you write premium you gain an additional edge. The options exchanges seem to be in sufficiently strong competition to quite frequently execute you even in crossed markets. Also, as a trader you can view a wide spread as an opportunity, not a liability.

With IB your total commission will be $1 per trade per contract no matter how many contracts you trade. That means you can get $48 net gain per contract out of that move from 1.00 to 1.50.

When I go long premium, I prefer buying them around .50 and selling them around .80. The cool thing is you can often do that like 5 times within a few days.
 
Originally posted by Lobster

With IB your total commission will be $1 per trade per contract no matter how many contracts you trade.

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Are you sure about that??
 
Originally posted by nugya


Are you sure about that??
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It is per contract, not per trade, not a RT.

And, I think their retail rates are $1.95 if you pick the route; that being the suggested concept.
 
It is extemely hard to get of option positions unless you either a. want to hit the other side of a big spread or b. have the stock moving your way fairly quickly. Otherwise, you are basically screwed.
 
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