Day Trading Options

T

tradingpoker

Humour me please, as this may sound like a silly question for some of you. But I still want to here your answers.

I would day trade ITM options because?

I would not trade ITM options because?

I would day trade OTM options because?

I would not trade OTM options because?

Thank you for your time and answers
 
I would trade ITM options because I do not like to use STOP orders and want to limit my downside. I would not trade OTM options because I have had very little success with them as a directional tool.

tradingpoker said:
Humour me please, as this may sound like a silly question for some of you. But I still want to here your answers.

I would day trade ITM options because?

I would not trade ITM options because?

I would day trade OTM options because?

I would not trade OTM options because?

Thank you for your time and answers
More...
 
Robert Morse said:
I would trade ITM options because I do not like to use STOP orders and want to limit my downside. I would not trade OTM options because I have had very little success with them as a directional tool.
More...

Hi Robert. Please forgive my ignorance, as I am just getting back into options.

Is this also because when an option is ITM, the delta is closer to 1, and if the position goes against you, the delta diminishes, and you are losing less and less as the underlying goes against you?
 
100 Delta options have wide spreads. I prefer about 75 Delta. If I buy an option for say $4.00 with 1 week to 2 weeks to go, I know that is the most I can lose and I never allow them to go to $0. To be clear, I'm not generally a day trader. This type of trading is popular with cash accounts as they do not have enough money to buy the stock and can't short. Then they get their BP back from a day trade the next day.

jnbadger said:
Hi Robert. Please forgive my ignorance, as I am just getting back into options.

Is this also because when an option is ITM, the delta is closer to 1, and if the position goes against you, the delta diminishes, and you are losing less and less as the underlying goes against you?
More...
 
Robert Morse said:
100 Delta options have wide spreads. I prefer about 75 Delta. If I buy an option for say $4.00 with 1 week to 2 weeks to go, I know that is the most I can lose and I never allow them to go to $0. To be clear, I'm not generally a day trader. This type of trading is popular with cash accounts as they do not have enough money to buy the stock and can't short. Then they get their BP back from a day trade the next day.
More...

Thank you. I'm a pure day trader in my prop account, but I've been trading more options lately in my Roth with TDA, which is obviously just cash and no leverage. I got lucky earlier this week by buying NKE OTM calls for .10 and sold them for .50 yesterday. I knew it was a stupid risk, because as Dustin says, 5,1 will not get you anywhere in the long run in the options market. But, sometimes I need to let off a little steam with very little money by doing something silly.

Who was it in one of the Market Wizards books who said (paraphrasing) he would take his big trades seriously, but the other trades just kept him amused?
 
One more thing for the OP, one more reason I think my NKE trade was just lucky and stupid, is because the implied volatility of that stock was very high because of its recent rapid decline. I over paid for it. If I had been more patient, I could've bid into it and easily gotten .05 when the stock looked like it wasn't going up any time soon. But I know for a fact if I were to do that trade 100 times, I would lose money in the long run. Thankfully it was only 10 contracts because it was a badly thought out experiment and just a "toy".

Sometimes you learn from stupid mistakes when you make money.
 
Robert Morse said:
100 Delta options have wide spreads. I prefer about 75 Delta. If I buy an option for say $4.00 with 1 week to 2 weeks to go, I know that is the most I can lose and I never allow them to go to $0. To be clear, I'm not generally a day trader. This type of trading is popular with cash accounts as they do not have enough money to buy the stock and can't short. Then they get their BP back from a day trade the next day.
More...
You know your stuff and how to explain it.
As a way to pick a strike for daytrade (buy call or put), if trader A uses 75 delta and trader B 40d, what would be pro / cons of each pick?
 
easymon1 said:
You know your stuff and how to explain it.
As a way to pick a strike for daytrade (buy call or put), if trader A uses 75 delta and trader B 40d, what would be pro / cons of each pick?
More...

If I may add to this question, how much does IV come into play? Is it not as critical when you are trading ITM options?
 
This is a trading decision for you based on what you see. Lower delta options often have tighter spreads but you have to buy more to get the same delta. You will have to learn that on your own.
easymon1 said:
You know your stuff and how to explain it.
As a way to pick a strike for daytrade (buy call or put), if trader A uses 75 delta and trader B 40d, what would be pro / cons of each pick?
More...
 
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