Follow-up question to my recent poll on options

T

Thunderdog

Judging by the response to my previous poll, and assuming that it is anywhere near representative of ET's membership, it seems that a fair proportion of people here incorporate options in their trading:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=105442

This brings me to my next question.

First, I should point out that I know next to nothing about options trading. However, I assume that, no matter how sophisticated your approach, you essentially have to place a directional bet, be it predominantly long, short or "flat" within a range. (Please correct me if I'm wrong.) Presumably, you folks engage in options trading to either lower risk or enhance return. Therefore, my question is this: all else being equal, that is, for a given level of risk, how much is your trading performance improved with the use of options, in percentage terms? I'm just asking for a ballpark estimate.
 
I only trade options, unless a stock is not optionable. I like to define my risk. Using options gives me more room for error on timing, defines max risk, lets me control a trade with far less capital, thus allowing me more working capital to be diversified. To me, options are a far superior way of trading.

Note that I only buy at the money or in the money options, and usually buy at least 4-6 months of time when trading index/etf options.

Most people will never use options because they don't fully understand them.
 
Well I never really traded stocks so I cannot compare but with stocks it is either long or short with significant risks.

With options you can go strongly bullish, mildly bullish, neutral, somewhat bearish, strongly bearish and of course a combination of neutral and bullish/bearish. You can also simply trade on volatility and take direction out of the mix for the most part.

Even better you can take home run positions with little risk and potential for nice lottery tickets whereas for a stock you are either all in or not.

Options have the benefit of giving you so many different ways to manage a position after you are in it as well with adjustments, hedges or even profit lock-ups.

If you can get over the initial educational hump in learning them, they simply give you a lot of different ways of skinning the same cat which is nice.

But that being said, options are not for everyone and many will never put the time and effort into learning what you must to understand them well enough to trade.

So comparing options to stocks is like comparing chess to checkers. Play the game that best suits your style. Your performance has nothing to do with the product itself, but how you yourself use it.
 
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