Futures or Options

[Chris Paciello]

Amazing responses! This was EXACTLY what I was looking for. Thank you

 

[Maverick1]

Options.

I trade both every day, but mastering delta1 take years/decades. Profitable systems (target as a multiple of the stop or >50% hit rate at 1:1 risk) requires mastery. Every D1 trader that I know personally has blown-up while trading futures.

How many of those blow ups happened in the last 3-4 months?

 

[fyretrading]

both

 

[Chris Paciello]

futures = real deal, is what it is, leveraged, actual, factual, liquid, trading not investing, sleep with closed positions.

options = not real deal, still have to be correct, subject to bullshit con artist trying to suck you in. in spite of this warning you will go with options because. it's easy , it's risk free, it's leveraged, everyone is doing it, there are you tube video's of successful people, all the brokers say it's the way to go, resources flying out the ass everywhere.

do i hate options? no i hate people who are dumb enough to think it's easy when it's a "professional" game ONLY!

I definitely don’t think Options are easy by no means.

 

[tommcginnis]

I would vote Futures, for sure.

Why? Options track an underlying, but from both sides (above and below), and require you to think about where the underlying *will* go, and where it will *not* go. Futures are a half of half the work. 1/2²....

 

[ironchef]

I think this is true for any leveraged instrument. I've paid for a few classes on trading I later realized were just scammy. They all revolved around getting people to imagine owning a Ferrari by levering up their neck using options, futures, or options on futures.



I'm not sure what you mean by delta 1? Are you claiming to run a delta 1 trading desk that hedges huge equity swaps with options or something?

--

My personally opinion is as follows:

It comes down to taste. What do you like doing. Neither is safer than the other. For futures:

1. High leverage
2. Approximately the same liquidity
3. Regulated Markets
4. 24 hours
5. Algorithmic strategies are easy to automate
6. Margins are actually "performance bonds" so you're not paying interest to borrow
7. Favorable tax treatment
8. Commissions are usually dirt cheap

(4) is big because after hours can really hurt you in options trading. Especially with the chop in today's market.

Options have the following benefits:

1. Extremely dynamic positioning ability
2. High leverage (purchasing long calls on SPY for example could yield leverage similar to futures given enough of them)
3. Large number of assets to choose from - you can write an option on anything that moves
4. Regulated Market

Both have a few similarities:

1. Pricing is a derivative of an underlying
2. Scammers and get rich quick schemes exploit them
3. They both expire eventually and require rolling
4. Both require a lot of liquid capital to stay within good risk tolerance

To me, options are very complicated. A winner can turn into a loser for a lot of reasons. Imagine trading weeklies where you're essentially trading pure vega if you hold to expiration. Sometimes it's difficult to explain why a winner turned into a loser. Additionally, unless you're trading really tight straddles and other delta-neutral type strategies you have to be right on direction and time. In many underlyings a trend takes a while to establish. I feel like the options market is a MM's game, and retails have no place in it.

Futures are far simpler. You have exposure to global markets, they trade "like stocks" (in the loosest sense), and there's a ton of liquidity. Strategies are easier to test because you're not working with the derivatives of a stochastic calculus equation.

I think below around 15k capital options are probably your only choice if you're going to manage risk effectively and you desire derivatives. Anything above that and you're better off trading futures. If I had less than 15k, I'd probably trade ETFs on margin and then switch over to futures when I had saved enough money.

Do futures have convexity?

 

[MrMuppet]

Do futures have convexity?

some have

 

[Tomaz26]

I would vote Futures, for sure.

Why? Options track an underlying, but from both sides (above and below), and require you to think about where the underlying *will* go, and where it will *not* go. Futures are a half of half the work. 1/2²....

I think it is the other way around, or? With futures, you HAVE to guess where underlaying will go or you loose money. It stays the same, you loose (rolling), it goes down, you loose.. So if you are long it has to go up or you loose (reverse for being short of course..)

With options, you "only" need to know where it will not go and you can make money. I am not talking about selling 0.01 delta options with huge leverage. I am talking about reasonable delta spread etc.

Heck even selling ATM SPY options has better risk/return profile than simply going long SPY or ES or SPX futures.. It looses way less on a sell-off, it makes money during no movement and it makes money during slow rise. It only make less money during huge bull run-ups, but still it makes for better risk return and less volatility..

 

[sle]

Heck even selling ATM SPY options has better risk/return profile than simply going long SPY or ES or SPX futures.. It looses way less on a sell-off, it makes money during no movement and it makes money during slow rise. It only make less money during huge bull run-ups, but still it makes for better risk return and less volatility..

By implication, that would mean that buying ATM SPY options is a horrible risk-reward trade. Yet despite all these things, options are not pricing at zero (so you can sell them, right?). Either every option buyer on the other side of the wire is an idiot or maybe there is something about your perception of risk-reward that's not right.

 

[Tomaz26]

By implication, that would mean that buying ATM SPY options is a horrible risk-reward trade. Yet despite all these things, options are not pricing at zero (so you can sell them, right?). Either every option buyer on the other side of the wire is an idiot or maybe there is something about your perception of risk-reward that's not right.

Not sure that I follow, but like I said, this strategy will under-perform in a big run up. So if SPY goes up like it does in some years, 15 % or so, you will be better of just buying underlaying. Also the risk with selling ATM spy is choppy markets where one month SPY goes up big and the next month it goes down big.. But all in all in most "regimes" you are better of. Not that much bigger return, but smoother which means a lot to most people. It is easy to say oh you usually make about 7 % or 10 % a year in stock with buy and hold and blah blah, but why do most investors realize much, much lower returns? I think volatility is the reason. Most people just cannot stomach their portfolio halving which happens in bear markets. So they buy at the wrong time and sell at the wrong time. I think most would rather give some upside potential for better performance during the hardest times - bear markets. And selling ATM put does just that
But I know that you are a master of options and will somehow prove me wrong and show that my theory does not make sense from mathematical standpoint etc..