futures vs. cash index

E

eagerbeaver

Hi -- Foir the past year or so I've devoted a stupifying amout of time to developing/refining various swing-trading systems, most of which sucked, but one of which seems quite promising (newbies take note: This stuff ain't Minute Rice). Recently I've started trading it, with success, using SPY options, front month, usually just OTM. I'm rarely in the trade for more than an hour or two, so time decay isn't a problem, the spreads are never more than .10, and sometimes .05...and then there's the gearing, which increases sharply as expiration approaches -- to the extreme, on expiration day last week, when a call was purchased for .30 just before 2:00 and sold for .60 just before 3:30.

Anyway, here's my question: I've spent so much time (and continue to do so -- newbies take note, so far as I can tell it NEVER stops) analyzing markets, etc., that I've spent no time analyzing trading vehicles. Folks, any feedback would be gratefully received -- for purely directional, intra-day swing trading purposes, should I be trading futures instead? The SPY options seem great to me, how come no one talks about them (so far as I cxan tell)? What am I missing here.

Thanks....
 
I am no expert on options but it is my understanding that the costs of trading options for directional trading are astronomical compared to futures (or tracking stocks). Especially the spreads are very wide. You should definately investigate which trading vechile gives the most bang for the buck and I am pretty sure it ain't options.

Trent
 
Quote from eagerbeaver:

Hi -- Foir the past year or so I've devoted a stupifying amount of time to developing/refining various swing-trading systems, most of which sucked, but one of which seems quite promising (newbies take note: This stuff ain't Minute Rice). Recently I've started trading it, with success, using SPY options, front month, usually just OTM. I'm rarely in the trade for more than an hour or two, so time decay isn't a problem, the spreads are never more than .10, and sometimes .05...and then there's the gearing, which increases sharply as expiration approaches -- to the extreme, on expiration day last week, when a call was purchased for .30 just before 2:00 and sold for .60 just before 3:30.

Anyway, here's my question: I've spent so much time (and continue to do so -- newbies take note, so far as I can tell it NEVER stops) analyzing markets, etc., that I've spent no time analyzing trading vehicles. Folks, any feedback would be gratefully received -- for purely directional, intra-day swing trading purposes, should I be trading futures instead? The SPY options seem great to me, how come no one talks about them (so far as I can tell)? What am I missing here.

Thanks....
More...

Trading options intraday can be suicidal and the risk:reward ratio really stinks.
Everytime you are wrong your losses are amplified and everytime you enter a position you are committed making it difficult for you to exit the trade and increasing the likelihood of running huge losses.
Options are great for position/direction trades, especially if you expect big moves--I'm talking about buying here not writing.
If you have not proven to be profitable with futures and stocks trading the underlying, it might be a good idea to leave options aside as core of your strategy, and purchasing them occasionally.
If I can suggest something I'd say trade options on earning related stocks, mergers or when expect big moves.
If you have traded spreads and want to continue to do so, then I'll step aside coz I am not expert here.

Best of luck
B
 
thanks...but here's where I keep tripping up...

Futures offer 5:1 leverage, correct? Options offer 20:1 or, depending on the time to expiration, even more. It's not hard to find a broker who will charge you $1.00/contract each way for your options trades. Are futures commissions any cheaper? As far as spreads go, again, on the SPY strikes I stalk, they're generally .10 and sometimes .05. And with the SPYs at least, liquidity is not a problem (not for a minnow like me, anyway...)

So, what am I missing here. Why should one trade the ES for intra-day swing positions instead of ATM or slightly OTM SPY options?
 
Hi -- My last post was in response to Trent...

Bitstream -- Thanks as well. I have been consistently profitable over the brief time I've used this system trading it on the SPY options -- even for scalping moves through trades of perhaps 20 or even 10 minutes duration. I've never traded futures, hence this posted inquiry about what I'm missing here.

Please note, I am referring specifically to the use of SPY options as opposed to SPX or OEX options, where the spreads are killers and, as you say, once you're in, you're IN.

Given the particular characteristics of SPY options, I'm wondering, do futures really offer any kind of advantage for the type of trader I seem to be evolving into?

Thanks agian
 
Quote from eagerbeaver:

thanks...but here's where I keep tripping up...

Futures offer 5:1 leverage, correct? Options offer 20:1 or, depending on the time to expiration, even more. It's not hard to find a broker who will charge you $1.00/contract each way for your options trades. Are futures commissions any cheaper? As far as spreads go, again, on the SPY strikes I stalk, they're generally .10 and sometimes .05. And with the SPYs at least, liquidity is not a problem (not for a minnow like me, anyway...)

So, what am I missing here. Why should one trade the ES for intra-day swing positions instead of ATM or slightly OTM SPY options?
More...

Well I don't trade options on indices but I rarely hear of anyone who trade them for intraday swings.

And anyway you can't just look at the leverage they offer: you are paying for that leverage.

The underlying has not only to move in your direction in order for you to profit from the option but it has to do so in a determined fashion, especially if OTM.

Also is not easy to get out at desired priced when volatility is high, and this make options very difficult to manage intraday.
 
Quote from Bitstream:

And anyway you can't just look at the leverage they offer: you are paying for that leverage.
More...

Bitstream -- Thanks, in advance, for your patience here...How am I paying more for the 20:1+ leverage of a SPY ATM contract than I am for the 5:1 leverage of the ES contract?


The underlying has not only to move in your direction in order for you to profit from the option but it has to do so in a determined fashion, especially if OTM.[/QUOTE]

Again, sorry to be a dolt but, isn't this the case in with any trading vehicle, especially a leveraged vehicle, in purely directional trading? How are futures more "forgiving" in this regard?

I really do appreciate your input here. Thanks
 
Quote from eagerbeaver:

Bitstream -- Thanks, in advance, for your patience here...How am I paying more for the 20:1+ leverage of a SPY ATM contract than I am for the 5:1 leverage of the ES contract?


The underlying has not only to move in your direction in order for you to profit from the option but it has to do so in a determined fashion, especially if OTM.
More...


Again, sorry to be a dolt but, isn't this the case in with any trading vehicle, especially a leveraged vehicle, in purely directional trading? How are futures more "forgiving" in this regard?

I really do appreciate your input here. Thanks [/QUOTE]

What I meant was that option OTM can and WILL expire worthless.
If you trade them intraday it is a different matter but if they are far OTM a big move can wipe out its total value.

And again with option OTM even if you see the underlying raising--if you are long-- it is possible that the way it is going up is too slow for the the option's greeks parameters and therefore your option could even lose in value while the underlying make a slow and steady climb.
 
Isn't this enough to make you think twice before trading options intra-day?

There's no advantage whatsoever in trading options instead than futures intraday.
On the contrary you increase your costs and your risks.
 
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