Gamma Scalping

I am thinking of trading options to complement and not replace my daytrading activities. Keeps me busy and out of daytrading trouble during the dead zone.

I am not in a position (yet) to refute your friend's assertion that no one can make $ trading options. I will find out . There is just too much options volume out there -someone has got to be making $

I would like to try the scalping because I think there might be something there. I am of the opinion that one of the main reasons people think they can't make $ trading options is that it too complicated, and most important too hard to uncover opportunities. Other than customized software , most products out there are not robust enough to highlight buy/sell candidates, most signals are based off of pricing inefficiencies which a few and far between and short lived. So I will be on a quest to see if this can be done -in small lots of course.
 
GATrader,

Just to clarify, I do not question whether one can make money trading options, just whether one can:

1) Make a living trading options, i.e.,

2) Make a living trading options _OFF_THE_FLOOR_

I know there are people that will sell covered calls, buy protective puts, etc to augment some investment income, but I was wondering about making a living using an online broker to trade options.

Good luck and keep us posted.


Regards,

Nitro
 
and most of my friends still on the CBOE and Philly exchanges lament how much more difficult it is to trade down there.

Tighter spreads, increased competition, blah, blah, blah.

It's always tough to wrench a buck out of the market wherever you stand (or sit).

I've been successful trading on and off floor - different styles and methods are necessary. You can't scalp or see order flow from upstairs. You can't run a stat arb portfolio from the floor. But if you have an edge and it is exploitable, you can be successful with a lot of hard work and concentration.

I've been trading for 16+ years now (egads!) and I learn something new every day. The market always surprises me - that's why I'm long gamma and long the chaos put - I live for the 3+ sigma days and suffer through the doldrums. But my positions let me sleep at night, mostly.

Cheers,

Marc
 
I also traded soft commodity options on the floor and always envied the off floor traders since they are privy to more tools plus 'inside info' than my measly fair value sheets updated hourly by my clerk. Like you said it is not easy on or off floor lately.

I just read a book by Farrell -Master swing trading and in it he details that there are a lot of ways to make $10,000. I guess the gist of it is whether you pick up dimes by daytrading or skipping over the dimes to go for the dollars i.e. long gamma waiting for the move-it is still going to be $10,000 at the end of the month,qtr,etc.

My main complaint about option trading is that you have to use a software to get the HV, another software to get the IV, another software for portfolio mangement,etc. Anyway, I'll get over it.!


Thanks for the insights.
 
Check out www.ivolatility.com They provide IV, HV, Beta for a whole spectrum of equities and indexes. You can create a list of stocks and down-load the data to a csv format and then into excel or access!

N.B. Noted your handle. Are you using AI (NN and GA) to create trading strategies? I'm very interested in that field. I have a few ideas with respect to option pricing


Cheers,

Marc
 
Actually there are some advantages trading options upstairs (as a customer, not a broker dealer or market maker). Depending on the exchange, you can get an automatic execution of 10, 20, 25, or sometimes even more contracts at a time. Sometimes this is much easier than chasing a stock.

Obviously, it is important to know all of the rules of each option market. Keep to the automated markets. I have had no problems with the ISE and P-Coast markets. With the CBOE, Philly, and AMEX, orders to trade in between the spread are first shown to either the DPM (CBOE) or the specialist (AMEX and Philly) so the order may be delayed a bit before it is either executed or shown as a new quote.
 
Todd Harrison goes into detail about trading gamma in his dairy at thestreet.com archives section. He trades for a hedge fund and his positions are large, and when I tried to trade his style with less than a very large position I found it wasn't very profitable. I reverted back to a stock and put position to sell premium, not huge returns but profitable and good for the sleep aspect.

Regards

Pat
 
Marc mentioned a trading style on page 1 wherein iv between index and components are arb to caputre the spread. Can Marc or anyone else be kind enough to offer more insights to this strategy and maybe some links or books about the subject. Let me see if I get the essence of this strategy by illustrating an example.

if IV of QQQ options is 50% is historically high versus its own IV, would a trader sell 10 straddles of qqq and buy the 5 of the main components of the QQQ.

Short 10 ATM straddle of QQQ
Long 1 ATM Straddle of MSFT
Long 1 QCOM
Long 1 AMAT ,etc

If you sell 10 straddles, how many straddles do you buy on the component side-equal $ value? or some other criteria?

What if 2 of the main components have also high IV, do you replace it with 2-3 less influential components with lower IV?
 
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