How to short the S&P using options? Day & swing puts
- Thread starter KCalhoun
- Start date
You mean my completely theoretical trade scenario to explain a concept isn't going to happen? Thank you oh wise one.
Edit: Are you trying to tell us the market can't go down, or that you wouldn't make 15x on the trade?
He can break it down to simpler terms as a terminal bet,or,for an X ATR move,but he will be better off trading the underlying..
Hes not looking for leverage,or be hasn't stated it.Hes a day trader,what's the advantage of an option??
None of it matters???
Surely you jest
Hes not looking for leverage,or be hasn't stated it.Hes a day trader,what's the advantage of an option??
None of it matters???
Surely you jest
He can break it down to simpler terms as a terminal bet,or,for an X ATR move,but he will be better off trading the underlying..
Hes not looking for leverage,or be hasn't stated it.Hes a day trader,what's the advantage of an option??
None of it matters???
Surely you jest
For what he's talking about doing the greeks don't matter. This is super basic stuff. I'm a daytrader and if I went back to shares I would make significantly less $. The greeks play no part in my trading, so no I don't jest.
Let me put it this way...we know Ken has made a little money trading. He likes the leveraged ETF's. I don't personally think he has an edge in strategy, but he understands trade/risk management from experience which is an edge in itself. If he uses options instead, now on his correct bets he's making 100%+ on a trade (possibly much more) vs. right now he might make 1-5% on a good trade. Depending on his hit rate, these instruments could take him from a mildly profitable trader to something much more.
Day trading,I agree...but other than leveage,what are you getting,or should I say Ken??
Are you suggesting he trades Delta equivalent to stock and hopefully catches the big move/ long gamma
Are you suggesting he trades Delta equivalent to stock and hopefully catches the big move/ long gamma
Leverage + defined risk is what he's getting. Shares don't give you either of those. The defined risk part is huge because in stocks anything can (and does) happen. I don't have to worry about halts/news because I know exactly how much I can lose at any given time. This allows the player to press up to the max when you feel right.
Let's look at his wanting to short SPY. He trades a relatively small account, so he uses leveraged ETF's. If he's right and makes 5% maybe he pays his mortgage for the month. With options, he pays his mortgage for the year. Finding outlier events imo is where there's value in options, I've talked about it quite a bit on other threads.
Ken, I would just listen to what @Dustin says and tune out everyone else. He shares enough in his journal so that you can reconstruct exactly what he is doing, and also backs this up with a PnL and trade summary.
Now of course its not easy, but by only buying calls or puts for 0DTE options, you are taking lots of unnecessary stuff out of the equation. You still have to get the direction right, and you still have to have a bit of skill with picking the right strike, but if you really study his stuff, you can see that even he is just guessing some of the time because he will buy multiple strikes. Some make a bit of money, some make a lot of money, and some lose, but when you add it all up, well, the numbers speak for themselves.
Now don't get me wrong, I think Dustin is a master at chart reading and feeling the market, and then going in aggressively when he has conviction, but the actual mechanics of what he is doing is quite simple. Because you've been day trading ETFs for years, it would be the easiest path for you in my opinion. You do have to study how these options move because picking the right one can make lots of money, and the wrong one might not move very much. But if you have a good sense of reading the market and want to maximize the payoff when you are right, there is nothing better than emulating Dustin's strategy.
As he states, if you're bearish on Friday, you simply look at what puts are available and how much they are. SPY opened at 451 and starts dropping after a few minutes. So our hunch is that it might keep dropping, so lets looking into buying puts at 450 and lower.
For the 450p, we open up around 30 cents. This will be the most expensive of the options we look at, but what's important to remember is the % gain. If we can buy at 30 cents and sell at 1.50, thereby making 5x, its no different than buying a 10 cent option and selling at 50 cents. This one easily hit 10x later in the afternoon, and even 15x, but of course its all hindsight now and in the moment you may very well sell after hitting the high at 2.40 and catch maybe a 2.00 exit as its dropping.
For the 449p, it opens up around 15 cents lets call it. Within just an hour or two, its at practically 1.50, so easily a 10x trade. The fact that is opened up so low is interesting to me because 449 isn't that far away from 451, but clearly the market is just in a bullish mode so any down move is I guess discounted.
For the 448 put, it opens up at 8 or 9 cents, and gains very nicely. The interesting thing for me is that at mid day, the puts are cheap again, at only about 20 cents, even though the down trend is well established. Perhaps everyone is hoping for an end of day rally, but the cost vs. potential ratio is very good when the option is super cheap. It goes well above $2, so a 20 cent option went up at least 10 times.
For the 447 put, it was only about 5 cents on the open. Now grated, why on earth do we think SPY will drop down this low when the market is in full on bull mode, but this is where being a good trader comes in and having a hunch about market direction. Or, even if we aren't that good, we see the huge asymmetry between risk and reward.
For the 446 put, this is even a greater shot for the moon, assuming the SPY will drop this low in just one day, and even though it still gains nicely, there isn't nearly as much of a gain here as in the other options that easily had at least 10-15X moves.
And for completeness, here is the 445 put. Why on earth we would buy this I don't know, since its almost just a lottery ticket, but I'm sure there will be days in the future where the market does move 5% in a day, and these might really pay off. Of course though, when the market is already volatile, then they won't be nearly as cheap to buy. But this move down to 445 was only just over 1%, so chances are good that on some days, these puts that are far away will end up doing very well.
Anyway, so there is an art to making this work for you, and often you might be buying options that don't move at all, but its a great way to control risk and maximize profit potential if your ability to read the market is spot on.
Now of course its not easy, but by only buying calls or puts for 0DTE options, you are taking lots of unnecessary stuff out of the equation. You still have to get the direction right, and you still have to have a bit of skill with picking the right strike, but if you really study his stuff, you can see that even he is just guessing some of the time because he will buy multiple strikes. Some make a bit of money, some make a lot of money, and some lose, but when you add it all up, well, the numbers speak for themselves.
Now don't get me wrong, I think Dustin is a master at chart reading and feeling the market, and then going in aggressively when he has conviction, but the actual mechanics of what he is doing is quite simple. Because you've been day trading ETFs for years, it would be the easiest path for you in my opinion. You do have to study how these options move because picking the right one can make lots of money, and the wrong one might not move very much. But if you have a good sense of reading the market and want to maximize the payoff when you are right, there is nothing better than emulating Dustin's strategy.
As he states, if you're bearish on Friday, you simply look at what puts are available and how much they are. SPY opened at 451 and starts dropping after a few minutes. So our hunch is that it might keep dropping, so lets looking into buying puts at 450 and lower.
For the 450p, we open up around 30 cents. This will be the most expensive of the options we look at, but what's important to remember is the % gain. If we can buy at 30 cents and sell at 1.50, thereby making 5x, its no different than buying a 10 cent option and selling at 50 cents. This one easily hit 10x later in the afternoon, and even 15x, but of course its all hindsight now and in the moment you may very well sell after hitting the high at 2.40 and catch maybe a 2.00 exit as its dropping.
For the 449p, it opens up around 15 cents lets call it. Within just an hour or two, its at practically 1.50, so easily a 10x trade. The fact that is opened up so low is interesting to me because 449 isn't that far away from 451, but clearly the market is just in a bullish mode so any down move is I guess discounted.
For the 448 put, it opens up at 8 or 9 cents, and gains very nicely. The interesting thing for me is that at mid day, the puts are cheap again, at only about 20 cents, even though the down trend is well established. Perhaps everyone is hoping for an end of day rally, but the cost vs. potential ratio is very good when the option is super cheap. It goes well above $2, so a 20 cent option went up at least 10 times.
For the 447 put, it was only about 5 cents on the open. Now grated, why on earth do we think SPY will drop down this low when the market is in full on bull mode, but this is where being a good trader comes in and having a hunch about market direction. Or, even if we aren't that good, we see the huge asymmetry between risk and reward.
For the 446 put, this is even a greater shot for the moon, assuming the SPY will drop this low in just one day, and even though it still gains nicely, there isn't nearly as much of a gain here as in the other options that easily had at least 10-15X moves.
And for completeness, here is the 445 put. Why on earth we would buy this I don't know, since its almost just a lottery ticket, but I'm sure there will be days in the future where the market does move 5% in a day, and these might really pay off. Of course though, when the market is already volatile, then they won't be nearly as cheap to buy. But this move down to 445 was only just over 1%, so chances are good that on some days, these puts that are far away will end up doing very well.
Anyway, so there is an art to making this work for you, and often you might be buying options that don't move at all, but its a great way to control risk and maximize profit potential if your ability to read the market is spot on.
If you don’t know the Greeks then you’ll buy strikes that won’t make money. You don’t need to be a master of Greeks if you have a view on the underlying and are looking for a way to lever up on a bet. But you still need to understand things like delta and gamma, because those are what will drive your pnl.
What @Dustin is describing is harvesting volatility premia on 0day options. This is systematic (a beta return). If you did this every day, you will probably make 8-12% annually, which is normal for alternative risk premias. You might get lucky and make a series of positive bets — or not.
Tl;dr —Trading options is not like day trading stocks at all. Beware of simple strategies.
What @Dustin is describing is harvesting volatility premia on 0day options. This is systematic (a beta return). If you did this every day, you will probably make 8-12% annually, which is normal for alternative risk premias. You might get lucky and make a series of positive bets — or not.
Tl;dr —Trading options is not like day trading stocks at all. Beware of simple strategies.
D,we are saying the exact same thing.But Ken doesn't strike me as "press up to the max" guy.
If Im not mistaken,he trades with 100 dollar stops,so the defined risk benefit isn't that big a deal.
Right strategy for you,but one size does not fit all
If Im not mistaken,he trades with 100 dollar stops,so the defined risk benefit isn't that big a deal.
Right strategy for you,but one size does not fit all