index vs stock option trading

Quote from jeffalvinson:

My trading system is insanely complicated.
I use a combination of several things that I have learned through the years.
1: Candlestick Charts and simple moving averages using various timeframes to establish long term, intermediate term, short term
and micro-time frame support and resistance levels.
2: Pivot Points.
3: Mathematical Trend Analysis.

I basically start with longer term time frames(weekly and monthly candles) to get the big picture going.
I then start looking at shorter term time frames (daily, hourly and 30 minute candles) to bring the big picture into better focus.
Finally, I bring up my Trade Station and use micro-time frame
(15 minute and 5 minute candles) charts of the SPX overlayed
with Pivot Points for an exact entry.
Sometimes the charts don't have anything for me to trade, so
I use complex formula's for mathematical trend analysis
which give me a short term directional bias and a quick profit (or loss).
Last year (2006) the math formula's under-performed the norm.
This year they are kicking ass and taking names.

The most important thing that I have learned in trading options (and the markets in general) is that it takes more then one system, or strategy to have consistent results from month to month and year to year.
"There is too many variables for a single "do it all trading system."
Markets trend up....trend down....go sideways.... volatility dies for months and then volatility explodes and markets whipsaw!"
More...

cool, thanks for the insight to your system.

ive been playing w/ stocks for the last year but am getting serious about trading.

i like the macro to micro theme

the thing is is i dont have or subscribt to a trading system.. i dont have a peer base to draw from. thats why ive posted so many questions in a short time on this forum. this is the first REAL forum ive found.

im working on a "system"..

right now its super fundamental
 
Quote from ctarmor-et:

There are so many inidcators that I got all confuse .. all I use now is volume analysis on buy/sell balance....

I use a serice call www.MarketVolume.com. I ahve adjusted all indexes I trade to my preference for intrday trading ...

I monitor R2K, SPX, DJI and Nasdaq100. I have much success feeleing the market through the volume graphs. ThenI usually trade IWM Options because their liquidity and spread is usually 1-2 cents.

I make 10%, 5% hee and there. But sometime you can loose the same. They key for me is to feel the market buy/sell volume. Once all 4 indexes point on one direction, it is matter of time before the move towards that direction. It does work well determining direction when the market is in a tight range and you expect a breakout.

Beware it does not work well on Fed Announcemnts days :-) ....

I dowork fulltime but soon to be trading ft.
More...

awesome.. a few golden nuggets of knowledge there..

"Once all 4 indexes point on one direction, it is matter of time before the move towards that direction."

awesome :)
 
Since nobody has talked about the advantages in trading Stock Options, I just wanted to mention stock options are much more lucrative in terms of profit potential, which is why I mainly concentrate on them exclusively.

Stocks can move much more on a relative percentage basis which makes them excellent vehicles for out-right option buying. Remember, if you buy options, a slow steady move is usually a killer due to time decay. While indexes can sometimes have large quick moves (like we experienced last Friday) more often they're not nearly as volatile as stocks. Volatility can be a double-edged sword. But if your analysis is correct and you time your trades to get in before an expected move takes place, the profits can be substantially greater than a comparable move of an index.

A couple examples from some of my more profitable stock option trades should make this clear:

Early May, 2007: KLAC set a new 52 week high and then pulled back to trade in a narrow trading range for the next 6 weeks. I was watching for a breakout above this level and in early July, 2007 KLAC closed at a new 52 week high. I bought August Call options the next day (I never buy the day of the breakout). a week later in the middle of the afternoon KLAC went up almost six dollars (over 10% move) on huge volume. I sold my Call options for an incredible 250% profit (I always try to sell when the crowd, indicated by huge volume, is buying pushing prices to overbought levels).

More recently, October 16, 2007 I was watching YHOO sell off. The talking heads on CNBC said YAHOO was announcing earnings after the closing bell. Pete Najarin (from OptionMonster.com) said that the options market was indicating (by the price of a straddle) that a possible 10% move was in the offing. Just before the close I bought October Calls on YHOO. The next day the stock gaped open over $2.50 from the prior close and I immediately sold my Calls for a tidy 100% profit.

Yes, I have my losers and yes, they can be substantial if the stock gaps against me. But moves like the ones I've outlined above rarely if ever happen trading Index Options.
 
I do not think anyone disagrees that stock options are more lucrative thatn index.

It is just that it takes more time to research and knowledge to invest on them.

More power to you if you can make it in individual stock options ...
 
Quote from snugglepuppy666:

New to the game..

im noticing a few key contributers to the board. Its nice to find a trading/investing board w/o a bunch of trolls.

on to the question..

should i start trading index options? why or why not?

whats the fundamental difference?

Thank You to anyone that contributes w/ a legitimate answer.:)
More...
If you are successful trading the underlying ETFs, go for it.

Be aware that options have larger spreads, higher commissions and time decay, so you need to capture a relatively big index move (about 0.3%), in order to make money. Thus forget about daytrading options.

Leverage also increases dramatically, for good or bad.
 
Quote from snugglepuppy666:

one thing i noticed

why are 90% of the index options European?

pro/con?

i like the american style personally

http://www.888options.com/resources/product_specifications/index_options.jsp
More...

Many index options (SPX, DJX) are European because they are cash settled and there is no underlying to exercise into. So to make it easier, they make them European so you cannot exercise and realize cash positive profits except on last trading day.
 
I believe the key to all trading including option trading is watching what you are trading and that is price. And what i mean by that is defining support and resistance. Use indicators as confirmation as that is what they only good for. Remember analysis and trading or two different arts but make up a good trader. Just like a sports team needs both a good offensive and defense to ultimately be the best.
 
There are good replies here. Thanks

What about options on futures indexes? I find margin requirement for index options is very high compared to optioms on futures. Margin consideration could be important as well.
 
You must log in or register to reply here.
Back
Top