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index vs stock option trading
- Thread starter buybig
- Start date
Quote from thanos750:
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.
Thanos,
You really hit the nail on the head. Excellent summary!
To elaborate on what your saying with an example:
Look at the attached chart of the SPX and notice that there is solid support at 1490.
The markets have touched it a couple times in the past few days and bounced upward like a rocket ship taking off.
Situations like this are usually the quickest and safest for option traders to make money.
Attachments
I traded options on the OEX and QQQ's for 3 years, mostly on the QQQ's because I could learn options trading at a fairly low price. I've since switched to trading stock options and find that much more lucrative as well as easier to read. the indexes seemed much more prone to reacting to every report that came out during the week and I was always having to double up to break even. Individual stocks seem to react less to the unemployment, report, jobs, data, housing report blah,blah, blah.
I can remember buying OEX calls 1 month out at $700, having them open the next day at $450, the next at $300, the next day at $400 and closing the next day at $1000. Of course I cashed out at $700 happy to break even. I haven't been jerked around that much on single stocks unless you hold options on a volatile stock through earnings reports.
However, I do think options on the OEX are the best way to take advantage of a short term market run or plunge.
I can remember buying OEX calls 1 month out at $700, having them open the next day at $450, the next at $300, the next day at $400 and closing the next day at $1000. Of course I cashed out at $700 happy to break even. I haven't been jerked around that much on single stocks unless you hold options on a volatile stock through earnings reports.
However, I do think options on the OEX are the best way to take advantage of a short term market run or plunge.
Quote from chrismontez:
However, I do think options on the OEX are the best way to take advantage of a short term market run or plunge. [/B]
Chris,
The problem with OEX options is Volatility.
As the VIX shoots above 15 into the 20-25 area, OEX options get priced rediculously high and the bid to ask spread gets extremely wide.
Then if the VIX drops while your holding, even if the market goes in your direction the OEX options keep dropping with the declining VIX. In other words, you can be correct on your trade direction and still lose money.
I have traded OEX options for many years, but the single most important that I have ever learned about option choice is,
"when the VIX goes above 15, switch to SPY options."
They are almost always fairly priced and the bid to ask spread on the higher volume SPY options is usually .01 to .02,
versus .50 to 1.50 for OEX options.
Quote from crgarcia:
Thus forget about daytrading options.
Not necessarily a true statement. Certain options are difficult to daytrade, but others are just fine. I daytrade index options all the time and it's been going quite well.
Unfortunately I can't teach the OP how to do it, so it probably isn't of any use. I would just say to remember that there is no statistical advantage to any particular strategy. You have to rely on the art of trading to generate profits.
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
The question is, why do you like american style?
There are few times when it is beneficial to excersize rather than offset. You always hear statements about how 90% of all options expire worthless. The reason is that only a moron would excersize an option that had any extrinsic value. Certain times it's nice to capture a dividend or something, but for the most part, european options are easier for the serious options trader.
Quote from snugglepuppy666:
wow, thats a good question!
im not sure. the 60/40 is very lucrative though.
i assume the index etf's are treated like stock options. why the tax break on the true indexes?
hmm
I didn't see that this was ever answered for you, so I'll answer it.
Broad based indexes are cash settled and marked to market at year's end. Thus, you aren't able to hold positions longer than 1 year. This cheats you out of the better tax rate by holding them longer than a year. Thus they treat them like futures, as well as the underlying options.
Quote from Cache Landing:
The question is, why do you like american style?
There are few times when it is beneficial to excersize rather than offset. You always hear statements about how 90% of all options expire worthless. The reason is that only a moron would excersize an option that had any extrinsic value. Certain times it's nice to capture a dividend or something, but for the most part, european options are easier for the serious options trader.
hmm, guess im thinking of the potential to roll up and forward in a stock option.
may not apply here..
also.. the ability to get the F**k out of a situation is appealing.
could be of base though. again i know NOTHING about index trading and LITTLE about option trading..
Quote from Cache Landing:
I didn't see that this was ever answered for you, so I'll answer it.
Broad based indexes are cash settled and marked to market at year's end. Thus, you aren't able to hold positions longer than 1 year. This cheats you out of the better tax rate by holding them longer than a year. Thus they treat them like futures, as well as the underlying options.
aahhh, so an euro option w/ 30 days till expiration would be treated favorably compared to an american option (non Leap)..
thanks for your help