index vs stock option trading

"What about options on futures indexes? I find margin requirement for index options is very high compared to options on futures. Margin consideration could be important as well. "

Unless things have changed, options are cash only and you can't go long on margin. Are you talking about margin requirements on short option positions? I'm telling you from experience, shorting options, especially calls. is not for beginners.
 
Quote from snugglepuppy666:

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..
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Being able to get out of the position doesn't have anything to do with it. Just because an option is euro style deosn't mean that you have to keep it until expiry. If you want out of an option it is rare that you'll excercize. Instead you'll just sell your option to someone else. This can be done at any time.

Any options can be rolled, offset, etc.. at any time.
 
Quote from snugglepuppy666:

whats the fundamental difference?
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None. There is no fundamental difference between trading index rather than stock options.

Providing all of the stocks in a particular index have options, you can replicate any index Put or Call by opening a basket of stock options weighted according to their weight in the index of which they are part.

So anything other than a perfectly balanced basket is really just your take on what will out-perform / under-perform the index, rather than any fundamental difference between index rather and 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.:)
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One significant difference for me between index options and stock options is that indexes move like oil tankers while stocks move like speedboats. For ME, it is easier to study the movement of the indexes since it is followed so widely so many support and resistance points hold up, and the general news is easier to follow.

Stocks have so many specific risks due to earnings announcements, warnings, analysts revisions, FDA, etc. For me it is easier to follow one or two indexes than look through 500 stocks for new trading opportunities. Some traders focus on just a few stocks but those stock specific risks can really hurt. An index will move on individual news of a stock but it is a muted affect. Indexes turn slower than stocks so it is easier for me to do my analysis.

So my basic answer from my opinion is that if you like digging in and looking at hundreds of stocks for opportunities and can handle the individual risks then equity options. However, if you are like me and do not enjoy scanning and scanning for stocks but rather study two or three indexes then index options. Especially if you do TA it is easoer many times to analyze an index chart since it is followed so widely than a stock (not always true but generally from my experience).

Indexes can have their own shocks of course, but they move slower relative to many stocks and you might find it easier to use different strategies. Also with any given index you might have various ways to play it. For SPX you would have SPY options, SPX options, and even OEX/XEO since they track the SPX due to the weightings.

One is not absolutely better than the other, one may just be better for you. I still do equity options when a stock has a unique stituation but I prefer not to spend each day looking thtough hundreds of candidates and rather focus on 2 indexes alone.
 
Quote from Cache Landing:

Being able to get out of the position doesn't have anything to do with it. Just because an option is euro style deosn't mean that you have to keep it until expiry. If you want out of an option it is rare that you'll excercize. Instead you'll just sell your option to someone else. This can be done at any time.

Any options can be rolled, offset, etc.. at any time.
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aahhhh, got it now.

so it seems there really is not too much of a need to worry about American Vs European UNLESS I want the underlying?

The Euro ATM/ITM @ expiration
The American ATM/ITM @ any time

is that an accurate assessment
 
Quote from snugglepuppy666:

aahhhh, got it now.

so it seems there really is not too much of a need to worry about American Vs European UNLESS I want the underlying?

The Euro ATM/ITM @ expiration
The American ATM/ITM @ any time

is that an accurate assessment
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The concern comes in selling ITM american style options. Let's say you've sold a bull put vertical that is ITM. There is always a concern that the ITM shorts will be assigned and you'll be holding the longs naked in the opposite direction.

Generally speaking, if there is any significant amount of extrin value, you shouldn't be assigned. But sometimes people do moronic things. Then the future of your position is up to chance. You might be assigned, or you might not. But you won't know until it is too late. IMO, euro style is better for spread trading. Also the indexes like SPX and NDX are better if you don't want to worry about dividends affecting your option price.
 
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