Is buying options a mugs game?

[Wheezooo]

Ok but what if you buy an itm call on an option with a .7 delta and the underlying is rising? Is there not a good chance your call option will increase in value?

Assuming a lot of time hasn't passed, and volatility wasn't exorbitantly high when you purchased it and afterwards came in considerably, the answer to that is obviously yes. I don't understand the intent of the question.

The question would still be, were you better off just buying 70% of the underlying. Which would 100% definitely increase if the underlying was rising, regardless of time, speed, and any change in volatility.

 

[ironchef]

Assuming a lot of time hasn't passed, and volatility wasn't exorbitantly high when you purchased it and afterwards came in considerably, the answer to that is obviously yes. I don't understand the intent of the question.

The question would still be, were you better off just buying 70% of the underlying. Which would 100% definitely increase if the underlying was rising, regardless of time, speed, and any change in volatility.

I am not a professional so my comments are as an amateur retail trader, which may be incorrect.

As a retail I don't hedge so it is a trade off between buying call vs on margins, depending on which is more cost effective. And, like going on margins, in an up market (or when I guess correctly), I should get better return than owning the underlying. However, when volatility is exorbitantly high, call options are more expensive than on margins.

 

[Pkay]

Assuming a lot of time hasn't passed, and volatility wasn't exorbitantly high when you purchased it and afterwards came in considerably, the answer to that is obviously yes. I don't understand the intent of the question.

The question would still be, were you better off just buying 70% of the underlying. Which would 100% definitely increase if the underlying was rising, regardless of time, speed, and any change in volatility.

Hi, thanks for this, I'm learning plenty from your posts. Regarding your point on buying the underlying rather than an option, will you not then miss out on the leverage that options provide, especially if one doesn't have the account size to buy the underlying? Thanks.

 

[Wheezooo]

Hi, thanks for this, I'm learning plenty from your posts. Regarding your point on buying the underlying rather than an option, will you not then miss out on the leverage that options provide, especially if one doesn't have the account size to buy the underlying? Thanks.

The fact you are trying to truly understand makes it pleasant to help. Yes you will lose out on the leverage, but you pay for that leverage in theta(decay). I'm a broken record. You get nothing for free. Whatever benefit an option gives you comes at an EQUAL cost. Same with selling them, which I advise STRONGLY against. If you are going to fuck up, do it from the long side. Fucking up from the short side can ruin your life in a blink. I was never net short options in my life, and anyone that worked for me, knew if they did, they would be working somewhere else.

 

[Pkay]

The fact you are trying to truly understand makes it pleasant to help. Yes you will lose out on the leverage, but you pay for that leverage in theta(decay). I'm a broken record. You get nothing for free. Whatever benefit an option gives you comes at an EQUAL cost. Same with selling them, which I advise STRONGLY against. If you are going to fuck up, do it from the long side. Fucking up from the short side can ruin your life in a blink. I was never net short options in my life, and anyone that worked for me, knew if they did, they would be working somewhere else.

Yes I'm beginning to understand where you're coming from. There is no free lunch here.. I'm definitely with you, I would not sell options at all, wasn't there a large fund that recently blew up doing that?

If I wanted to start off with just buying vanilla calls and puts how would you recommend one starts? Is it better to buy a slightly OTM call option on a stock you believe is about to rise? Thanks.

 

[Wheezooo]

The fact you are trying to truly understand makes it pleasant to help. Yes you will lose out on the leverage, but you pay for that leverage in theta(decay). I'm a broken record. You get nothing for free. Whatever benefit an option gives you comes at an EQUAL cost. Same with selling them, which I advise STRONGLY against. If you are going to fuck up, do it from the long side. Fucking up from the short side can ruin your life in a blink. I was never net short options in my life, and anyone that worked for me, knew if they did, they would be working somewhere else.

I meant to add. If you are capital restricted and want to get long, buying deep in the money options with no extrinsic value, theoretically would be a decent idea. The problem is in the real world you will pay a vig to get in, and since you don't have the capital to take exercise an even bigger one to get out.

 

[Wheezooo]

Yes I'm beginning to understand where you're coming from. There is no free lunch here.. I'm definitely with you, I would not sell options at all, wasn't there a large fund that recently blew up doing that?

If I wanted to start off with just buying vanilla calls and puts how would you recommend one starts? Is it better to buy a slightly OTM call option on a stock you believe is about to rise? Thanks.

You suffer from what everyone suffers, once you get an idea in your head you refuse to remove it. I know more about options than I know about anything else in the world. I refuse to trade them for my own personal account. What more can I tell you, if that is not telling you everything.

 

[qlai]

I was never net short options in my life, and anyone that worked for me, knew if they did, they would be working somewhere else.

Would you mind sharing in what capacity did you use options at work? Market Making? Hedging? For clients or for the firm?

 

[Wheezooo]

Would you mind sharing in what capacity did you use options at work? Market Making? Hedging? For clients or for the firm?

At one time or another, all of the above, although clients were only large institutions.

 

[Pkay]

You suffer from what everyone suffers, once you get an idea in your head you refuse to remove it. I know more about options than I know about anything else in the world. I refuse to trade them for my own personal account. What more can I tell you, if that is not telling you everything.

Thanks, I really do appreciate you taking time out to educate me. I think you are right, there is an element of wishful thinking. The fact that you don't trade options and know so much about them should give newbies like me pause did thought.

How about of you had a stock that had broken out and is rising, would buying a slightly OTM option not be a good strategy. Say one that has 2 months to expiry and has a delta of 78? Thanks.