Is option daytradable?

[mizhael]

Quote from JohnGreen:

If you're looking for maximum leverage for day trading, and deltas very close to 100, then futures are what you want--index futures like ES (S&P500), NQ (Nasdaq-100), YM (the mini DOW), and TF (Russel 2000). Many futures firms offer things like day trading margins between 300-500 dollars which gives crazy big leverage and commensurate risks. For example, on the ES, a 10 point move is worth 500 per contract so a move up in your direction results in doubling your money in one day. An adverse move results in complete loss in the same time period. Also, for that kind of leverage, you cannot hold overnight.

Exactly, for indices or etfs, I don't feel people need to day-trade option, futures already give the maximal leverage.

For stocks, since single stock futures are not popular yet, people daytrade options for leverage.

Remember that buying calls and puts makes you subject to time decay and volatility changes, so if it goes against you, admit you are wrong and jump out.

Let's say you trade within one hour, that gives you a huge time decay?

Even volatility, it does have impact on fast execution of daytrading of options?

 

[mizhael]

Quote from nasdaqmadness:

I day trade options often but they are alot more affected by sentiment at any given moment than stocks. For example if you were watching a SPY atm call as compared to the SPY ETF you might see the call get bid up even though the stock has not even moved simply because of sentiment at that moment. It is common to have your options that you just bought 20 minutes ago go down in value even though the stock has moved in your favor.

Maybe sentiment is something best described as change in (future) implied volatilities?

My favorite options are on the ETFs. SPY, DIA and IWM. I dont do much with Qs becauuse of the smaller daily range.

Why not futures on these etfs directly? I am not limited by the day-trade rule.

 

[mizhael]

Quote from NoDoji:

Mizhael, I've never traded futures yet, but am considering doing so sometime this year, especially if I can find a mentor.

My favorite books are Josh Lukeman's Market Maker's Edge (the first few chapters on risk management are priceless if you have the discipline to follow through), Oliver Velez' Tools & Tactics for the Master Day Trader, also Velez' free webinars are very informative.

Your risk management depends on your individual circumstance, but a good start would be never to risk more than 2% of your trading account on a single trade. So for example, if you have a $25K account and you buy some call options for a total outlay of $2K, you would exit the position if it was down 25% (or sooner if the reason for putting on the trade breaks down). If you take the loss early, you can always re-evaluate for a better entry point, or move on to another opportunity. You will live to trade another day. (I'm still working on this aspect of my trading :eek:

Great! Thanks so much NoDoji~

Your recommendations are very good! Thank you! How do you find a good mentor? I know it's not easy... at least any directions?

 

[mizhael]

Quote from NoDoji:

Mizhael, I've never traded futures yet, but am considering doing so sometime this year, especially if I can find a mentor.

My favorite books are Josh Lukeman's Market Maker's Edge (the first few chapters on risk management are priceless if you have the discipline to follow through), Oliver Velez' Tools & Tactics for the Master Day Trader, also Velez' free webinars are very informative.

Your risk management depends on your individual circumstance, but a good start would be never to risk more than 2% of your trading account on a single trade. So for example, if you have a $25K account and you buy some call options for a total outlay of $2K, you would exit the position if it was down 25% (or sooner if the reason for putting on the trade breaks down). If you take the loss early, you can always re-evaluate for a better entry point, or move on to another opportunity. You will live to trade another day. (I'm still working on this aspect of my trading :eek:

I have searched for Velez' free webinars for a while... I found on their website this:

http://www.vcmtrading.com/resources/VCM_Online_Free_Seminar_Access_Instructions.htm

I have to download and install a software in order to view the free seminars? That sounds weird?

 

[mike007]

Quote from dagnyt:

If you trade options for awhile, you will become a premium seller, not a premium buyer.

Mark

Exactly, options are for selling.

 

[NoDoji]

Quote from mizhael:

I have searched for Velez' free webinars for a while... I found on their website this:

http://www.vcmtrading.com/resources/VCM_Online_Free_Seminar_Access_Instructions.htm

I have to download and install a software in order to view the free seminars? That sounds weird?

Yes, you have to install something bcause the webinars have live chat going on, as I recall. There's about 20 minutes of his bio and self-promotion before he gets to the good stuff.

Quote from mizhael:

How do you find a good mentor? I know it's not easy... at least any directions?

I have no idea. I communicate with a lot of people on this site with questions and that's been really helpful. I'm currently looking for someone to help me get to the next level.

 

[spindr0]

I must confess that I'm not familiar with the requirements, but it is not reasonable to believe that anyone with 25k can make an unlimited number of day trades.

Hi Mark,

There have been some small modifications to the Pattern Day Trader rules (PDT) since the melt down las tlast summer. I'm not up to date with them so this won't be 100% accurate.

The minimum in the account must be 25k. If below that, you're in violation and will be restricted. Standard overnight margin is 2:1 (50%) but intraday it was 4:1 (25%). I think the PDT intraday rate is currently 30% but not sure. That means that theoretically, during the day you could carry 100k of stock with 25k. In reality, you wouldn't want to do so because if your margin declined below 25% intraday, you'd have a problem. So you need to avoid getting close to 4:1 in open positions.

You can make an unlimited number of day trades as a PDT. You can open them as fast as you close them. I've turned my money over more than 4 times in one day and have incurred no warnings or penalties. And to be sure, when I started approaching that number, I called IB to make sure that take on these FINRA regs was correct.

To the margin experts, here's a noob question. If I'm long 100 shares of ABC and short 100 shares of XYZ, is my margin simply the total of the individual margin requirements? Or is there some offset of long to short even if they're different companies.

 

[mizhael]

Folks,

I dug out from some Internet website the following discussion from Maverick. My questions are:

(1) This piece was actually from ET, how do I search it out from ET? I tried, but didn't find that old thread.

(2) It seems that Maverick concludes that daytrading esp. scalping will lead to stable profit, however it is too energy/health consuming, and more importantly, it is not scalable -- it has a physical uplimit and you can only earn that much money a day, and it's bounded above by human ability.

On the other hand, I still think daytraing and scalping are valuable foundational skills that one should train him/herself during younghood. At the end of day, I guess the successful Quant hedgefunds such as RIT and DeShaw and many high frequency quant trading firms are actually doing the electronic/automated version of these scalping things. Am I right?

(3) Maverick seems to favor options trading now. Interesting. Any thoughts and comments?



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Maverick,
You mentioned that you no longer trade listed stocks. What do you trade now and why did you stop trading listed?

Steve

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Steve,

I got burned out. I traded 15 to 20 stocks a day. I stared at the screen from open to close, never leaving my desk, not even for lunch. I ran to the bathroom and back in 2 minutes. I never wanted to miss a print. I stared at every print in everyone of my stocks for 6 1/2 hours a day plus the sp 500 futures. That my friend led to burnout. I just couldn't see myself doing that for the rest of my life without going blind or insane. No amount of money was worth it. Also, I anticipated the NYSE going 100% electronic. When that was to happen, the days of tape reading would be over. Of course that took longer then I thought it would, but regardless I had enough. I made some good money. Had a lot of fun in NY and really just wanted to get out of New York city. So it was a combination of a lot of things.

I also wanted to get back into options. It suited my personality more. So now I trade equity and index options in a haircut account in a JBO. Much more relaxing. LOL. And much more money. This business is a lot more scalable. And I don't have to go blind from staring at the screens all day. I enjoy my job more, have more upside, and it allows me to enjoy life more.

I think one of the things you always want to be thinking about as a trader is the big picture. What are you really trying to do. As a daytrader, you only have so much upside and so many choices. If you are using it as a stepping stone, then fine. If not, make sure you know where you want to be in 5, 10 and 20 years. The problem is everyone just assumes they will make millions daytrading and then they will move on to the next level. But what if you don't? Learning how to trade an options book is a great skill set. There are so many choices you have, so many directions to take your career in. As a daytrader, you are pretty much confined to just that, daytrading. So just something to think about. Always look at the big picture and what skills are you really developing.

Maverick

 

[spindr0]

It seems that Maverick concludes that daytrading esp. scalping will lead to stable profit, however it is too energy/health consuming, and more importantly, it is not scalable -- it has a physical uplimit and you can only earn that much money a day, and it's bounded above by human ability.... Maverick seems to favor options trading now. Interesting. Any thoughts and comments?

And I favor trading equities now. But it makes no difference what he or I think because he's doing what's best for him and likewise, me. You have to find the niche that suits you.

I got burned out. I traded 15 to 20 stocks a day. I stared at the screen from open to close, never leaving my desk, not even for lunch. I ran to the bathroom and back in 2 minutes. I never wanted to miss a print. I stared at every print in everyone of my stocks for 6 1/2 hours a day plus the sp 500 futures. That my friend led to burnout. I just couldn't see myself doing that for the rest of my life without going blind or insane. No amount of money was worth it.

That sure sounds familiar. I've had plenty of weeks where I've been totally burned out from trading by Friday... and then face another 10-15 hours of weekend work to clean up the mess. But that's my choice over drinking beer and watching soap operas all day. The only question I have is what took him so long in the bathroom?? (g)

 

[NoDoji]

Quote from spindr0:

The only question I have is what took him so long in the bathroom?? (g)

OK I am on the floor, because that was my exact thought