Is There A "Do and Don't" List For Option Trading?

So if you have an indicator like % R or if you are wondering if you add a new indicator to layer to existing ones....how would you test it's efficacy against a call vertical, a put fly, an ATM condor? ...
hint.. the answer is in this post...:-)
 
ironchef said:
But as Stymie said, net sum of overall trades were very profitable (convexity) in spite of having to pay the MM high bid/ask spread during exits. I don't mind paying them their fair share, just do not want to overpay. :finger:
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Go back and look at the bid/ask chart for the atm ES options when Brexit result was in :)

No good having super duper software to work everything out, and then the MM's pull the plug..LOL
 
MrScalper said:
Go back and look at the bid/ask chart for the atm ES options when Brexit result was in :)

No good having super duper software to work everything out, and then the MM's pull the plug..LOL
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Thanks for the advice. I will take a look carefully.
 
ET180 said:
Selling an ATM put on a stock or ETF is less risky than buying 100 shares of the underlying. So if you think that's too risky, you shouldn't be trading more than 99 shares of stock / ETF.
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logic is not your forte. let me know when you can name the logic errors in your post.
 
tommcginnis said:
View attachment 172495

If you're just getting into options, there is one thing that gets served up *all* the time -- and is so grossly inaccurate: theta decay.

Most of the time (>90%?!?), option decay due to time is portrayed like the ATM (red) line above.

Understanding that OTM options decay almost linearly, AND THEN FLATTEN as expiration approaches, is missed -- in my mind, deliberately.

The *implication* of that blue OTM line though .... Woof! It's big! It means that you should really be out of that (net short) position by the time that Θ goes to zero (i.e., "the line flattens"). The red ATM line conveys the opposite thought: "Hold to the bitter end!"

Since your exposure (of margin capital) is unchanged, why would you want to hold onto something worth so little, for so much (relative) risk?

In selling OTM options, you trade the blue line's market. Don't be lured by the ATM decay into holding a dime with $5 or $10 of risk attached. Move that position out!
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Is the flattening of the TV of OTM options near expiration inherent to the pricing model or it's due to the illiquidity (exit cost)?
 
NanoTick said:
Is the flattening of the TV of OTM options near expiration inherent to the pricing model or it's due to the illiquidity (exit cost)?
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Illiquidity. Market makers have to hedge their positions and for options that are very cheap (near zero) it is just not cost effective to their business model so they widen the bid/ask spread to compensate. When the option you are trying to buy/sell should be 0.02 a bid ask spread of 0.05 will represent a very large percentage of its price, hence why the extrinsic value approaches flatness for OTM (especially Far OTM) options and in particular as expiration approaches
 
zdreg said:
logic is not your forte. let me know when you can name the logic errors in your post.
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I don't see any logic errors in my post. I stated: "Selling an ATM put on a stock or ETF is less risky than buying 100 shares of the underlying. So if you think that's too risky, you shouldn't be trading more than 99 shares of stock / ETF."

Can you point out the logic errors so that others here are not mislead by what I said? Does anyone else here object to my claim?
 
Trading options is a pipedream. 70% of the time market will chop so directional trades will expire worthless. Once in a while you will be right with direction then you will get out your position way too soon enough to go crazy. Then you will start trading weeklies to make more money which will be a disaster.

I have traded options more than 3 years. You will overeat, do bad habits drink or smoke a lot.. I gained more than 50 lbs last year. I wish I would never started....

Learn how to fix a junk car, flip a property, import from alibaba& sell stuff online, drive uber.. But seriously stay away from options.
 
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