Not chewing you out but stating some of my observations. Actually you don't need to be that good to buy options. If you buy them as a hedge to another trade, either the underlying or another option. It doesn't matter which way the market goes, you will profit AS LONG AS the underlying moves a LOT. The ONLY way that you will lose money on buying options is when the underlying doesn't move a lot; its price movement is super small then you will lose money because the profit from your options will not be large enough to cover for the loss of your other trade and vice versa.
Is There A "Do and Don't" List For Option Trading?
- Thread starter Scataphagos
- Start date
Not chewing you out but stating some of my observations. Actually you don't need to be that good to buy options. If you buy them as a hedge to another trade, either the underlying or another option. It doesn't matter which way the market goes, you will profit AS LONG AS the underlying moves a LOT. The ONLY way that you will lose money on buying options is when the underlying doesn't move a lot; its price movement is super small then you will lose money because the profit from your options will not be large enough to cover for the loss of your other trade and vice versa.
"Yes." (Which is to say, 'Take your pick. It doesn't matter; they're not mutually exclusive; in fact, they're mutually reinforcing.')
You're right. I sometimes sell a credit spread or iron condor which involve buying options. However, those trades have negative delta so I consider them to be selling. However, if you're only buying options, you need to be right on both direction and timing which is difficult. Selling can be easier because it's possible to make money as long as you're not very wrong. You can still be a little wrong on OTM or ATM (for example if the underlying does not move) and still make money.
Direction, timing, and magnitude. On a credit spread, being wrong on two out of three is still a winner.
In addition to win/loss ratio.. dont't forget the most overlooked thing - expected returns. One can be wrong 2/3 if the expected payout on the 1/3 is much bigger. Turtle traders trained by Richard Dennis did not mind bad win/loss ratio - they made many multiples over when they got it right.
Okay, let's just not post before we have our coffee, eh?
ET180 wrote: "I sometimes sell a credit spread or iron condor which involve buying options. However, those trades have negative delta so I consider them to be selling."
+++ call credit spreads will have negative delta; put credit spreads will have positive delta. Since there is this natural offset, the position delta for an iron condor is indeterminant.
beerntrading wrote:"On a credit spread, being wrong on two out of three is still a winner."
which.... well, there is just no way to save that one, as a generalizable statement.
I know. Not earth-shaking. "Just missed the coffee."
I'm going to get mine.
Hard weekend. I hope today is an easy market day.
If our earnings noise tells, we're easing up. I've got short (put) positions (still!) at 2340, so I could dig a yeasty rise today.
(On the other hand, I could use some vol to write for Apr20...... Hmmmm.)
ET180 wrote: "I sometimes sell a credit spread or iron condor which involve buying options. However, those trades have negative delta so I consider them to be selling."
+++ call credit spreads will have negative delta; put credit spreads will have positive delta. Since there is this natural offset, the position delta for an iron condor is indeterminant.
beerntrading wrote:"On a credit spread, being wrong on two out of three is still a winner."
which.... well, there is just no way to save that one, as a generalizable statement.
I know. Not earth-shaking. "Just missed the coffee."
I'm going to get mine.
Hard weekend. I hope today is an easy market day.
If our earnings noise tells, we're easing up. I've got short (put) positions (still!) at 2340, so I could dig a yeasty rise today.
(On the other hand, I could use some vol to write for Apr20...... Hmmmm.)
Not to split hairs, but far from a generalization it was a qualified statement--you left out the three aspects that made it quite specific...namely: direction, timing, and magnitude.
No.
You wrote, "On a credit spread, being wrong on two out of three is still a winner."
"Is still a winner..." is a wholly unqualified statement. Had you written
...might possibly/could conceivably under the barest of circumstances on the rarest of occasions......
then it might not mislead any reader into thinking Special Conditions Do Not Apply.
What you made was a blanket statement. Special conditions do very much apply. And I'm sure that if offered $1000 per countervailing example that you yourself could come up with, I'm sure your pen couldn't keep up, and you'd soon be a rich man.
Correct me if I'm wrong but a credit spread (Put or Call) and an Iron Condor (both a Put and Call Credit Spread in the same expiration series) requires BOTH the purchase and sale of a Put and Call with the short side of the trade closer to the money and the long side of the spread farther out of the money. Here's an ES credit spread that expites in 2 days. The Green POS are the longs the Red POS are the Shorts
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There's a bucketload of slop in this thread. I blame the weekend and a quiet market: too many bored and unfocused people.
"Coffee, people!! C'mon now!"