Looking for decent options strategy for high-probability stock trades

[guru]

I usually throw-in my two cents and try to answer many questions, but this time I do have a question of my own.
Let's say that I have a long/short stock trading strategy that wins 90% of the time ( trading liquid stocks like AAPL, SPY, QQQ), but the wins are very small, 0.60% on average, and can be as low as 0.02%, and actually that's what I've been getting during last few days. Holding period is about 24 hours on average, but on rare occasions it can be up to 3 weeks. Most of the trades are held 1-2 days though.
The strategy works great for stocks, but I'm looking for ways to enhance it using options. I've been playing with buying plain OTM calls (or occasionally puts), but they quickly lose value and something like 0.10% stock price move in my favor within 24 hours would still result in losses. Buying ATM calls means putting more money at risk, while they also lose due to Theta when the stock doesn't move much.
The question then is, what may be other good options strategies worth considering, or possibly used by some of you in similar situations?
(I can come up with and test couple more ideas, but being focused on stocks at the moment I'm drawing blank in terms of options. I may also try selling calls or put spreads next. May also play with butterflies.)

 

[trendmomentum]

If you have a pure delta play, look at the synthetic long call/put. However, if the IV is below 30% and the stocks move on average less than 2% a day you will give away any edge you have to slippage, spread and transaction costs, even if you can predict the underlying move correctly 99% of the time. I guess only the fastest and most patient of MM would be able to scalp such small spreads.

 

[guru]

If you have a pure delta play, look at the synthetic long call/put. However, if the IV is below 30% and the stocks move on average less than 2% a day you will give away any edge you have to slippage, spread and transaction costs, even if you can predict the underlying move correctly 99% of the time. I guess only the fastest and most patient of MM would be able to scalp such small spreads.

Thanks, though synthetics would require putting as much capital to work as trading stocks directly. While I am looking for enhancing returns by lowering the risk and increasing leverage.
But at least for non-leveraged plays I may try risk reversal with 2-15 day DTE, as my losses are usually small when they do happen, and/or can recover later after being assigned shares.

 

[tommcginnis]

The actual outward flow of option value due to the passage of time is modeled as going down to the second -- which is hilarious. Anyone who's *watched* a high-theta option has seen it jump overnight, stall in the early morning, jump again at the open, stall through lunch, jump again in the afternoon session, and then stall into the close. WTH??

Still, I have found taking theta for a 24-36 hour period, and weighing it against any of delta, gamma, or "expected move", has been illuminating -- going by strike and by expiry (out maybe 25 trading days or so). So, just mapping market moves against 1.5xTheta might throw good light on 'gains vs time' question......

 

[El OchoCinco]

Buying ATM calls means putting more money at risk, while they also lose due to Theta when the stock doesn't move much.

How is ATM options putting more money at risk then the amount of money you are already putting in trading the shares outright. This does not make sense.

Theta should not be an issue if your holding period is 1-2 days.

 

[guru]

How is ATM options putting more money at risk then the amount of money you are already putting in trading the shares outright. This does not make sense.

Theta should not be an issue if your holding period is 1-2 days.

I meant more money than OTM calls. Both ATM and OTM calls can lose their total value, so I may lose, for example $200 on an ATM call vs $50 on an OTM call if they both decay to nothing.
Though I've been testing options expiring in 2-3 days and sometimes made 20%-60% in 30 minutes, but they lose their value super quick if the stock doesn't make a sufficient move and I have to wait longer.
Now I looked at 3 week ATM calls and they don't look exciting either. I just did couple QQQ trades since yesterday and made ~0.30% on the stock, while could make maybe 8% on an ATM call. However, if the stock dropped, then I could lose 10%-100% value of that call, even when the stock later recovers to its previous level. And many times I wouldn't even get the 8% return if the stock moves by only 0.10% or less.
Anyway, any plain calls seem to be great for large moves when you can make 20%-100%+ on a trade and afford to lose the whole value of the call when it doesn't go your way. And I will continue comparing my stock trades to plain calls.
But I guess I'm also looking for something more creative.

 

[El OchoCinco]

Dont get lost in percentages, options use levarege. If you buy a call for $200 and it drops to $180 sure you can say, wow I lose 20% of my investment, but it was only $20.

Optons with 30 days or more to expiration will not suffer any theta in 2 days of holding. However you are tlaking about a stock moving .30%. On AAPL that is like $0.60. you are not going to get bag for your buck on options even with narrow spreads on a day trade if the stock moves $0.60.

It is a bad use of calls for scalping.

 

[Wheezooo]

Appears a waste of time. Fun from a mental masturbation perspective but unproductive for the means you are seeking. Your methodology apparently involves some form of spread trading on the underlying.

1- Delta appears essential to that strategy. If you try to recreate those deltas using a derivative you will not do it at an advantage to trading the underlying and only add slippage (particularly at.02 gains, not something you need).

2- If you try to leverage, that leverage ain't free (theta), and picking up delta out-of-the-money subjects that delta to various forces you aren't familiar with and could at times get pretty funky, taking something you understand and that works for you and moving you into a product presently out of your comfort zone.

 

[Wheezooo]

"Optons(sic) with 30 days or more to expiration will not suffer any theta in 2 days of holding."

Of course they will. At a high volatility it could be quite considerable.

 

[TheBigShort]

Hey guru,

Since you have portfolio margin, I would look at cross asset relative value plays. I believe this is where a lot of alpha lies in the modern times. Model RUT vol on SPX for example. Look at ALL etfs. I have seen a couple get out of line. However, (for me) in Canada it's hard to take advantage since we do not have access to portfolio margin. VAR (vector autoregression) is your friend. I have found countless opportunities using this website(IB displays a more in-depthversion) research https://www.etfrc.com/funds/overlap.php.

Hope that helps.