i am a new trader, dabbled for a few years in equities but have only been day trading since this may. I have looked into options off and on but recently have been spending a lot of time educating myself on them. Even made my first options trade yesterday just to get my feet wet, (HAL Sep 6, 19 call 10 contracts bought then sold for $100 profit). My question is why would people choose to trade stock over options? The only reason i can think of is maybe they are intimidated by the greeks and consider them too complicated? The expiration date shouldnt be a big deal i would think if you are good at cutting your losses. To me the capital risk per trade is so much in favor of options that it seems like a no brainer but i would like the opinions of some "elite traders".
New To Options: Why Would Anyone Day/Swing Trade Stocks Over Options?
- Thread starter zghorner
- Start date
Robert Morse
Sponsor
The underlying is a pure-play. As you said, options require added knowledge to use correctly and meet your goals. They are also generally less liquid with wider markets than the underlying.
i can see the less liquid aspect that's a good point. I have noticed i have less "options" when trading options
I actually posted an opposite question a month ago: I have a decent stock trading trading strategy but I’m unable to apply it to options, even though I trade thousands of options using different strategies specific to options. Basically I have to create totally different options strategies than stock trading strategies.
In terms of day- and swing- trading where we hear about traders making 10%-500% per day buying calls or puts - this may happen occasionally and you wouldn’t risk large account buying thousands of $0.50 puts that may go up to $1. Often you’ll lose the whole bet. But you may be overall profitable and may or may not do better than with stocks directly.
But statistically speaking, a strategy that wins 90%+ of the time will win only tiny amounts and therefore can mainly be used for stocks because options can still lose value if a stock moves by 0.10%, for example. For lower probability strategies, say winning 60% or 70% of the time, you can win much more but you also need to wait longer for the stock price to move, while options value decays with time.
So to really trade options “better” than stocks, you’d need to find stocks that move 1%+ within short time and with sufficiently high probability. Those opportunities are rare, so you won’t be able to trade much, unless you lower your probability - possibly even without knowing it and at some point starting to take losses. And the losses may be 100% per bet when the stock moves in opposite direction.
In the end you may be the one best to answer this question and hopefully post an update after you make a few hundred trades
In terms of day- and swing- trading where we hear about traders making 10%-500% per day buying calls or puts - this may happen occasionally and you wouldn’t risk large account buying thousands of $0.50 puts that may go up to $1. Often you’ll lose the whole bet. But you may be overall profitable and may or may not do better than with stocks directly.
But statistically speaking, a strategy that wins 90%+ of the time will win only tiny amounts and therefore can mainly be used for stocks because options can still lose value if a stock moves by 0.10%, for example. For lower probability strategies, say winning 60% or 70% of the time, you can win much more but you also need to wait longer for the stock price to move, while options value decays with time.
So to really trade options “better” than stocks, you’d need to find stocks that move 1%+ within short time and with sufficiently high probability. Those opportunities are rare, so you won’t be able to trade much, unless you lower your probability - possibly even without knowing it and at some point starting to take losses. And the losses may be 100% per bet when the stock moves in opposite direction.
In the end you may be the one best to answer this question and hopefully post an update after you make a few hundred trades
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K
krugman25
Liquidity and delta
Robert Morse
Sponsor
Sounds like good dog names.
I actually posted an opposite question a month ago: I have a decent stock trading trading strategy but I’m unable to apply it to options, even though I trade thousands of options using different strategies specific to options. Basically I have to create totally different options strategies than stock trading strategies.
In terms of day- and swing- trading where we hear about traders making 10%-500% per day buying calls or puts - this may happen occasionally and you wouldn’t risk large account buying thousands of $0.50 puts that may go up to $1. Often you’ll lose the whole bet. But you may be overall profitable and may or may not do better than with stocks directly.
But statistically speaking, a strategy that wins 90%+ of the time will win only tiny amounts and therefore can mainly be used for stocks because options can still lose value if a stock moves by 0.10%, for example. For lower probability strategies, say winning 60% or 70% of the time, you can win much more but you also need to wait longer for the stock price to move, while options value decays with time.
So to really trade options “better” than stocks, you’d need to find stocks that move 1%+ within short time and with sufficiently high probability. Those opportunities are rare, so you won’t be able to trade much, unless you lower your probability - possibly even without knowing it and at some point starting to take losses.
In the end you may be the one best to answer this question and hopefully post an update after you make a few hundred trades
Dude are you making millions trading thousands of options?
can you explain why delta is a turn off?
K
krugman25
It was a response to the question of why someone would trade stocks over options. Liquidity and delta. If you need delta, it is quite a turn on.
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Nope, lots of combos, say 2:1 ratio spreads where I do need to buy 100-200 combos at a time to make few cents on each, say $1k total for a trade that involves 600 options (200 combos x 3 options each), for example. Sometimes it’s more work than it’s worth, because it takes time to search for opportunities, while there may be ways to make more money trading more basic stuff. I also play with things like UVXY options, say 30 per week that adds up, but no, doesn’t make $millions, yet
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