New To Options: Why Would Anyone Day/Swing Trade Stocks Over Options?

[krugman25]

Nope, a 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

My father in law made a few hundred grand over the years selling vertical and ratio spreads, trying to make a nickle or a dime out of each position, and selling hundreds of positions all at once.

I could never get into it though. Seems to much like a crap shoot. I stick to selling premium.

 

[nooby_mcnoob]

Nope, a 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

I can't do that. My brain can only work on one thing at a time....

 

[zdreg]

My father in law made a few hundred grand over the years selling vertical and ratio spreads, trying to make a nickle or a dime out of each position, and selling hundreds of positions all at once.

I could never get into it though. Seems to much like a crap shoot. I stick to selling premium.

why do you think it is a crapshoot?

 

[krugman25]

why do you think it is a crapshoot?

Seems like the law of large numbers shows most of these types of trades come out to a breakeven, and that is before spreads+commissions+fees.

Although I don't discount that someone could come up with a strat that has an edge, few people are willing to stick with it long enough to find out if their strat truly has an edge or not. Apparently my father in law does.

 

[guru]

Seems like the law of large numbers shows most of these types of trades come out to a breakeven, and that is before spreads+commissions+fees.

Although I don't discount that someone could come up with a strat that has an edge, few people are willing to stick with it long enough to find out if their strat truly has an edge or not. Apparently my father in law does.

I do have options strategies that do have very clear edge, while other don't. Some of my ratio spreads have theoretical risk but in practice I cannot lose money on, on others I can lose and take limited risk, while in the past I was doing some pure arbitrage without risk. It's a mixed bag and not very scalable because of limited opportunities, while most of my trading is mainly for research purposes, as my main task is building an automated trading system (for my own use) and for now it can only trade stocks (options in the future).

 

[ironchef]

I can't do that. My brain can only work on one thing at a time....

This from someone who is very computer savvy? Ever thought of using your computer?

Kidding aside, I am the same, only trade one strategy but that is because I only have one that gives positive expectancy. Tried others but they were all losers: Spread, butterflies (121, 132,231..). The difference is I am computer challenged and you are not.

 

[ironchef]

why do you think it is a crapshoot?

I am no expert but intuitively I agree with @krugman25, i.e., it reminded me of selling DOTM options.

 

[ironchef]

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

Great post, I agree with you sir. Especially for us newbies, it is hard enough to predict direction, to get it correct timing wise, then worry about IV, vega, gamma... I am not smart enough to day trade options. Not that I didn't try, been there done that and gave up.

 

[gaussian]

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".

The most obvious reasons to trade the underlying are:

1. Arbitrage spreads
2. 1 Delta exposure always
3. "Infinite" time to develop the trade
4. More options for underlyings (some underlyings do not offer options)
5. No account access (couldn't get approval for a level you need/don't want access to margin)
6. Systematized trading (options do not lending themselves to system trading due to the degrees of freedom added by the greeks and nearly unlimited numbers of contract configurations per underlying).

 

[cafeole]

Do this exercise - in excel price a liquid option over time (if you day trade, use minutes to hours) and see how much the underlying would have to move to make the same profit as you would with the underlying itself. Don't forget the spread.