Hello -
I am an experienced Trader (over 8 years) who will be delving into the Options markets for the first time soon with a proprietary group.
To prepare myself for this indoctrination, I've been reading a ton of books on strategy. However, most books tend to focus on strategies that take days to weeks to play out. While there is nothing wrong with this, I suspect the trading group I will be joining focuses solely on intraday trading and closes all positions by the end of the day.
Are there any experienced Options/Delta Neutral Traders in here that can offer a humble trader some insight?
To get the ball rolling, Here's a trading idea I've been thinking about:
Find stocks that are up/down large percentages on the day (minimum of $15 stocks, preferably higher) with sufficient average daily volume (>1 million?), as well as stocks making 52-week highs/lows (same price/volume requirements) and put synthetic butterflies on using puts and taking advantage of the bid/ask spread on the options.
For Example: Stock XYZ opens up the day 35% higher and is trading at $40/share. Average volume for this stock is around 3 million shares a day.
With the stock at $40, I place a bid at the inside price on the $40 puts that are greater than 30 days out (so that theta decay is minimized?) As soon as my put options bid is hit, I immediately offset this position by purchasing the stock at the market to make my position delta neutral. This accomplishes two things: 1) it hedges my position and 2) gives me a slight edge in the options position by buying on the bid and benefiting from the spread. I then wait out the play and look to exit the position for a credit of 25 cents or greater either by selling the puts on the ask and capturing the spread in a flat market, or taking advantage of the changing options delta as a volatile market fluctuates throughout the day.
I could do the same thing by purchasing at-the-money calls and then shorting the stock to hedge and become delta neutral, but I suspect there may be times I might get hung on the stock as I wait for an uptick to get short.
Does this sound like an idea that could actually work in the real world?
Please keep in mind that although I am an experienced trader (traded stocks, futures, currencies, and options for hedging purposes)...I've never had direct access to the options markets like this before.
I am an experienced Trader (over 8 years) who will be delving into the Options markets for the first time soon with a proprietary group.
To prepare myself for this indoctrination, I've been reading a ton of books on strategy. However, most books tend to focus on strategies that take days to weeks to play out. While there is nothing wrong with this, I suspect the trading group I will be joining focuses solely on intraday trading and closes all positions by the end of the day.
Are there any experienced Options/Delta Neutral Traders in here that can offer a humble trader some insight?
To get the ball rolling, Here's a trading idea I've been thinking about:
Find stocks that are up/down large percentages on the day (minimum of $15 stocks, preferably higher) with sufficient average daily volume (>1 million?), as well as stocks making 52-week highs/lows (same price/volume requirements) and put synthetic butterflies on using puts and taking advantage of the bid/ask spread on the options.
For Example: Stock XYZ opens up the day 35% higher and is trading at $40/share. Average volume for this stock is around 3 million shares a day.
With the stock at $40, I place a bid at the inside price on the $40 puts that are greater than 30 days out (so that theta decay is minimized?) As soon as my put options bid is hit, I immediately offset this position by purchasing the stock at the market to make my position delta neutral. This accomplishes two things: 1) it hedges my position and 2) gives me a slight edge in the options position by buying on the bid and benefiting from the spread. I then wait out the play and look to exit the position for a credit of 25 cents or greater either by selling the puts on the ask and capturing the spread in a flat market, or taking advantage of the changing options delta as a volatile market fluctuates throughout the day.
I could do the same thing by purchasing at-the-money calls and then shorting the stock to hedge and become delta neutral, but I suspect there may be times I might get hung on the stock as I wait for an uptick to get short.
Does this sound like an idea that could actually work in the real world?
Please keep in mind that although I am an experienced trader (traded stocks, futures, currencies, and options for hedging purposes)...I've never had direct access to the options markets like this before.
