I have been a stock investor over 10 years but recently started trading near-money QQQQ options as a day/swing trader. I don't know much about futures but after studying it a bit, I am now considering switching to it because it seems to me the transaction cost seem much lower for futures (at least for my style of trading). If I trade in say $2000 lots of $0.50 contracts, each trade costs me about $0.70 x 40 = $28. For a similar swing in futures, I just need to buy maybe couple NQ contracts and it will cost me only $3.60 (if I use IB). Plus, I don't like the time decaying nature of options value. On the other hand, I realize that there is a much bigger downside risk to futures. Provided that I don't use much leverage, it seems futures is a much better platform for me. Is there anything I am missing here? How's the liquidity of NQ? QQQQ options are very liquid with typical 1Kx1K bid/ask sizes and spread of $0.01. I am thinking of using IB for futures. Are they good? Any good books to read? Any advice to this newbie is highly appreciated. Thanks!
newbie question: futures vs options
- Thread starter BuyLowSellHigh
- Start date
Most people who successfully trade options on futures do it as part of a more complex strategy; not just buying/selling calls and puts. I have traded a lot of options but the penalty for being wrong is pretty high due to the cost of paying the spread as a percentage of the cost of the trade; and due to the time decay factor that you mentioned. If you trade the actual contract then you can limit your losses more effectively and live to trade another day.
The more complex strategies I mentioned often include something like buying index puts while being long in stock. It allows you to to go to near zero reserve cash if you want to make a big bet, but still hedge with a much smaller amount of cash.
The more complex strategies I mentioned often include something like buying index puts while being long in stock. It allows you to to go to near zero reserve cash if you want to make a big bet, but still hedge with a much smaller amount of cash.
ContangoJoe,
I was thinking of only futures, not futures options, but it's an interesting thought. Like you mentioned, I should consider using put options when going heavily long on futures. I did check out the NQ options and it doesn't seem to be nearly as liquid as QQQQ options though. For now, I won't leverage too much so I will probably just nibble on NQ.
auspiv,
I just opened an account with IB for now. Being a newbie, I was not aware that IB's $2.40 commission is considered high. I even misread their commission schedule and thought it was $1.81/contract. (I later found out $1.81 was for some other futures and futures options.) As I get my feet wet in the futures I will check out the other brokers you mentioned. Thanks. Hopefully, I don't blow my account too fast.
I tried NinjaTrader today. It seems to be very good in the order management aspect. Charting, I am not sure yet. Need to play with it a bit more. So far, I have tried TDA's StrategyDesk, QT, IB TWS and NinjaTrader. Each has a feature or two that I would really miss if I go with just one platform so I am using all at the same time for now!
I was thinking of only futures, not futures options, but it's an interesting thought. Like you mentioned, I should consider using put options when going heavily long on futures. I did check out the NQ options and it doesn't seem to be nearly as liquid as QQQQ options though. For now, I won't leverage too much so I will probably just nibble on NQ.
auspiv,
I just opened an account with IB for now. Being a newbie, I was not aware that IB's $2.40 commission is considered high. I even misread their commission schedule and thought it was $1.81/contract. (I later found out $1.81 was for some other futures and futures options.) As I get my feet wet in the futures I will check out the other brokers you mentioned. Thanks. Hopefully, I don't blow my account too fast.
I tried NinjaTrader today. It seems to be very good in the order management aspect. Charting, I am not sure yet. Need to play with it a bit more. So far, I have tried TDA's StrategyDesk, QT, IB TWS and NinjaTrader. Each has a feature or two that I would really miss if I go with just one platform so I am using all at the same time for now!