ODTE options .... pros/cons?
- Thread starter KCalhoun
- Start date
That's fine. What I have said, as far as I know, are all correct and legit and in a language that people can understand. If I sense people might not understand something, I try to explain. He(it) sees it otherwise of course and I don't really care. I am not trying to prove myself here nor am I trying to establish something here. I am just a retail trader (so is your option idol as far as I know) trying to help people the best I could but I am not forcing people to listen to me or follow me or whatever. People think I am s***, they are free to put me on Ignore and block me for all I care.
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If you short a put spread yes. If you short a call spread, you want the opposite. You want the underlying to close below the short strike.
Due to the option having higher value than the diff. between the strike and the underlying price, a phenomenon called "extrinsic value", even though the short strike has not been touched but the price on the spread has already increased so much that it's threatening their profit or has already turned their position into a loss. So in order to minimize their loss or walk away with still some profit left, they choose to close out the spread or just the short position. The underlying does sometimes reverse back later but that's not something that the trader can foresee and the trader doesn't want to deal with a bigger loss from assignment if he/she holds it all the way to the end.
Traders stop-loss or tp early on their trades all the time, doesn't mean that they shouldn't have entered the trade in the first place. Stop-loss or tp early just means that at this moment, the trader doesn't believe the position would be profitable or more profitable anymore. Traders are required to adjust their positions throughout the entire time when trading according to new information. That's what we traders do.Some traders do hold the position till the end and just choose to deal with the consequence of being assigned and sometimes they are rewarded for their resolve in "standing their ground" sorta speak when the market reverses but you never know. Everything is down to probabilities.
I'm aware of *most* of that, I use hard stops all the time trading MES, and I fully understand traders having a change of heart in the middle of a trade.
However, I'm specifically talking about SPX 0DTE put credit spreads with a 10 or 5 delta. If you enter after the open, you have less than 6.5 hours of session time remaining. In the world of options, that is a very short-term trade. So, to me, stopping your self out before EOD would be like trading ES/MES with a 5 point stop and a 10 point target and then stopping yourself out if price initially moved two points against you. In that scenario, why make the trade in the first place if you weren't going to let the trade play out?
I wasnt referring to you as I am only skimming this thread...
As for Des,he is one of the most knowledgeable option traders I "know"...
As for Des,he is one of the most knowledgeable option traders I "know"...
Hi there,I read your posts a bit more closely,and you ask some very good questions.
Lets ignore selling options/spreads and delta hedging...Different beast..
If you choose to sell 0 DTE verticals,you should really run simulations.I would reccomend Orats (its the program I use),but I dont look at Intra day data. If you dont do that,you are trading on the dark an simply guessing..
What would be most helpful is you define the spreads you choose to sell..A 5-10 delta vert could be an OTM SPY 2 point wide spread that trades for .05-.10..Or it could be an ATM spread,1 point wide trading for .50...
Big difference..
Lets ignore selling options/spreads and delta hedging...Different beast..
If you choose to sell 0 DTE verticals,you should really run simulations.I would reccomend Orats (its the program I use),but I dont look at Intra day data. If you dont do that,you are trading on the dark an simply guessing..
What would be most helpful is you define the spreads you choose to sell..A 5-10 delta vert could be an OTM SPY 2 point wide spread that trades for .05-.10..Or it could be an ATM spread,1 point wide trading for .50...
Big difference..
What do you mean by 10 to 5 delta? You mean the strike difference between the short and the long strike is 10 or 5 or you mean the short strike is with 10 or 5 delta when you initiated the trade? With credit spread on an European option like SPX, the price of the spread before expiration is ALWAYS ALWAYS ALWAYS smaller than the cash settlement that you have to shell out from an assignment IF the spread is more ITM upon expiration than when you closed it out at.
Try it out for yourself and see. Next time sell an ATM vertical spread in demo and then watch how much the price increases to during its life before expiration when it becomes ITM and then calculate how much you would have to pay in cash settlement if it expires right at that moment. I guarantee you the price that you can close the entire spread out is lower than how much you would have to pay if it expired right there and then and I think that's why traders close the spread out early instead of toughing it out to hold it towards the end. Of course if they tough it out and hold it till the end, the market might reverse and they earn the entire spread premium but you never know, they might end up paying the full spread if they tough it and hold it till its expiration.
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Well, SPX is preferable because it is cash settled. And I wasn't offended. You have given me (and others) good advice in the past and it is always appreciated. Hell, even dest gave me some good advice in the past (okay, only once!) and he usually isn't *that* helpful to noobs -- just as well, though, because he speaks in a foreign language.
Its hard to tell if you are selling ATM spreads for apx half the strike width or OTM spreads for pennies on the dollar width
Well, SPX is preferable because it is cash settled. And I wasn't offended. You have given me (and others) good advice in the past and it is always appreciated. Hell, even dest gave me some good advice in the past (okay, only once!) and he usually isn't *that* helpful to noobs -- just as well, though, because he speaks in a foreign language.
I was referring to the delta of the short strike upon entering the trade.
Yes, to the rest, but that is what I meant by an upside-down risk:reward.