I am looking for a cost-effective option setup that's also for looser market timing (ie. no stopping out if price fluctuates) while in turn capping potential profit to the upside. Is this possible?
Option strategies for trend following?
- Thread starter James Connor
- Start date
OTM Call or Put
No. I said that profit could be capped, not unlimited.
This is true, but why you want to cap your upside ?
Credit/debit spread is only to make your broker and MM happy, and reduce your edge.
Not entirely true, they neutralise volatility and time decay. But for long term trend following then not capping upside is a wise move.
Look at the commission & slippage, they cost much more than your theoretical vega and theta.
Don't get too hang up on those theoretical parameters, those are for MM (who make a living) , teacher(aka snake oil educator to impress their student) and failed trader (which normally has strong engineering or mathematics background but can't trade profitably).
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Seriously ? Commission costs $2 per contract extra if your trading with a proffessional broker and slippage is 1c on liquid contracts. Are you trading with Optionsxpress and trading far OTM on low liquid stocks to draw that conclusion ?
Years ago I've had PUTs in Google and a $20 drop in my favor and LOST MONEY. If I had verticals I would've made money. Volatility and Time Decay is NOT theoretical.
There's a time and place for vanillas and verticals. FYI, MMs dont even trade verticals.
1c is nothing for the $40 stock, but 1c is A LOT for $1 option (1% for one way and 2% for two way). This is not include your commission, let say $2, and your total cost is 6% per trade regardless you win or loss. Don't try to argue your edge will be more than 6% as it is rare and not for retail traders that looking only at tea leaf(chart, indicator, MA, CNBC and etc). A roulette in casino will only need the 2.7% "commission" and they never loss in long term.
Note:
My commission with TOS is only $1.00 due to the size of my account
. I know IB will be cheaper but I need a more reliable platform because I only trade SPX and RUT in volume (slightly OTM with about 2 months out) and i need a good filled.** I never trade SPY options - READ this reply again for 5 times and you know what I mean**
I will no longer respond to this thread. All the best to JC.
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There is only one "cost-effective option setup" and that is buying OTM calls or puts within days of expiry. There is no other option position that will provided you with such a high return on a low investment. Don't let those fancy names fool you - Cover Call, Married Put, Credit Spread, Debit Spread, Iron Condor, Butterfly, Vertical etc. - are all inferior to a simple long OTM option position.
The proof is in the pudding. Total P/L from my ET option trades
The proof is in the pudding. Total P/L from my ET option trades