Options: advantages/disadvantages?

T

traderob

Am used to trading equities and futures. Considering options as an extra tool.

Why should I/shouldn't I?
Options have a premium over equities I think?
Less liquid?
Lot of study to understand them?

What are the reasons for?
margin?
Hedging?
What do I need. Optionvue looks good - but pricey?
How about the players in options? Are they more/less crafty/gullible than the other markets?

Can options be viable for daytrading or are they mainly for longer term?
 
Hi Roberk:
I have offered an opinion on this subject before, but I don't remember the thread. Money managers use options as a tool. For instance, I use options to minimize distributions from a family fund. If you had followed the put/call ratios (equities and index) over the last few months you might have noticed that there has been an increase in options purchases (and sales) indicating that fund managers are using them to protect profits during this seasonally uncertain time. This is one of the reasons that the markets are reluctant to correct down, and instead just trade back and forth in a range. Retail traders use options to put on all kinds of position trades. One of the virtues of options (if you know what you are doing) is that you can put on a position and hedge yourself against daily volatility long enough to let that position develop (using bull/bear spreads and straddles for instance). knowledeable options traders can sell volatility in any of several ways, from selling hedged volatility to outright naked option sales. One more conservative ways to use options is to combine stock and options with covered calls.. This is a big subject and one that you will not quickly exhaust. Fortunately there are other ET members who have plenty of experience and can add to this comment. Hope this helps. Best Regards, Steve46
 
Steve coverd ur question in a perfect paragraph. There are many ways to trade options. And you can trade them short, mid and long term.

There are a lot of factors in trading options, delta's, gamma's and the rest of the greeks. (theta)

To utilize a hedging strag. like buying a 50 lot and hedge with stock is more capital intensive than just out right directional trading a the options.

There are many advantages to options, they key for me is they are qouted in nickles at the minimum, so they move in a least nickle increments. (however, the BOX could bring pennie qoutes in a few years with PIP but for now we are safe)

there are huge factors and diffrences in say puts and calls. This has to do with the rate of change, delta, Gamma, and their effect on say a short call vrs a long put. , even though the direction of both the plays are the same, the outcome could be diffrent, even if they have the same delta.

to Sum it up...Options are more of a thinking game, like chess, thinking 5 moves ahead. I have traded futures and daytraded equties in the last bull, however, i find options to be my favorit so far.

Pick up Sheldon Natenburgs book, McMillan's book is ok, but if its any peace of mind, the majority of Derivitives classes at University of Chicago have Sheldon Natenburg as more practicle than McMillian's books.
 
Quote from roberk:

Am used to trading equities and futures. Considering options as an extra tool.

Why should I/shouldn't I?
Options have a premium over equities I think?
Less liquid?
Lot of study to understand them?

What are the reasons for?
margin?
Hedging?
What do I need. Optionvue looks good - but pricey?
How about the players in options? Are they more/less crafty/gullible than the other markets?

Can options be viable for daytrading or are they mainly for longer term?
More...

In addition to being a very good tool for hedging a stock or futures position or portfolio, options have the distinct advantage of allowing one to profit with various non-directional strategies. That, together with the almost limitless flexibility of options, is what truly sets them apart from equities and futures.

Options, however, despite the leverage and, depending on the strategy used, potentially limited risk are, in my opinion, generally inferior to equities and futures for making directional bets. There's a lot of edge given up when buying premium that makes day or swing trading with options difficult to say the least. But when volatility is as low as its been the last several months, and premium is commensurately cheaper, the case for long gamma is somewhat more compelling.
 
Quote from roberk:

Thanks for the excellent replies. Anymore..?
More...

daytrading options is a tough game to win at. you have to overcome spreads and commish before you can make money. you often start out 10-20% in the hole. for longer term plays options can be nice.
 
Quote from roberk:

Thanks for the excellent replies. Anymore..?
More...

Hi roberk,

FWIW, I never saw the need to further complicate my futures trading with taking positions in options. I take my wins quickly and I take my losses quickly. This works out very nicely for me. I have no difficulty with people doing their thing differently though.

Be good,

nononsense
 
Quote from roberk:

Thanks for the excellent replies. Anymore..?
More...

I like to trade options, because I usually work less than one hour per trading day. There is a lot of time to kill.


:p
 
Quote from omcate:

I like to trade options, because I usually work less than one hour per trading day. There is a lot of time to kill.


:p
More...

Maybe you grow rich only very slowly? :p
 
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