Options: advantages/disadvantages?

[lindq]

Quote from ertrader1:



For example, (im out of this trade so i can speak of it.) I shorted NGEN calls. I was short 500 NGEN calls around 13, as an average short price where the underlyer was. It cost me less to short 500 calls, than to short 50,000 shares of out right NGEN. (of course NGEN you could not short outright shares because there was really no borrowing stock at the time i was shorting. it was unshortable outright, anyways)

Now, i was short a few diffrent months, however besides that, how is the short 500 calls MORE RISKY than shorting 50,000 stock?????????

I

The fact that you would even pose this question - are short calls more risky than short stock - says everything that needs to be said about your credibility.

If Roberk elects to ignore the disclaimers of risk posted by virtually EVERY exchange and broker, then that is his decision. But to infer that short calls, in any form or fashion, are less risky than trading the underlying, is just plain irresponsible.

 

[lindq]

Quote from ktm:

I would go further that the most dangerous thing is a lack of discipline among those who discover options. I have had numerous people approach me who have "discovered" options and want to know more. Eventually they learn that they are able to put on X times the same $$$ on many more options than they would have been able to play on the underlying. I tell them to NEVER use more options than they would have traded using outright stock.

To be sure, after a few winners the wheels start turning and they start doing all the multiplication and the urge is there. We're all human. Fear and greed run this sandbox we are all playing in.

You hit the heart of the biggest problem with options. Countless fortunes have been lost - including a large part of mine a few years ago - when a new options trader is lucky enough to hit a few winners out of the gate while trading small. Then he begins to size up and loses sight of the real dangers until it is too late.

I have always maintained, and still very strongly believe, that a skilled trader will, in the long run, have a more consistent and satisfying career by trading the underlying.

There are a very few instances when options in some form are a viable strategy. But they are definitely not for anyone without a lot of experience in the markets, and the net worth to handle the consequences of bad trading. Hence, the continued warnings of risk.

I have been at this for a long time. And everytime I see someone enthusiastically promoting the value of options, I can immediately sense that they don't have a long history of experience, and have probably only recently started snorting the drug. If they are experienced, then their statements would be much more guarded and responsible.

 

[traderob]

Lindq . ertrader, riskarb, maverick, omcate and all,
I am considering all your advice and comments. The disagreements are where the cutting edge is, and I won't find that on a site promoting options.

Lindq , I think you might have succeeded in calming my urges, or at least ensuring I enter in an incremental way.
So far the problems I see:
1.complex
2. probably need more software (I have tons already)
3. more study
4. premium is a problem if I am buying. NOt clear though- is it an advantage if I am selling??
5. Encourage a gambling streak. But more than futures??
6. Illiquidity means it is harder to close a position than with equities or futures. How bad is this?

Anymore problems?

 

[nodelta]

Quote from roberk:

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

"Extra tool" is the key here.

you can trade both profitably IMO.

Just take a small percentage of your account and start trading options with it. If you blow that out, then you'll have your answer.

I happen to believe options give you more opportunities to profit, in that it isn't always necessary to exit a position the same way you entered it.

There are opportunities to "Manage the Beast" (Cottle) as your view of the market changes.

-ND

 

[riskarb]

Quote from TempusFugit:

Regarding your SPX comment: was that the 1987 crash?

Yeah, Tempus. My pop knew quite a few guys short ITM calls wanting to take the short delta/vega exposure. Unfortunately, selling a couple thousand of 'em at 25vol didn't looks so hot when vol went to 100.

riskarb

 

[easyrider]

My hat is off to option traders. At least those who are good at it. Ive been reading up on them over the years and know they are way over my head. Trading stocks and futures is a piece of cake compared to options. Just my opinion. I certainly would not jump into thiis arena without some serious schooling.

 

[Maverick74]

Quote from easyrider:

My hat is off to option traders. At least those who are good at it. Ive been reading up on them over the years and know they are way over my head. Trading stocks and futures is a piece of cake compared to options. Just my opinion. I certainly would not jump into thiis arena without some serious schooling.

You know what easyrider, it's funny, I think the opposite. I think options are easier to trade then stocks or futures and I have traded all three. At least on a short term time horizon either intra-day or three to five days.

The reason I say this is because I think trading the index futures or stocks intra-day is a very emotional and draining experience. I have a lot of respect for the very few who can trade stocks or indexes intra-day and pull money out every day. I find options trading doesn't have that emotional pressure.

When I traded stocks in NY, I sat next to a guy that made money 97 out of every 100 days. It was unreal, he had ice in his blood. To this day he is still the best trader I have ever met. I'm sure there are better traders out there, I just haven't met them.

I remember trading next to him. I use to trade over 100,000 shares of stock the first 30 to 45 minutes of the market open and I remember how exhausting that was. At the end of the day I felt like I had run a marathon. I have a lot of respect for the guys that can do that day in and day out and keep their mind.

Options are not that hard to learn. There really are only a handful of good books that you have to read versus the thousands or so books on index and equity trading. Also, with options, they are very straightforward. Once you understand them, the rest is up to you. However with equities and indexes, my god, there are a million ways to trade and no straight answers. If you kept reading one trading book after the other you could literally change your trading style every day for 10 years and never trade the same way more then once. Pretty amazing if you think about it.

Hats off to all the profitable underlying traders out there!

 

[easyrider]

Different strokes for differnt folks. Im going to keep studying. I think later on I may take a stab at it.

 

[ertrader1]

I see your point in the SPX options example you think of. And yes we where short (me and My partner) 500 NGEN calls and im not going into detail on who the months where shorted (not all 500 was short the same month and I also bought stock to hedge, etc)

I see your point on Vega, but yet if you followed NGEN, you would see why the play was worth what we did. If and Yes IF Volty exploded we could have taken a hit...however, like I said, If you would have followed NGEN and its over all volume as well as a few other things we watched.....we were confident in the play.

As i was in Shorting many calls of ZIXI as well.

Second, SHORT CALLS INTO A CRASH......not even worried about that situation...if it happens and crash comes along, then i will deal with what i have at that moment. I dont worry about things like that, as i am a trader, not an investor.

I short calls a lot, as i do buy calls as well. PUTS i tend not to get into to much but i will buy a put or sell a put if warranted.

They way i trade i reall dont worry about vega to much.....i know its there and its a small factor for me. As for SEPR...i wouldnt short it for many reasons and its a good example for the Vega worry you speak of.

I am still learning, will always learn, however, I trade options for a living, traded equites before that and futures. I have been trading for an living for 9 years now however, only been trading options for about 2 and half years and recently started a small LLC.

Of my total years of trading i find options to be no more RISKER than any other form of trading. I see more risk in some daytrader putting up 5k to trade 500k intraday, far more risk in that.

I do think you have to understand many definitions and understand the ways the calls/[puts work....but i still find no more RISK in options than equities. Hell, if RISKARB was still a way to make money, i would have to say RiskArb is more complicated than options and maby even risker.

 

[ertrader1]

With all my rambling on about options, this post clears it up



"Its a Porsche, which can accelerate from standstill to 60 mph within 30 seconds, a good car ? To a teenager with a driver permit and three hours of driving experience, it definitely isn't."


I would add, that a teenager could easy learn how to drive this car, just as easy as he could learn to drive a honda, just needs to understand the car.