That does not happen at ET...
Options Daytrading?
- Thread starter WarrenPeace
- Start date
That does not happen at ET...
Unfortunately it is included in the user agreement on ET.
Fortunately it is kept to a minimum at certain other (obese-tail) forums. :eek:
That's a very good point, the one about catastrophe and leveraged futures.
If there is a 9/11 type event and there is a 150 point drop, if one has a resonably tight stop of let's say 5 points on the NQ, do we expect that stop to drop all the way to 150 or can we expect a reasonable fill along the way?
The safety features that you're mentioning are all critical and are excellent reminders why one is best suited to use options, more so in a swing trading program, so thanks for those highlights. However, we're talking about daytraders (the original poster) who typically is not going to catch the entire range of a daily move. They're in for a few dimes at the most (generally speaking) with that kind of leverage. If we use your example of 5 NDX points which is perhaps equivalent of scalping 2 dimes on a 50 dollar stock. If you take out the spread (.70) on the NDX calls in your example, I believe the return falls to less than 3% (I could be off) on that 5 point move thus the underlying makes it moderately a better bang.
Now, If I were to daytrade options which I infrequently do, I would certainly not be choosing NDX as my vehicle of trading. APPL, RIMM and several NYSE stocks would be a better choice as the option spreads (using AAPL and RIMM here) is typically 0.20 cents versus .70 for NDX. Naturally I'm not comparing apples to apples when it comes to price, but the moves are typically greater (if you pick the right component stock) than their parent index. We also need to consider the volatility of the index compared to highly liquid equities such as RIMM. With todays 46 point move on NDX, assuming you caught the entire range and after subtracting the spread, your return on an ATM DEC option (delta 50), would be around 34.9%. RIMM's move today was $11.35 which would have yielded 44.59% on DEC ATM option (nearly the same delta) - a 27% better return. Last, NDX doesn't travel 40 + points very often as we've been experiencing lately, but many liquid stocks do almost on a daily basis, thus you're not limited to only the NDX.
For safety reason though as you mentioned, Options are always the better choice.
Yes but you need to be fair. The return on the underlying trade also didn't consider costs. If I include Interactive Brokers costs on both the futures and options scenarios above, the results are as follows.
NQ roundtrip costs (comm + slippage) ~ $55
ROI = 2.65%
NDX Calls roundtrip costs ~ $130
ROI = 2.94%
I'm not saying that the options costs are desirable. Only that the two are quite comparable. Obviously, futures are easier to get desirable fills, which is why I said they are easier to daytrade.
I prefer index options for the absence of individual events and smoother IV changes. On a daytrading basis, vol changes aren't your friend. Daytrading is almost strictly directional. Just personal preference. I used to trade other tickers with 0.05 spreads until I realized that NDX options have nominal values around $60. A 0.10 spread on a $5 option sucks next to a 0.60 spread on a $60 option. Slippage with tickers like AAPL and RIMM is very close to slippage on NDX options, but commission are 6X higher with the individual equities.
0.10 - 0.20 roundtrip slippage on a $10 option
vs.
0.60 - 0.70 roundtrip slippage on a $60 option
I don't think the higher beta of the individual equities is a valid argument because that can either be beneficial or harmful. If the position moves with great magnitude in the wrong direction, you'll be wishing for lower beta. The higher beta increases both risk and return. Unfortunately a large favorable move won't get you a better fill on a limit sell, but a large unfavorable move will get you a worse fill on a stop loss. This is all just my personal preference though. To each his own.
True. With commissions and the dreaded slippage
, the results come out differently. Keep in mind that someone with 6K would be better off legging in $10 options on AAPL 6 times rather than putting the entire wad on 1 number with NDX. The trader can also be creative by buying 4 calls and 2 puts and not worry much about timing. So there's a few scenarios that to me at least would be more enticing. There will be more commissions but they're negligent when not being whipsawed is a top priority. In your argument about the drawbacks regarding higher beta stocks, I prefer them over the lower ones and that's a personal preference of course because if you're going to be a good timer with NDX, you better be just as good with individual equities. Timing after all is important. The equity trader however, can leg in for the same 6k also like he would with my options example above, without using his entire leverage all at once. However, I do see your preference and love for the NDX options. Best of luck in your trading.
trading the nasdaq fut is always better off than the ndx options on a daily time frame. in this tight time frames, on the long run, money is made or lost in slippage and comms, not in protecting against a potential major outlier. the slippage involved in trading in a and out ndx options on a daily basis raises the bar of profitability to a level where the trader has to overcome so much negative expectancy only to breakeven, that the most likely scenario is ending up bust after statistical relevant chain of trades (say in the thousands area). the gearing might be superior, but is always at the expense if carrying additional risks, such as the vega and theta.
conversely, trading the equivalent fut allows to keep slippage and comms to a minimum, while the risk of a black swan event, even though it is still there, it is reduced by the fact the trader is using intraday time frames.
i would give some extra credit if the poster recommends deep ITM options since those trade close to 100 deltas and have an "edge" due to its steep non-linearity (move up in tandem with the underlying in one direction while lose value at less extent due to having gamma boosting deltas, until it reaches ATM). However, deep ITM's trade at far greater b/a spreads to compensate this potential advantage, therefore it is eventually useless to use them this way on a daily time frame as well.
notwithstanding all this, i agree that ndx are one of the best options available to trade in the us even though not as good as the estx50 options that trade in the eurex. these trade at thinner b/a and usually trade in 1000+ lots during heavy trading hours (contract value 40k euro). also in this case, any day trader is better off with the equivalent fut, transaction cost wise.
conversely, trading the equivalent fut allows to keep slippage and comms to a minimum, while the risk of a black swan event, even though it is still there, it is reduced by the fact the trader is using intraday time frames.
i would give some extra credit if the poster recommends deep ITM options since those trade close to 100 deltas and have an "edge" due to its steep non-linearity (move up in tandem with the underlying in one direction while lose value at less extent due to having gamma boosting deltas, until it reaches ATM). However, deep ITM's trade at far greater b/a spreads to compensate this potential advantage, therefore it is eventually useless to use them this way on a daily time frame as well.
notwithstanding all this, i agree that ndx are one of the best options available to trade in the us even though not as good as the estx50 options that trade in the eurex. these trade at thinner b/a and usually trade in 1000+ lots during heavy trading hours (contract value 40k euro). also in this case, any day trader is better off with the equivalent fut, transaction cost wise.