options for average individual

T

Treve1

I am trading options for quite a while already and I can only break even. It looks like there is something wrong with my approach and I need to change / adjust my trading method. The way I trade currently is collecting a large amount of data and back-testing it. I have a data of about 6 months daily screens of options I am interested to trade and I mostly do strangles. My questions:

1. It takes a lot of time to collect the data and analyze it. Would'n be better or even necessary to purchase a back tasting tool to speed up the work? What tool would you recommend to a very average person with not great math skills? As simple as possible would be perfect.

2. Assuming I am trading weeklies. Am I fated to lose the game from the very beginning? This is because I am not using any sophisticated tools and can not even compare my skills with the experienced "poker players". It is like a playing poker with the very experience player where you have absolutely no chance?

3. As mentioned before I am average person, no particular math skills, improving my discipline, have a sound psychological understanding about emotions and rather good money management skills. Is this enough to trade weeklies?

Please do let me know your opinions if this makes sense, If not, fair enough for me and I rather concentrate on long term investment. It will just save a lot of time for me.

Thank you.
 
I think that generally there is very little edge in weeklies. The opening orders in weekles are so massively skewed to the sell that they often open at a substantially lower vol on the opening rotation on Thursday (than their figures later in the day).

The weeklies are very sensitive to say, the 5-day realized vol figure. If you can trade short-term direction well you will find a home with the weeklies, but they're not for predictors of implied vol. The monthlies are far better bets on implied vol / realized vol.

Choose the weeklies if you can predict a strike touch at high accuracy. Choose the monthlies if you're better at prediction variance.

Do not trade Thursday open if you're looking to sell the weeklies. Wait an hour or two.
 
Quote from Treve1:

It looks like there is something wrong with my approach and I need to change / adjust my trading method.
More...

What is your approach? Long options, short options or both?


*edit- now I see it, strangles. Long call long put basically?

Serious time decay working against you if so.
 
yes I am trading strangles, sometimes monthly expiration, but more weeklies. I am trying to catch the big move, like for example FB on 15 and 16 June where it went up 6% respectively. So on one of the days the calls were up by 700% and you would only loose about 90% on the put.
So I am trying to analyze some patterns in stock market movements to predict strong move up or down, although the mentioned FB options moved high without strong market movements. Someone would call it market timing which is pretty impossible to predict, but I think few times a year you probably may predict strong marker movement. When would that be?
Buying strangle on weeklies on the release day Thursday or perhaps Friday could limit your risk potentially as you would still have a whole week until expiration. I would not mind to lose few times 10 to 15% to catch one such a strong move with FB for example. This is actually something new I am testing and if you could give some advises on this it would be mostly appreciated.
 
Quote from Treve1:

I am trading options for quite a while already and I can only break even.
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Congratulations on breaking even.

You've picked a very tough game to win, and you should consider just walking away from it.

IMHO, if you would put a fraction of the time into learning to trade the underlying instead of trying to master options strategies, you would be better off in the long run.
 
Quote from Treve1:

yes I am trading strangles, sometimes monthly expiration, but more weeklies. I am trying to catch the big move, like for example FB on 15 and 16 June where it went up 6% respectively. So on one of the days the calls were up by 700% and you would only loose about 90% on the put.
So I am trying to analyze some patterns in stock market movements to predict strong move up or down, although the mentioned FB options moved high without strong market movements. Someone would call it market timing which is pretty impossible to predict, but I think few times a year you probably may predict strong marker movement. When would that be?
Buying strangle on weeklies on the release day Thursday or perhaps Friday could limit your risk potentially as you would still have a whole week until expiration. I would not mind to lose few times 10 to 15% to catch one such a strong move with FB for example. This is actually something new I am testing and if you could give some advises on this it would be mostly appreciated.
More...

I would enter a paper trade strangle or straddle, then when/if one "leg" hits +100% buy that option for real and see if you can get 100% or more out of it.

:)
 
Quote from lindq:

Congratulations on breaking even.

You've picked a very tough game to win, and you should consider just walking away from it.

IMHO, if you would put a fraction of the time into learning to trade the underlying instead of trying to master options strategies, you would be better off in the long run.
More...

I agree 100%.

Story of my trading career!

Long options are very difficult to make money trading. I spent 2 years trying to break even using calls or puts in directional trades.

Then I switched to just stocks & etf's........ instantly profitable.

A long option position is like a river flowing against the direction you're trying to swim. You can make progress if you're strong, but why not just swim to shore and walk? It's much eazier......

:D
 
Why would an average individual hang out on elitetrader.com? You cant put the elite in elitetrader if you're average.
 
Quote from Treve1:

yes I am trading strangles, sometimes monthly expiration, but more weeklies. I am trying to catch the big move, like for example FB on 15 and 16 June where it went up 6% respectively. So on one of the days the calls were up by 700% and you would only loose about 90% on the put.
So I am trying to analyze some patterns in stock market movements to predict strong move up or down, although the mentioned FB options moved high without strong market movements. Someone would call it market timing which is pretty impossible to predict, but I think few times a year you probably may predict strong marker movement. When would that be?
Buying strangle on weeklies on the release day Thursday or perhaps Friday could limit your risk potentially as you would still have a whole week until expiration. I would not mind to lose few times 10 to 15% to catch one such a strong move with FB for example. This is actually something new I am testing and if you could give some advises on this it would be mostly appreciated.
More...

You're long volatility.
The whole point here is IF the IV is low as compared to normal, or normal and you have a good reason to think it should be higher, buy a strangle/straddle. It's delta neutral and very sensitive to vega. If vol spikes, you'll make money.
You have to treat the WHOLE thing as a single position. Put in a GTC order for your profit target expressed as the value of the entire spread. Wait for the event (earnings, missile hitting Corp HQ, CEO found in bed with something non-human) and if the thing doesn't make you money on the event, get out.
 
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