Good man! Good to see your still at it!
Options vs Futures
- Thread starter gvphubli
- Start date
There is no edge in shorting options....... and Premium being fat in buying options is just a generalization... and to say "locals" which has very little meaning anymore... There really are no trading floors.. then next thing i would expect to hear is.. "dark pools" are taking my money or something... more research for you is what i suggest..
you have a 3-6 month time frame... I would always look at what the cost and riskassociated with the leverage i am taking is... I would look at three simple strategies for this directional trade... a in the money call option... A debit spread, which is a combination of buying a and selling a call.. or just buying an otm call option... because of the small output of money it takes to buy 1 otm call option many people put on to many of them and lose money.. buying 1 gives you alot of bang for your buck in many cases and affords you losing many times with 1 or 2 winners more then making up.. How much are you willing to contribute to this belief.. are you considering staying well under 3 percent of your total speculative capital.. I definitely would look at it from this perspective.. As I think survival should be goal number one! I would take small defined risk bets to get a feel for what an option does over time.. just my opinion..
To add a slightly different spin on this fascinating issue, I think there are several key questions.
First question is, are you trying to predict volatility or direction? Second question, how is implied volatility priced? Thirdly, how comfortable are you with stop losses. Assuming you have no access to guaranteed stops are you happy that you will be ? Fourthly, how expensive is to trade the underlying future? Finally how liquid are the options?
If you're trying to predict volatility and you think volatility will rise
AND implied volatility is relatively cheap
AND the underlying is expensive to trade
AND options are illiquid
... then you should buy option straddles or strangles.
If implied vol is expensive, or options illiquid, and the underlying is cheap to trade, then creating a synthetic option like payoff by following a trend following strategy could be better.
(If you think implied vol is expensive, and you think vol will fall, then you will have to sell strangles and delta hedge them. I mention this only briefly as its not possible to capture this with futures, and its relatively advanced and dangerous territory)
If you're trying to predict direction
AND implied volatility is relatively cheap
AND you're uncomfortable that stop losses will protect you, and you want the guarantee of a maximum loss (the premium)
AND options are liquid
... then you should buy calls (or puts)
If implied vol is expensive, or options illiquid, and you are cool with stop losses, then you should buy (or sell) the future and use trailing stop losses to protect yourself.
Note that I don't believe questions of margin should come into it. The trade should be sized so that for the median outcome about the same amount of risk is at stake, and roughly the same margin is required (although there will be variations during the life of the trade). If you're picking your trade based on margin, then you're probably being too aggressive.
First question is, are you trying to predict volatility or direction? Second question, how is implied volatility priced? Thirdly, how comfortable are you with stop losses. Assuming you have no access to guaranteed stops are you happy that you will be ? Fourthly, how expensive is to trade the underlying future? Finally how liquid are the options?
If you're trying to predict volatility and you think volatility will rise
AND implied volatility is relatively cheap
AND the underlying is expensive to trade
AND options are illiquid
... then you should buy option straddles or strangles.
If implied vol is expensive, or options illiquid, and the underlying is cheap to trade, then creating a synthetic option like payoff by following a trend following strategy could be better.
(If you think implied vol is expensive, and you think vol will fall, then you will have to sell strangles and delta hedge them. I mention this only briefly as its not possible to capture this with futures, and its relatively advanced and dangerous territory)
If you're trying to predict direction
AND implied volatility is relatively cheap
AND you're uncomfortable that stop losses will protect you, and you want the guarantee of a maximum loss (the premium)
AND options are liquid
... then you should buy calls (or puts)
If implied vol is expensive, or options illiquid, and you are cool with stop losses, then you should buy (or sell) the future and use trailing stop losses to protect yourself.
Note that I don't believe questions of margin should come into it. The trade should be sized so that for the median outcome about the same amount of risk is at stake, and roughly the same margin is required (although there will be variations during the life of the trade). If you're picking your trade based on margin, then you're probably being too aggressive.
Options are great for longer trends, if/when they exist, fixed risk, easy to hold for days/weeks, can and have previously made 1000% on a trade just from a SEC related 50% dump the stock had 
Downside, flat markets you still lose value.
Futures for intrday trades, i guess in the money options are intraday tradeable aswell, but never really tried more of a out of the money kinda guy, hence the +1000%
Downside, flat markets you still lose value.
Futures for intrday trades, i guess in the money options are intraday tradeable aswell, but never really tried more of a out of the money kinda guy, hence the +1000%
Oct15 80 delta MSFT calls trade for ~ 6.7X leverage. What's wrong with assessing your budget for the underlying (say 80 shares) and instead purchasing the 80 delta call? The bid/ask is 20 cents out of 500, so it's not horrible, and the time value is about a dollar.
What I like about it is that your losses are contained in the event MSFT dumps more than $5, and gamma is in your favor. What's the big downside? The extrinsic value?
What I like about it is that your losses are contained in the event MSFT dumps more than $5, and gamma is in your favor. What's the big downside? The extrinsic value?
No pattern day trader rules either, Option much better than Stocks I made LOADS very quickly 10+ years ago, then lost Loads even quicker
...care to share specific figures or trades...
