Try this: if you have what seems to be a profitable swing trading stock system. For example, your system sez to buy MSFT at the open and sell at certain pcnt profit, or hi RSI, bands, fibs, whatever. If your sys said you had a profit of 1-2% on a certain MSFT trade of for example 3 days, that translates to about 20-25% gain of the near month, near the money call at current IV levels (~27%). If it was a 3% loser after 5 days, that is about a 70% loss on the call. Using an option risk grapher and historical last trade op data, even what's available for free from broker like IB, you can "convert" a stock system to trade long ops. Maybe not extremely accurate, but you should log all trades in a spreadsheet and examine them closely anyway to see how well things are tracking.
Position Sizing For Options
- Thread starter andylethal
- Start date
I stand corrected, correlation is a real problem when doing many option trades so do your best to diversify with things that widly uncorrelated. I myself trade only 1 future at this moment in time and there this rule more or less aplies.Here we go again: mouthing platitudes about how much risk per trade, while not specifying that the trades need to be uncorrelated. (E.G., an AAPL put spread for Feb1 is 90% correlated with an AAPL put spread for Feb8 -- "Hello!")
Thanks, I actually have a similar style as far as holding a position for a week or less. For the most part I'm looking for contracts that are ITM with a .70 or negative .70 delta if I can get'em...So do you size based on the premium then and don't bother with basing off a stop?
Yes. Testing I have done, at least with shorter term swing trades, prove to me that stop losses lower performance greatly. Of course, trading without them on futures, for example, would be suicide. But no prob with long ops.
You might look at trades using pretty far OTM (10-20%) ops. Sometimes they trade funky and the IVs swing way up and down, but lots of times they show very nice gains (+200-300%) on liquid stocks with lowish IVs that move up, say, 5% or so over a few days.
You might look at trades using pretty far OTM (10-20%) ops. Sometimes they trade funky and the IVs swing way up and down, but lots of times they show very nice gains (+200-300%) on liquid stocks with lowish IVs that move up, say, 5% or so over a few days.
How do you create uncorrelated option positions? Do you trade uncorrelated instruments? Do you trade uncorrelated/ opposite strategies? For example, let's say you think market is oversold and you expect it to rally, what would be uncorrelated position? Obviously (maybe not), you don't want to put on a position contrary to what you expect to happen. Unless, you are intentionally building balanced portfolio shooting for relatively small but steady returns?
What about liquidity and spreads on these?
Only works well for super liquid stocks/ETFs as far as I can tell. Wide spreads really kill swing trading options. Hard to overcome 20-40% b/a spreads! But for MSFT, QQQ, SPY and the like spreads and IV seem ok for near month ops, even kind of far OTM.
Are you only trading front month? I try and look at around 45 days out. I do like the indexes though.
Yeah mostly front month. Cheap ops and only hold 'em for a few days!
Yeah, this is one of the problems (for me) with using ops to swing ... The popular stocks ARE the market. So might as well trade the index. Other liquid stocks just not volatile enough. The stocks which are volatile and present opportunities, outside of overall market, are not as liquid. I understand why people gravitate towards selling premium instead. I just can't find that sweet spot.