Sorry, was never good with option spread trading. I do better trading directionally and if I keep the losses small, profits will take care of themselves because they are larger. Big losses can come and it stings but, as long as I keep it to a minimum, overall, the results should still be good for me. My expectation is positive because I have a win % of 40%, loss % of 60%, average win is 2 times that of the losses. I do not worry about the option prices because I trade pullbacks, breakouts and reversals. Only thing I won't do is pay $1,000 for one contract. That would violate my risk management part of my trading plan. I have a $600 limit per trade most times. Options prices has been going down or flat most days before I enter the trade. It won't matter if I pay an extra $100 in premium if the stock runs up the following days after I enter the trade. The increased volatility will increase the option prices in a short period of time. Exactly, what options traders want!
Profitable Options Traders - Long Term
- Thread starter Palindrome
- Start date
Sorry, was never good with option spread trading. I do better trading directionally and if I keep the losses small, profits will take care of themselves because they are larger. Big losses can come and it stings but, as long as I keep it to a minimum, overall, the results should still be good for me. My expectation is positive because I have a win % of 40%, loss % of 60%, average win is 2 times that of the losses. I do not worry about the option prices because I trade pullbacks, breakouts and reversals. Only thing I won't do is pay $1,000 for one contract. That would violate my risk management part of my trading plan. I have a $600 limit per trade most times. Options prices has been going down or flat most days before I enter the trade. It won't matter if I pay an extra $100 in premium if the stock runs up the following days after I enter the trade. The increased volatility will increase the option prices in a short period of time. Exactly, what options traders want!
Only way you will lose 100% of the options premium is if you hold a losing trade all the way to expiration date. Why not take the residual value of the premium and cut your losses? The residual value of the premium can be used for the next trade. Why waste those monies? That is why I favor small losses. If I lose $50-$100 on one trade, no big deal. A lot of times, I would even have a small profit of $100-$150 so, even better! If I have to exit a trade, I will do so. The profit or loss is a secondary consideration. Preserving the capital is priority!
$500 a trade. Wins are $1000(2x loss). Loss are $500. Win ration is 60/40. .60*1000 - .4*500 = $400 per trade on a 1 lot. Wow this is incredible. Please tell me this strategy is scaleable. Send me a PM so I can retire
.$500 a trade. Wins are $1000(2x loss). Loss are $500. Win ration is 60/40. .60*1000 - .4*500 = $400 per trade on a 1 lot. Wow this is incredible. Please tell me this strategy is scaleable. Send me a PM so I can retire
Win % is 40% and Losses are 60%. There is another guy with a journal on my trades. He is 10 times the trader I am. He is the one you should be emulating not me! Options spreads work for you, why do directional options trades which is more stressful?
My option trading strategy is simply put (approximate values):
- 2/3 of portfolio - LEAP options on stocks based on momentum - i.e. pure directional play using leverage of options to increase return. Roll 2-3 months before options expire (or sell);
- 1/4 of portfolio - non directional short term trades or trades based on volatility growth/collapse;
- remainder is in mixed group of 5 ETFs following particular sectors (utilities, health etc...) and a few stocks.
As we have been in a ripping bull market for a record amount of time the results have been great. Note that this is not for the faint hearted - the LEAP positions were up 70% YTD at the very peak in February and after the correction were around 11% up YTD in March. A major stock market crash can wipe off 80% of the LEAP value hence the non directional trades are partially geared towards ones where there is certainly NO loss if the market goes down significantly.
- 2/3 of portfolio - LEAP options on stocks based on momentum - i.e. pure directional play using leverage of options to increase return. Roll 2-3 months before options expire (or sell);
- 1/4 of portfolio - non directional short term trades or trades based on volatility growth/collapse;
- remainder is in mixed group of 5 ETFs following particular sectors (utilities, health etc...) and a few stocks.
As we have been in a ripping bull market for a record amount of time the results have been great. Note that this is not for the faint hearted - the LEAP positions were up 70% YTD at the very peak in February and after the correction were around 11% up YTD in March. A major stock market crash can wipe off 80% of the LEAP value hence the non directional trades are partially geared towards ones where there is certainly NO loss if the market goes down significantly.
Interesting thread. I have been using a mean reversion strat on S&P constituents for the past five years. As the average trade days = 4 Days, options are a great way to reduce risk and still get the exposure. I use algos to find targets. I’m interested in others that use the underlying as the trade signal.
I'll admit, that if I can't sell time, I'm not really that interested. (As I watch tomorrow's long S&P 2915/2920s die an ignominious death
... If I can't get some IV distance above HV to justify selling time, I'm going long/short on the underlying, and not wrestling with decay, period. Makes me feel like a sucker. (Or a gambler -- one type of sucker.)
$500 a trade. Wins are $1000(2x loss). Loss are $500. Win ration is 60/40. .60*1000 - .4*500 = $400 per trade on a 1 lot. Wow this is incredible. Please tell me this strategy is scaleable. Send me a PM so I can retire
I don't think this is easy, but it is certainly not impossible.
Take it a step further, you can cut your losses on the option to about 75% of original entrance.... buy call for $1, stop out at $0.25...that further helps the endeavor of the "spread" between winners and losers.
Timing the underlying is critical.
If I follow 30 stocks, and place 6 trades per month and the absolute best setups... I think I can have half of my orders correct... and the ones that are incorrect, stop out at 75% loss, and potentially hit what has been described and scale and retire.
1. Ignore whatever advice McGinnis offers.
2. Trading long gamma outright due to the implicit stop is a bad idea. dgamma/delta decay kills.
3. Spread EVERYTHING. Even intraday positions. Flies are magical when OTM. I know; destriero and the flies, but there are massive gains to be had with OTM flies, and they're cheap.
2. Trading long gamma outright due to the implicit stop is a bad idea. dgamma/delta decay kills.
3. Spread EVERYTHING. Even intraday positions. Flies are magical when OTM. I know; destriero and the flies, but there are massive gains to be had with OTM flies, and they're cheap.
Question:
Why are flies so attractive to you and the other pros?
Me, I haven't graduated from directional trades after 5 years, obviously because I am profitable. But I would like to branch out to non directional if I can so I won't get kill once the bull stops.