Question on directional trades

[FXforex]

There is no "outcome" until expiry. You have to hold spreads to expiry -- their value can snap quite a bit at the end of life.

You don't have to hold to expiry. If SPX was up 0.7% instead of down 0.7% I would be inclined to close either position with only one day to expiry. Take the money and run.

This is a useless comparison (so far).

Why is this a useless comparison? After only one day we have some good results to compare the two positions. We will get the completed results tomorrow.

jimmyjazz ... my challenge is still open. Post any debit spread of your choice and we can compare it to the long position only (same strike or up 1 strike).

 

[jimmyjazz]

Yes, you do need to hold to expiry to make a good comparison. Debit spreads are hedged instruments, and tend not to show much profit prior to expiry even when the underlying is above the short strike. It is this timing issue that makes me less of a fan more than anything else.

That said, you are taking a far too simplistic view of the situation. A debit spread can be profitable even when the underlying DROPS. This cannot be said of a long call. How can you dispute this?

Horses for courses. You clearly don't grasp all of the parameters at play, and no onesey-twosey anecdotes are going to prove anything one way or another, despite your insistence to the contrary.

 

[FXforex]

Yes, you do need to hold to expiry to make a good comparison.

Absolutely not ...... The market can take back profits or add to losses very quickly on both positions. Prudent to sell before expiry depending on the situation - if I had a nice profit I would probably sell before expiry. In this case it's only a two day trade so there isn't much room to maneuver. Tomorrow is another day, we will see what happens.

Debit spreads are hedged instruments, and tend not to show much profit prior to expiry even when the underlying is above the short strike. It is this timing issue that makes me less of a fan more than anything else.

That said, you are taking a far too simplistic view of the situation. A debit spread can be profitable even when the underlying DROPS. This cannot be said of a long call. How can you dispute this?

Horses for courses. You clearly don't grasp all of the parameters at play, and no onesey-twosey anecdotes are going to prove anything one way or another, despite your insistence to the contrary.

No need for such a long winded post. Why not accept my challenge? Post any debit spread of your choice.

Are you a chicken?

 

[jimmyjazz]

Gosh, it's almost as if you don't listen. Take your bullshit somewhere else.

Debit spreads don't reveal their profit until expiry. If you can't accept this, then you're just a troll . . , in addition to an asshole.

 

[FXforex]

Gosh, it's almost as if you don't listen. Take your bullshit somewhere else.

Debit spreads don't reveal their profit until expiry. If you can't accept this, then you're just a troll . . , in addition to an asshole.

Debit spreads can be profitable well before expiry.

 

[jimmyjazz]

Rarely. But don't let that stop you from being a troll.

<smiley face>

Isn't it funny how assholes think a smiley face absolves them of their behavior?

 

[Dolemite]

Rarely. But don't let that stop you from being a troll.

<smiley face>

Isn't it funny how assholes think a smiley face absolves them of their behavior?

Don't waste your time, I showed him an example where he lost more yet somehow he declared his point proven. I have a feeling he doesn't really trade options or he would know from first hand experience the stupidity in what he is saying. Maybe he is in a debate class in high school/college and has picked a random topic to defend. The smiley faces are his way of saying that he knows he is full of crap.

 

[SteadyOptions]

Actually, debit spreads many times will be more profitable than just single options. There are many parameters involved here (strikes, time to expiration etc.) Debit spreads are simply more conservative strategy. Depending on the strikes, they might have positive theta, while single options will ALWAYS have negative theta. In order for single option to be more profitable than debit spread, the stock needs to move FAST. If it moves but more slowly, debit spread will almost always produce better percentage return.

One more consideration is IV. If IV drops, debit spread will behave better because the short options gain will partially offset the loss.

 

[jimmyjazz]

Actually, debit spreads many times will be more profitable than just single options. There are many parameters involved here (strikes, time to expiration etc.) Debit spreads are simply more conservative strategy. Depending on the strikes, they might have positive theta, while single options will ALWAYS have negative theta. In order for single option to be more profitable than debit spread, the stock needs to move FAST. If it moves but more slowly, debit spread will almost always produce better percentage return.

That's a good way to put it. I tend to trade long calls and long puts mostly because I try to pick reversals. I am not good at forecasting price at expiry -- that's too far out. But you're right, in the event I am either early on the reversal or the trade just moves too slowly, theta hurts my P/L.

I'm not good (yet) at estimating price at expiry, so I don't trade many spreads.

 

[SteadyOptions]

You are correct that spread will be worth its full value at expiration only, but if the stock moves enough, it will be worth pretty close to full value. A $10 spread might not be worth a full $10 before expiration, but it will rise enough for a nice gain.

I see those discussions (which strategy is better?) a lot - there is no right or wrong answer. It all depends on your goals, risk tolerance, market behavior etc.