Basic strategt
Buy call : you are long now
Buy puts : you are short now
Wait the stock move fast in a direction and close the wrong trade
Your risk= premium of the wrong trade
If the stock went side ways you lost both premiums
Question to options traders
- Thread starter Ates
- Start date
Buy call : you are long now
Buy puts : you are short now
Wait the stock move fast in a direction and close the wrong trade
Your risk= premium of the wrong trade
If the stock went side ways you lost both premiums
you have to take time into consideration as you wait for the stock to move the values of your bought options is deteriorating fast and cementing the profits i get to keep when i sold you those options. giving you hope that the explosive move you have been waiting for will make you profitable when in fact there will be little value left and you still will lose all the cot of the other side of the trade that you lost.
i tell you the truth option buying is a fools way to lose money more slowly and enrich the clearing firm while doing it.
Oddly, each of the most dominant option trading firms on the floor, in my day, had policies prohibiting their traders from being net short options. Policies that a violation of led to immediate termination. Each of the firms I am thinking about were freakishly profitable and turned into massive derivative trading groups.
those firms you are talking about made all their money off commissions
option buyers are lotto ticket buyers and option sellers are lotto pool operators
all educational materials for options are geared towards giving hope to option buyers
the industry and exchanges make the entry level nearly impossible for option sellers
billionaires everywhere get up each morning and sell options expecting to never lose
nothing will ever change the greed of the poor blinds them to improbability of option buying success
Option buyers are like venture capitalists.
Actually all educational materials for options are geared towards selling options to "generate free income".
are you talking about short term contacts? if yes, then i agree with yout.
I am talking about long term options where growth companies can move and profit can happen.
typically on this forum people are day trading them or less than monthly.
i think your talking more about an investment vehicle?
Like somebody else here, I'm also a noob, but doing average (not consistently losing), only buying options on SPY. I usually buy only one side, and only buy both sides (Straddle) if I'm unsure of direction but expect either direction to be >3x my investment.
I only trade options <3 days from expiration so I couldn't tell you how far I'd buy, if I felt the price was going down over that duration, but let me share what I'd do as it applies to shorter expirations.
For starters, you never have to wait for expiration to close a BUY/SELL position. I never do and open close BUYING trades after holding them for 30min - 3hrs.
Buying, I never wait. Always close well before.
Selling, it doesn't matter. It's usually more profitable the closer you get to expiration.
In my world of buying under such short expiration times, prices can reverse on me fast. I never try to squeeze an extra 5%-10% more profit.
How do I pick which option?
The shorter the time left to expiration,
- the closer to ATM strike (from OTM) or deeper ITM
- the shorter the time I hold it
The more time left,
- the deeper OTM I chose.
If you think the move will take a week, I might buy perhaps 3-5 weeks out.
Again, I'm no expert here.
When SPY reverses on you and your option price drops, then SPY returns to the SAME position, your option price will be LESS. You think you would be breaking even, but you won't. Price now has to return back more in your expected direction to break even.
The further OTM you are, the more dramatic this is.
The closer to ATM, the less dramatic, the more it matches SPY.
(I rarely trade ITM, so I don't know how it is there for longer expirations)
Being correct in direction is extremely important when buying options alone, not in a combo.
The tighter the expiration, the more sensitive your option will be to SPY movements.
The further out from expiration, the less sensitive, but the less % profit you'll make.
Volatility is important too.
If SPY slopes in the direction you want, but the slope will be smaller than the recent slope, you can lose money buying. If SPY flat-lines, you lose money buying too. These times are best for selling Puts and Calls.
I'm no expert in the long expirations you are looking for, but if bought 2-3 weeks out, I'd only hold it for a week. I may even hold it for a few days because time eats into the price too much. Me, I would always close it before 7 days left.
Something else,
I usually don't enter a trade if ~25% of it has already begun.
In your chart example, to me, it feels like it's borderline. It's likely already moved too much and isn't worth the risk.
Option prices don't move linear to SPY. They're more dramatic. Big moves at the start of SPY movements, and big moves at the end. Price doesn't move as dramatically in the middle. If you enter too late, you're screwed. Option prices are not at a bargain half way through the move. You might make a little, break even, but more likely you'll lose money because price drops fast at the end.
It's not like stocks were if you entered a trade at 50% of the move, you'd could make ~50% of the total if you bought at the start. In options, if bought at 50% of the move, you would be closer to <20% of the total if you bought at the start. Add in the spread, and the spread widening at the end, you're screwed.
A key to being profitable when buying, is entering the trade when it's "quiet" before the storm.
How dramatic all this is, depends on how far ITM/ATM/OTM and expiration time left.
Last edited:
Maybe you should consider trading options > 3 days from expiration, less noisy. But, I am a newbie too, so borrow a phrase from my mentor @murray t turtle: NOT A PREDICTION.
The fools are tail risk sellers, Mark Brown does not understand options.