Shorting index with DITM options?

[Martin2691]

DITM options caught my eye, however i have some questions. When the time is right i want to short QQQ with this strategy. In the attachment there is an image of put options with longest expirations for QQQ. 7 of them have delta 1.000. The general rule says to go for the deepest options, in this case 275 for 95.93. What exactly do i get if i choose 245 for 65.96? I buy more contracts with my budget and get the same movement but what about the leverage? What about 245 that has still delta 1.0000? Am i buying even cheaper with the same movement ? Do i make more more money eventually? Am i leveraged even more?
Thanks!

 

[GRULSTMRNN]

I always in life go by the mantra "keep it simple, stupid". If you want to short the index then you should short the ETF or short futures. Or buy an inverse ETF. Doing so by options makes it unnecessarily complex. If you want to do so because you don't have enough buying power then you should not be in this business and rather first save up enough funds. I know, boring advice, but either you are in this business for the fun and excitement or to make money.

DITM options caught my eye, however i have some questions. When the time is right i want to short QQQ with this strategy. In the attachment there is an image of put options with longest expirations for QQQ. 7 of them have delta 1.000. The general rule says to go for the deepest options, in this case 275 for 95.93. What exactly do i get if i choose 245 for 65.96? I buy more contracts with my budget and get the same movement but what about the leverage? What about 245 that has still delta 1.0000? Am i buying even cheaper with the same movement ? Do i make more more money eventually? Am i leveraged even more?
Thanks!

 

[AXXXISIGMA]

I'm trying to figure out what you're trying to accomplish.

Are you trying to buy these puts or sell them? I'm assuming buying but you said you wanted to short puts so I'm not sure?

 

[AXXXISIGMA]

I always in life go by the mantra "keep it simple, stupid". If you want to short the index then you should short the ETF or short futures. Or buy an inverse ETF. Doing so by options makes it unnecessarily complex. If you want to do so because you don't have enough buying power then you should not be in this business and rather first save up enough funds. I know, boring advice, but either you are in this business for the fun and excitement or to make money.

Every one's trading methodology fits their knowledge of self. Not everyone keeps it simple, stupid and just buys/sell ETF's. Some arb yield curves, others trade jade lizards in crude oil. It depends on ones own personality. Options are only unnecessarily complex to people who can't read through the "numeraire". Options are contingent claims thus we are dealing with probability. You trade options to take advantage of probability of price and vol. It aint about it being fun or even to make money for me, its the challenge and the achievement of extracting capital from the richest markets.

 

[GRULSTMRNN]

You did not comprehend what I wrote.

I never claimed that everyone should just buy or sell ETFs or stocks. I said that for whatever setup you have, keep positions as simple as possible. Choice of strategy is based on personal preference. Making things unnecessarily complicated so that commission costs are amplified, the time it takes to exit a position takes longer, there might be liquidity constraints and and and. Such choice beginners or stupid people make. The emphasis here is on unnecessarily. Makes sense now?

Every one's trading methodology fits their knowledge of self. Not everyone keeps it simple, stupid and just buys/sell ETF's. Some arb yield curves, others trade jade lizards in crude oil. It depends on ones own personality. Options are only unnecessarily complex to people who can't read through the "numeraire". Options are contingent claims thus we are dealing with probability. You trade options to take advantage of probability of price and vol. It aint about it being fun or even to make money for me, its the challenge and the achievement of extracting capital from the richest markets.

 

[Martin2691]

DITM options buying comes from a book by Lee Lowell called "Get rich with options".The point of buying DITM options is simple. You want to buy 100 shares of Apple that would cost you 193.64*100= 19364 bucks. Lets say you are bullish on Apple. You buy longest dated option contract with delta higher than 90 but 100 is ideal. In this case June2021. Call 75 will cost you 121 bucks. That means for 12100 bucks you hold 100 shares of apple. Almost half the price! And because the delta is 100 you get the same movement as the actuall stock. Again: For half the price you get the same return! The same with shorting... Read the book or at least the chapter on DITM options i recommend it the guy has 30 years of trading experience.

Nobody answered my question so i made some calculations today and the answer is: Yes you get higher return but your breakeven point is further away. And also with delta lets say 0.9 you get 90% of the movement. Not great not terrible but still great when you realize you are risking limited amount of money.

I hope now it makes some sense.

 

[GRULSTMRNN]

Isn't that exactly what I said in one single sentence? Higher leverage.

DITM options buying comes from a book by Lee Lowell called "Get rich with options".The point of buying DITM options is simple. You want to buy 100 shares of Apple that would cost you 193.64*100= 19364 bucks. Lets say you are bullish on Apple. You buy longest dated option contract with delta higher than 90 but 100 is ideal. In this case June2021. Call 75 will cost you 121 bucks. That means for 12100 bucks you hold 100 shares of apple. Almost half the price! And because the delta is 100 you get the same movement as the actuall stock. Again: For half the price you get the same return! The same with shorting... Read the book or at least the chapter on DITM options i recommend it the guy has 30 years of trading experience.

Nobody answered my question so i made some calculations today and the answer is: Yes you get higher return but your breakeven point is further away. And also with delta lets say 0.9 you get 90% of the movement. Not great not terrible but still great when you realize you are risking limited amount of money.

I hope now it makes some sense.

 

[tommcginnis]

That means for 12100 bucks you hold 100 shares of apple. Almost half the price! And because the delta is 100 you get the same movement as the actuall stock. Again: For half the price you get the same return! The same with shorting...
...
...the answer is: Yes you get higher return but your breakeven point is further away.

No.
When you buy DITM, you are paying intrinsic and extrinsic value. The whole time you're holding, that extrinsic value is decaying away, so you need to be right on direction *and* right on timing -- put differently, many people have seen their delta growth met-or-exceeded by their theta decay. So, you do NOT get the same movement as in the stock. And your actual return varies not only with the underlying's movement, but also with every tick of the clock (or turn of the calendar page).

That's why the books that promise so much end up with multiple copies at Half Price Books. Not saying it won't work -- just observing what every practitioner knows: you've got to earn back the theta/time/extrinsic loss first, *then* add a satisfactory RoR.