Options trading is not easy. It won't make you rich without your help. I think it's a matter of strategy, but how to organize it correctly? Taking into the account the characteristics of options, I would like to learn properly, how to make a profit from options trading and what trading strategies are the best for you?
Special and important strategies for Options trading.
- Thread starter Jamie J.
- Start date
I started four years ago this month learning how to trade Options strictly for profits instead of doing hedging which I have down pat and automated. Best for me is directional, I can read charts well, so when I would have stock entry, instead of doing stocks, I do Credit Spreads, there are little nuances of which durations and differences in strikes, something best learned papertrading.
Others rely on the Greeks more heavily, I found charts easier, I do watch the Theta and
Theoretical Value(discount/prem) the most for selection.
I am still very much still learning, I know there are many who have a great deal more experience, but it seems Option traders are much more quiet on how they trade than stocks. But once you crack the nut and a great deal of back testing, they are easier to learn than day trading or maybe I been day trading so long I think that.
Good luck
Others rely on the Greeks more heavily, I found charts easier, I do watch the Theta and
Theoretical Value(discount/prem) the most for selection.
I am still very much still learning, I know there are many who have a great deal more experience, but it seems Option traders are much more quiet on how they trade than stocks. But once you crack the nut and a great deal of back testing, they are easier to learn than day trading or maybe I been day trading so long I think that.
Good luck
Options trading is not easy, but that's not to say or imply it's difficult either.
Strategy is always important, but I think what's equally important, if not more, is your ability to predict the underlying's movement.
...it all stems on your ability to understand and predict the underlying's movement -- from there, you build your options strategy.
I personally find it easier to predict my underlying's daily movement before the market opens.
The longer the timeframe horizon, the more ambiguous it becomes to predict movement.
I could tell you my options strategy specifically -- but I would have to kill you afterwards.
Alot of people on this forum asks relatively basic questions, and that's good and fine and dandy -- but you have to Learn on your Own.
All of the great traders...have put in the necessary time to learn and hone their craft.
If you don't have the time and patience for that, then one doesn't deserve to be a profitable trader.
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Here is a comment from someone who is new to options, (I have only being trading options since 2013):
Option is mostly about probabilities, you (and everyone else) can determine the prices and stress test with a simple Black Scholes model (or more advance formula for the experts).
I can tell you what didn't work for me:
Blindly and mechanically selling calls or puts for premium, like what you read in books about how in selling premium you act like an insurance company (the "house"), or following Karen the Supertrader's strategy of selling DOTM options..... I did that in 2013, was literarily "pick up pennies in front of a steamroller", eventually a few big losses wiped out all the small gains.
I backtested SPY from 1993-2015 selling covered calls every month and the return, though positive was less than buy and hold SPY through those years with dividend reinvestment. Same with selling cash secured puts. Now I no longer mechanically selling calls and puts to collect premium.
It is gambling if you do not have any methodology and just play the probability game.
Good luck.
Option is mostly about probabilities, you (and everyone else) can determine the prices and stress test with a simple Black Scholes model (or more advance formula for the experts).
I can tell you what didn't work for me:
Blindly and mechanically selling calls or puts for premium, like what you read in books about how in selling premium you act like an insurance company (the "house"), or following Karen the Supertrader's strategy of selling DOTM options..... I did that in 2013, was literarily "pick up pennies in front of a steamroller", eventually a few big losses wiped out all the small gains.
I backtested SPY from 1993-2015 selling covered calls every month and the return, though positive was less than buy and hold SPY through those years with dividend reinvestment. Same with selling cash secured puts. Now I no longer mechanically selling calls and puts to collect premium.
It is gambling if you do not have any methodology and just play the probability game.
Good luck.
I have to challenge this one. I'd recon that selling ATM cash secured puts would give you the same or better risk-adjusted returns then just S&P total return.
Actually just checked BBG and from 8/1/1993 to 7/29/2016, PUT index underperformed SPTR. Put was 9.08% annualized, SPTR was 9.23%.
The rally in the last 5 years caused the numbers to be inline as SPTR outperformer PUT (13.4% vs 8%) as the market went straight up. Prior to that PUT was winning, especially through 2008.
You could be right and I am aware of a number of studies indicating cash secured puts returned better than buy and hold SPY. In one study published by the CBOE, SPY returned 9.1% vs Put returned 10.8% for a period from 1988-2011. I am sure their data were accurate but I don't think they included commissions and slippages (bid/ask spread). Here are mine criteria:
Since I did not have individual historical implied volatility values back to 1993 I used approximate historical volatility, I then calculated the option premiums using Black Scholes (another approximation) with the historical volatility, 3 month T-bill rate and SPY dividend yield. Also, I sold OTM puts instead of ATM. I did not calculate risk adjusted returns, my rationale was with a time horizon of 20+ years I was looking for absolute best returns.
One of the reasons I used Black Scholes was I could easily stress testing the outcome. I found for example the returns were strongly affected by commissions and bid/ask spread. I could go from outperform to underperform by including my brokerage's commission rates and market bid ask spread. This is significant for us small retail traders. So, my conclusion was for all the works I had to do, the reward vs effort was not worth it even if it outperform SPY slightly. As someone here said, the brokerages were the ones with outsize returns from us trading options. I am still trading option full time but do not mechanically selling puts and calls for premium anymore.
By the way I want to thank many folks here at ET, your posts and helps made me a much better trader today and whether you know or not sle, you are one of them.
Regards,
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You made a good point but personally I got better results buying rather than selling because since 2013 (when I started) we are essentially in a prolong bull market. I am sure my outcome would have been very different if this were the 2008/9 period.
The beauty of options is there are many ways to make money and many ways to lose money. I am still new and am trying to learn to improve my risk management.
Best wishes.