SPY basic CALL/PUT options trading indicator/strategy

S

sonichanxiao

I am new to options trading. Mainly focus on buy and send within the same day.

Wondering what are the most useful indicators people use in here?
I am checking: MACD, RSI mainly, but learning MFI, ROC, ADX and VWAP too.

What kind of strategies people suggest to start with?

Thank you.
 
I started out trading options with indicators and now I do not use them anymore except for moving averages on a larger time frame (4hr and daily).

Price action intraday is quite random and I have not had success day trading. If you want to trade ETFs with options and insist on using indicators, I would prefer RSI on a larger time frame to check the trend, and VWAP intraday.

I am currently swing trading individual stocks with shares as I learn more about options.

Goodluck!
 
Options are less liquid then stocks so you will be getting dinged alot by the spread. If your not a market maker you have no edge in day trading options.

The biggest source of edge in trading options is trading volatility.

Trade the underlying if you want to trade direction
 
TheBigShort, could you go into what you mean a little more regarding this:

"The biggest source of edge in trading options is trading volatility. "

Thank you!
 
Saltynuts said:
TheBigShort, could you go into what you mean a little more regarding this:

"The biggest source of edge in trading options is trading volatility. "

Thank you!
More...
I will answer this question by demonstrating why options should not be used for directional bets. Let's look at NFLX it is breaking to new highs. So you buy a call option. The implied volatility right now is 40% ( top of the range). So if the stock moves up (you were right on direction) but implied vol drops 10% the option will be a loser. If you are trading options you are trading volatility and therefore your edge comes from predicting the spread between implied vol vs stat vol or forward vol vs spot vol.
 
TheBigShort said:
I will answer this question by demonstrating why options should not be used for directional bets. Let's look at NFLX it is breaking to new highs. So you buy a call option. The implied volatility right now is 40% ( top of the range). So if the stock moves up (you were right on direction) but implied vol drops 10% the option will be a loser. If you are trading options you are trading volatility and therefore your edge comes from predicting the spread between implied vol vs stat vol or forward vol vs spot vol.
More...

Agreed. Looking at the NFLX 29 Jun 2018 ATM call options, vega is about half of delta. Which seems highly inefficient for direction. Now to think of it, longer dated options would suffer even more from changes in implied volatility. (I'm going over your calendar spread journal to learn more on how to capitalize on this. Seems like timing is an important factor.)

Here's another question:

If implied volatility has an inverse relationship with the underlying price, are there any disadvantages of long puts compared to shorting stock for a move down? and does shorting puts have any disadvantages compared to going long stock? With this in mind, it sounds like shorting puts for upward direction would have delta, (not sure about gamma), theta, and vega working for you?
 
SmallFry said:
Agreed. Looking at the NFLX 29 Jun 2018 ATM call options, vega is about half of delta. Which seems highly inefficient for direction. Now to think of it, longer dated options would suffer even more from changes in implied volatility. (I'm going over your calendar spread journal to learn more on how to capitalize on this. Seems like timing is an important factor.)

Here's another question:

If implied volatility has an inverse relationship with the underlying price, are there any disadvantages of long puts compared to shorting stock for a move down? and does shorting puts have any disadvantages compared to going long stock? With this in mind, it sounds like shorting puts for upward direction would have delta, (not sure about gamma), theta, and vega working for you?
More...
Actually at the money has the same Vega regardless of the vol line. It's only thr OTM where Vega changes due to changes in vol. (Vomma). Yes long term options are just Vega BUT back month does not increase as much as front months. You need to understand the term structure. I started a thread called "the calendar spread" and "root time". Alot of good insight from more experienced members.

puts usually have expensive skew so no there is no edge there (buying skew). Selling puts is a +ev if done smart.
Volatility trading euan Sinclair pdf. This will answer ALOT of questions. I'm going to re read it this weekend as well.
 
TheBigShort said:
I will answer this question by demonstrating why options should not be used for directional bets. Let's look at NFLX it is breaking to new highs. So you buy a call option. The implied volatility right now is 40% ( top of the range). So if the stock moves up (you were right on direction) but implied vol drops 10% the option will be a loser. If you are trading options you are trading volatility and therefore your edge comes from predicting the spread between implied vol vs stat vol or forward vol vs spot vol.
More...


Thank you sir, that makes complete sense.
 
SmallFry said:
If implied volatility has an inverse relationship with the underlying price, are there any disadvantages of long puts compared to shorting stock for a move down? and does shorting puts have any disadvantages compared to going long stock? With this in mind, it sounds like shorting puts for upward direction would have delta, (not sure about gamma), theta, and vega working for you?
More...

Implied volatility does not have to increase as the underlying price drops. For example, after earnings, underlying price may go up or down, but implied volatility is only reduced.
 
TheBigShort said:
Volatility trading euan Sinclair pdf. This will answer ALOT of questions. I'm going to re read it this weekend as well.
More...

Do filthy (Euan) the service of buying his book if you want that knowledge.

There aren’t that many truly good authors or books in this business. Those that there are deserve your ~$40 in return for what they can tell you.
 
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