Myth or fact?
Success in trading stocks a prerequisite for success in trading options?
- Thread starter turkeyneck
- Start date
I see you trying to light a fire, but I don't think this will yield much controversy because there is a logical answer. Then again, I'm not sure logical answers have stopped controversy on ET before...
At any rate, if you are not delta neutral, then the answer to your question must be fact! If you are delta neutral, then the answer to your question is myth! The true answer lies somewhere in between
At any rate, if you are not delta neutral, then the answer to your question must be fact! If you are delta neutral, then the answer to your question is myth! The true answer lies somewhere in between
I've been trading options for 14 years and I will say that if you are not a good directional trader, you have little to no chance making money trading options. The myth is that of the retail market neutral options trader. He doesn't exist. He may think he does, but he doesn't. Discuss!
Shouldn't the bigger question be whether success in trading stocks or options is a myth or a fact (half kidding)?
I have little to no experience in either but it strikes me (no pun intended) that short of true arbitrage - the instrument doesn't make much difference. Either you can trade or you can't.
Seems to me the choice of instrument is a personality preference which may help maximize earnings given a certain person's skill set and/or personality.
...lately, my instrument has been pocket kings and a felt table.
I have little to no experience in either but it strikes me (no pun intended) that short of true arbitrage - the instrument doesn't make much difference. Either you can trade or you can't.
Seems to me the choice of instrument is a personality preference which may help maximize earnings given a certain person's skill set and/or personality.
...lately, my instrument has been pocket kings and a felt table.
Quote from Soon2Bgreat:
Shouldn't the bigger question be whether success in trading stocks or options is a myth or a fact (half kidding)?
I have little to no experience in either but it strikes me (no pun intended) that short of true arbitrage - the instrument doesn't make much difference. Either you can trade or you can't.
Seems to me the choice of instrument is a personality preference which may help maximize earnings given a certain person's skill set and/or personality.
...lately, my instrument has been pocket kings and a felt table.
I think there is a unique set of circumstances in options concerning "retail" traders that allows them to think they can make money trading volatility when in fact they are de-facto directional traders.
True volatility trading dynamically hedges positions to have no delta exposure and isolates the volatility component. This is what market makers on the floor did for years. I think a lot of guys on here that trade iron condors think they are volatility traders or that they can have success slapping on a spread that will generate deltas (direction) and yet be impervious to the consequences of those deltas.
If you are a long term ( five years or longer ) stock investors, options won't help you much whether you are successful or not.
However, if you are short term ( days or weeks ) stock trader and you are very successful, without doubt, options will juice up your return if you use options selectively.
If you can't trade stocks successfully then you have to be a lot more sophisticated to make money with options.
Ignoring the soon to blow out lottery ticket noobs, I suspect that an awful lot of retail trades options because they can be in the game with a modest amount of cash (and risk), make a modest amount of money and get to talk the talk at cocktail parties (or on ET).
Ignoring the soon to blow out lottery ticket noobs, I suspect that an awful lot of retail trades options because they can be in the game with a modest amount of cash (and risk), make a modest amount of money and get to talk the talk at cocktail parties (or on ET).
I am largely in agreement. The most obvious exception would be delta hedgers, who dynamically hedge their option position with stock or futures so as to remain delta neutral. They make money if they correctly judge whether the implied volatility is too high or too low, rather than by betting on the stock price direction. Of course very few retail traders do this kind of trade. But even delta hedgers are to a degree betting on stock price direction because there is such a strong inverse correlation between stock price direction and volatility.
Some option trades give you more slack than stock traders have -- you can sell credit spreads that make money if the asset moves in the right direction or at least doesn't move too far in the wrong direction. But if you misjudge and the asset moves strongly in the wrong direction you lose money anyway.