Swing trading using options

[ZBZB]

link?

Search nvda on WSB.

 

[Pkay]

Referencing your opening post, there are three red flags right away. (1) Starting out, (2) Options, and (3) Under capitalized.

Starting any trading venture, you need to be well capitalized, because learning comes from experience, and experience in trading requires taking losses. (No pain, no gain.)

Options are appropriate if-and-only you have a solid track record in trading underlying instruments. Options are leveraged derivatives with very high trading costs, and they are not at all for somebody with training wheels.

Best thing for you to do is spend a couple years testing and in simulation before you part with your money.

Thanks. Is quite sobering reading your post but I must take on board what you're saying.

The thing is there are people, with plenty of trading experience, who say options trading is not that difficult and is over complicated by many. This makes it very confusing for newbies.

For example there is a man who is quite well know who says that options is the easiest way for newbies to get started for 3 reasons:

1. Low entry cost

2. Leverage

3. Risk is limited and known at the onset (if you are buying options)

You then just assess the medium or long term trend of a stock and buy call or put options in that direction.

Does this sound over simplistic or is there some merit on the approach?

Thanks.

 

[Pkay]

WSB is students buying options with their student loans in a robin hood account. If they go bust they eat noodles for three years.

OK that is definitely the impression I got in my visit there. You wouldn't say that many are proponents of the classical charting or investing school of thought.

What I am proposing is a more measured way of trading options. Using technical analysis to assess which direction a stock is travelling in and then buying a call or put option in that direction.

My concern is that there is a stat which claims that over 90% of options expire worthless. That indicates to me that the odds may not be in your favour..

 

[ZBZB]

OK that is definitely the impression I got in my visit there. You wouldn't say that many are proponents of the classical charting or investing school of thought.

What I am proposing is a more measured way of trading options. Using technical analysis to assess which direction a stock is travelling in and then buying a call or put option in that direction.

My concern is that there is a stat which claims that over 90% of options expire worthless. That indicates to me that the odds may not be in your favour..

Lateral thinking: trend following with short options.

 

[stevegee58]

For example there is a man who is quite well know who says that options is the easiest way for newbies to get started for 3 reasons:

1. Low entry cost

2. Leverage

3. Risk is limited and known at the onset (if you are buying options)

You then just assess the medium or long term trend of a stock and buy call or put options in that direction.

Does this sound over simplistic or is there some merit on the approach?

Thanks.

It's oversimplified.

1. Theta - When buying options (I'm assuming you're not trading spreads) you not only need to be right in direction but also right in time. e.g. stock is at 90 and you buy the 4 week out 100 call. Stock goes to 99, option expires OTM/worthless, you lose your net debit. If you had just bought the stock you'd have made money. It's the classic noob mistake "I was right on direction but lost my money anyway!"

2. IV - Stock goes down, you buy a 90 put with the stock at 100. Because you bought in a down market you paid an inflated price for the put. Stock bounces, IV plunges you lose most of your inflated net debit.

 

[ironchef]

Hi, if one is starting out with a small account of say $2,000, could swing trading using vanilla equity options be a viable strategy? Thanks.

IMHO, that is too small a sum to swing trade options.

Typically, to minimize the "risk of ruin" the advice is not to risk more than 1%-2% of your capitals on each trade. There are several ways to arrive at that #: From experience or from calculating your Kelly Criterion. 1% is $20 per trade. Typical commission and slippage will render you trade with very low probability of success.

Someone, I think it was Xela, advocated for trader with low starting capital to swing trade futures instead.

 

[ironchef]

OK that is definitely the impression I got in my visit there. You wouldn't say that many are proponents of the classical charting or investing school of thought.

What I am proposing is a more measured way of trading options. Using technical analysis to assess which direction a stock is travelling in and then buying a call or put option in that direction.

My concern is that there is a stat which claims that over 90% of options expire worthless. That indicates to me that the odds may not be in your favour..

As another newbie, I wish things were that simple.

With underlying (stocks, etc.) all you need to do is guessing whether it is going up or down, if your guess is correct you make money. With options, you have to guess the up/down of the underlying, guess when the up/down will occur, guess if you are buying with expensive/cheap volatility, guess the correct strike price to buy/sell in order to make money. Your counter party is likely a professional, one who trade for a living. Think about that before you start.

If you are a true retail like me you do have advantages: You trade your own money so no one can pull the money at the most inappropriate moment; you can decide how, when and what to trade so on paper you can pick the best time and best condition to trade.

Welcome to ET.

 

[Pkay]

It's oversimplified.

1. Theta - When buying options (I'm assuming you're not trading spreads) you not only need to be right in direction but also right in time. e.g. stock is at 90 and you buy the 4 week out 100 call. Stock goes to 99, option expires OTM/worthless, you lose your net debit. If you had just bought the stock you'd have made money. It's the classic noob mistake "I was right on direction but lost my money anyway!"

2. IV - Stock goes down, you buy a 90 put with the stock at 100. Because you bought in a down market you paid an inflated price for the put. Stock bounces, IV plunges you lose most of your inflated net debit.

Thanks. But couldn't this happen in any sort of trade whether it's futures, forex or options? There is always a risk of losing money. The key is to win more than you lose.

What instrument or market would you recommend a newbie with only $2,000 starts trading with?

 

[Pkay]

IMHO, that is too small a sum to swing trade options.

Typically, to minimize the "risk of ruin" the advice is not to risk more than 1%-2% of your capitals on each trade. There are several ways to arrive at that #: From experience or from calculating your Kelly Criterion. 1% is $20 per trade. Typical commission and slippage will render you trade with very low probability of success.

Someone, I think it was Xela, advocated for trader with low starting capital to swing trade futures instead.

Thanks, this is a very useful constructive reply, just the sort of thing a newbie needs to navigate their way through trading jungle.

I have looked at futures and interested to know how you think I can seeing g trade futures given that the overnight margin for most futures is $5,000 plus.

What futures instrument would you recommend with just $2,000?

 

[lindq]

OK that is definitely the impression I got in my visit there. You wouldn't say that many are proponents of the classical charting or investing school of thought.

What I am proposing is a more measured way of trading options. Using technical analysis to assess which direction a stock is travelling in and then buying a call or put option in that direction.

My concern is that there is a stat which claims that over 90% of options expire worthless. That indicates to me that the odds may not be in your favour..

You are looking at 2-3 years of study and experience before you can even begin to understand how complex an answer is to that simple post. Basically, you haven't lost your training wheels yet, but are asking why you can't drive an F1 around the track without crashing.

One good thing about this business is there is a ton of free stuff for you to use in starting your education. Free data, free charts, free backtesting platforms, free simulators.

You only learn by doing. So go do it.

Good luck.