The best options strategies

ironchef said:
But what about those here who do not trade directional of the underlying but volatility of the options instead?
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Same. Underlying's movement refers to whatever dynamical dimension you're looking at. Top three option's underlyings are Delta (Monyness), Vega (Volatility) and Theta (Time). You can be either Long, Short or Neutral for one or several of these underlyings. If it's not for hedging purpose. We will be either Long or Short somewhere. He said don't expose yourself if you have no idea what the dimension you're trading will behave. It holds.
 
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ironchef said:
But what about those here who do not trade directional of the underlying but volatility of the options instead?
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I think a historical statistical method for volatility, similar to the statistical method used in the said directional case, could be used, IMO...
Ie. make some stats for all the past months or quarters, then calc the win-rate per period...
Of course one will not be able to predict the price or vola of tomorrow, but one could predict or forecast the most possible outcome for the next period (month, quarter etc..) based on the past stats...
 
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botpro said:
Options are a wonderful trading tool.
But finding the right options strategy is not always that easy.
Which options strategy can you recommend?
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Best options strategy is not to buy options. Because of the time decay factor the probability of having a positive trade when you buy options is very low. You have to be very good in predicting trend movements to beat "the house".

Be "the house" - sell options. Yes, there are high margin and in relation to margin the return will be small. However, even when you know nothing in analysis, if you select right out of the money options to sell the chncess of success much higer...
 
viktor_k67 said:
Best options strategy is not to buy options. Because of the time decay factor the probability of having a positive trade when you buy options is very low. You have to be very good in predicting trend movements to beat "the house".

Be "the house" - sell options. Yes, there are high margin and in relation to margin the return will be small. However, even when you know nothing in analysis, if you select right out of the money options to sell the chncess of success much higer...
More...

Selling options is generally more riskier than buying long options, IMO.
But if done right, then both are good vehicles in the trading toolbox.
 
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viktor_k67 said:
Best options strategy is not to buy options. Because of the time decay factor the probability of having a positive trade when you buy options is very low. You have to be very good in predicting trend movements to beat "the house".

Be "the house" - sell options. Yes, there are high margin and in relation to margin the return will be small. However, even when you know nothing in analysis, if you select right out of the money options to sell the chncess of success much higer...
More...
Be the house XD
Yeah. Fly like a bird.
Ops, sorry. You didn't have wings.

You don't eat probability.
Luckily, the market will take you out.
Soon enough for my eyes to stop bleeding.
 
viktor_k67 said:
Best options strategy is not to buy options. Because of the time decay factor the probability of having a positive trade when you buy options is very low. You have to be very good in predicting trend movements to beat "the house".
More...

Apparently you are talking about buying for long options positions.

Can you carry out any hedging for long options?

I just learned today this new/innovative idea from another thread on ET. But I can't find any further info by googling!
 
botpro said:
Selling options is generally more riskier than buying long options, IMO.
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Theoreticaly. On practice you cannot lose more than you have.

If you have $20K and you use all of them to buy lets say QQQ calls you will win if the QQQ goes up and you will lose if the market goes side-way or goes down. And you may lose all $20K.

If I have the same amount and allocate it to sell short QQQ puts I win if the QQQ goes up, side-way and even down as long as QQQ ramains above my strike price.

Yes, if you win (QQQ goes up) your profit will be much bigger and mine much smaller. However, the same as you, I cannot lose more than $20K - I simply receive marging call.

By selling put options short mine profit expectation are low. By buying call options your proit expectations are high. Think where the higher risk...
 
viktor_k67 said:
Best options strategy is not to buy options. Because of the time decay factor the probability of having a positive trade when you buy options is very low. You have to be very good in predicting trend movements to beat "the house".

Be "the house" - sell options. Yes, there are high margin and in relation to margin the return will be small. However, even when you know nothing in analysis, if you select right out of the money options to sell the chncess of success much higer...
More...




You are not taking into account:
  • The Risk/Reward ratio of short positions vs long positions.
  • That the market is irrational and moves in an unpredictable manner.

Credit Spreads have a terrible Risk/Reward ratio and 1 bad trade can easily wipe-out 10 good trades.


:)
 
viktor_k67 said:
Theoreticaly. On practice you cannot lose more than you have.

If you have $20K and you use all of them to buy lets say QQQ calls you will win if the QQQ goes up and you will lose if the market goes side-way or goes down. And you may lose all $20K.

If I have the same amount and allocate it to sell short QQQ puts I win if the QQQ goes up, side-way and even down as long as QQQ ramains above my strike price.

Yes, if you win (QQQ goes up) your profit will be much bigger and mine much smaller. However, the same as you, I cannot lose more than $20K - I simply receive marging call.

By selling put options short mine profit expectation are low. By buying call options your proit expectations are high. Think where the higher risk...
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Hmm. you with your short put can very well lose more than the $20k, especially if QQQ is below your strike at expiration...
And before that, on the way to south, you will get some margin calls...
And, IMO the PnL should be the same in both cases, isn't it? Except that you will lose more than the $20k
should QQQ fall below the strike at expiration. In my case the loss would be capped at the strike, ie. max loss $20k...
 
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