Trading future options vs Trading futures

dextor said:
Matt, what you are essentially saying is that options cannot be use to trade direction then - Am I interpreting this correct? Isn't there an intrinsic value attached to options (which I think can be use to represent your direction) ? Of course this is also determined by delta right?

I was trading on IB margin account, wasn't referring to shorting options. I was referring to long options.

Fighting trend and time decay yes, if you hold a longer duration. What if you use it as a type of stop loss rather than using hard stops - for directional trades that is. ( in short for a day or 2 trades - day trading (shorter term))
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No, what Matt is saying is that futures are a cleaner way to express a view on direction than options.
 
dextor said:
Matt, what you are essentially saying is that options cannot be use to trade direction then - Am I interpreting this correct? Isn't there an intrinsic value attached to options (which I think can be use to represent your direction) ? Of course this is also determined by delta right?

I was trading on IB margin account, wasn't referring to shorting options. I was referring to long options.

Fighting trend and time decay yes, if you hold a longer duration. What if you use it as a type of stop loss rather than using hard stops - for directional trades that is. ( in short for a day or 2 trades - day trading (shorter term))
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You could form a sort of stoploss or hedge with options but I would be concerned about transaction costs and loss of value of the option eating into profits. I assume from what you have written that you are a swing trader and your positions are subject to wider price variations then a true intra day trader. If so this might actually circle back to what Matt was saying about volitility. If the option position is protective then it in and of itself is not directional and partially volitility based.
 
Yes, you are right in that I have been into swing trading rather that intra day trader (but either way, I still exit my trades before the end of the day, so does that still mean I am intra day trading?)

I was thinking along the lines where say for example, NQ was trading at 6500, and I buy a ITM call with strike 6500 (hoping that the underlying would go up) with a premium of $300 vs placing a hard stop where price doesn't hit (this stop loss may be somewhere around $400-$600). Would it make more sense to have a wider hard stop when I can have an ITM call that cost $300 in premium? Well if my ITM call goes OTM, then my maximum loss would be just $300 right? I am just oversimplifying this and i do understand that volatility, theta, delta, gamma all should be part of the equation. But what I am more concern of is just that maximum risk.

Please bear in mind I am a newbie in option, so there could be still something I could have missed out.

Traderjohnsblog said:
You could form a sort of stoploss or hedge with options but I would be concerned about transaction costs and loss of value of the option eating into profits. I assume from what you have written that you are a swing trader and your positions are subject to wider price variations then a true intra day trader. If so this might actually circle back to what Matt was saying about volitility. If the option position is protective then it in and of itself is not directional and partially volitility based.
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dextor said:
Yes, you are right in that I have been into swing trading rather that intra day trader (but either way, I still exit my trades before the end of the day, so does that still mean I am intra day trading?)

I was thinking along the lines where say for example, NQ was trading at 6500, and I buy a ITM call with strike 6500 (hoping that the underlying would go up) with a premium of $300 vs placing a hard stop where price doesn't hit (this stop loss may be somewhere around $400-$600). Would it make more sense to have a wider hard stop when I can have an ITM call that cost $300 in premium? Well if my ITM call goes OTM, then my maximum loss would be just $300 right? I am just oversimplifying this and i do understand that volatility, theta, delta, gamma all should be part of the equation. But what I am more concern of is just that maximum risk.

Please bear in mind I am a newbie in option, so there could be still something I could have missed out.
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I get what you are saying. If I understand you correctly it will like you think it will. Given what you have described I would encourage you to look into vertical spreads. Bottom line is that you are on the right track with your thinking assuming that liquidity is ok.
 
dextor said:
Fighting trend and time decay yes, if you hold a longer duration. What if you use it as a type of stop loss rather than using hard stops - for directional trades that is. ( in short for a day or 2 trades - day trading (shorter term))
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I do not want to be dismissive of any methodology. But, the question that I always ask is whether you can use the same method consistently in lieu of your time frame. When you buy an Option along with the future, you will need to overcome the cost of the options and commissions. If the Options is close to the money, then it will be high. If it is far, the premium will be lower but you will face higher risk on the Futures. So I am not sure that buying Options as a strategy on two-day trades will help you. Again, do what you feel is right for your risk tolerance while knowing the upside and downside of each strategy.
 
MattZ said:
I do not want to be dismissive of any methodology. But, the question that I always ask is whether you can use the same method consistently in lieu of your time frame. When you buy an Option along with the future, you will need to overcome the cost of the options and commissions. If the Options is close to the money, then it will be high. If it is far, the premium will be lower but you will face higher risk on the Futures. So I am not sure that buying Options as a strategy on two-day trades will help you. Again, do what you feel is right for your risk tolerance while knowing the upside and downside of each strategy.
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Ya I tried to not comment on the trading plan itself but stick to his option strategy. Your concerns are valid Matt. But at the same time I have traded vertical spreads on the SPY and QQQ and held the position for only a couple of days. I know thats not exactly what dextor proposes but its also not that different.
 
Traderjohnsblog said:
Ya I tried to not comment on the trading plan itself but stick to his option strategy. Your concerns are valid Matt. But at the same time I have traded vertical spreads on the SPY and QQQ and held the position for only a couple of days. I know thats not exactly what dextor proposes but its also not that different.
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Different instruments. Equity guys tell me that they day trade Options, so I guess there is liquidity for that. CL is a different instrument and leveraged differently.
 
MattZ said:
Different instruments. Equity guys tell me that they day trade Options, so I guess there is liquidity for that. CL is a different instrument and leveraged differently.
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Absolutely different instruments. I trust your opinion on the difference between equities and futures. Especially when it comes to liquidity. You mentioned that futures options are leveraged differently. I am curious about what you meant by that? Just wondering.
 
Traderjohnsblog said:
Absolutely different instruments. I trust your opinion on the difference between equities and futures. Especially when it comes to liquidity. You mentioned that futures options are leveraged differently. I am curious about what you meant by that? Just wondering.
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Same goes for your opinion about equities. I am always interested in listening to others traders experience. Keeps an open mind, encourages flexibility in trading and creates a nice dialogue.

As for your question: my understanding that equity options are always consisting of 100 shares. In Futures, they are based on varying contract sizes (1000 barrels of oil, 100 0z of Gold, 5000 Bushels of what, etc.)
 
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