Trading future options vs Trading futures

[Handle123]

Side topic::
Sometimes I really envy you guys.

I have recently found a good trading set up and it's like a holy grail to me.

The problem was always with me having no guts to pull the trigger and my account size is too small to trade futures and when I am in the trade I don't get out when I'm supposed to...it's the fear of losing ....( did everything wrong in the book, yea i know, or maybe it's a timezone thing where i'm living on the equator, not thinking correctly. )

Now I really hate myself because my set up works....but i'm not getting the profits.
I was working out the figures, it would have been like 20k USD in just this month alone....

Maybe I should continue working and just do indexing instead of trading futures.

it seems that account size does affect one psychologically...

If account under 15k, trade markets with margins under $1200 overnight, margins often show us amount of risk.

 

[stepan7]

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.

Matt, you are never trade directionally option futures as replacement for futures, aren't you?

 

[Handle123]

Matt, you are never trade directionally option futures as replacement for futures, aren't you?

Only way I see this working is one designs 90% profitable signal day trading or maybe up to three days, there is a discount so you end up buying when making new highs/lows and expecting a turn like off a trendline or dead cat bounce. But most futures with exception of energies and financials, maybe couple of grains, the volume in options are in nearby and after that month, spreads widen where spending ways too much even if front month is discount. Time decay just too much if standing still.

 

[lawrence-lugar]

Options are more explosive then uranium, if you truly know what you're doing and understand them -- and can apply them ,
A-Bomb, B-Bomb...C-Bomb...all the way to Z. Wipeout the whole 123 Alphabet.

You can just place one trade...that can last anywhere from one day to a week, and essentially call it a year with that % return performance.

 

[dextor]

Does that mean you would breakeven most of the time?

In futures I average 5-15% winning trades based on yearly stats and do very well cause often times my risk is positive if I can hedge correctlly. But that does not mean it be winning trade as I judge winning trades to be minimal of $20k including rollovers. And my approach is worst if you have problems of depression.. I went down horrible road but paid off after several years. When you learn to hedge correctly, your risk is so small and drawdowns...reward is hundreds of percents, but I have waited up to 7 year for trade to work out, forces you to learn how to make money other ways in that market Eurodollars.

Are you by any chance referring to forex? I prefer not to get involve in that .... forex is tricky. I think I have better chance at index futures than forex. It's just the account size and discipline I should take care of.

If account under 15k, trade markets with margins under $1200 overnight, margins often show us amount of risk.

 

[dextor]

I just realized that I cannot do SPY & QQQ, I didn't put a large sum into my account. If I do trade these 2 contracts, I would be considered a pattern day trader (PDT). I do have a small future account because I'm trying to limit the damage I can do if I go berserk on revenge trading. Futures doesn't have this concept of PDT.

Another question,
Which would be recommended -
1. Buy a futures index contract at 6500 (NQ) buy long NQ put strike for 6450 or maybe 6500 put strike.

2. Buy a futures index contract at 6500 (NQ) stop loss at 6450

3. Buy an ITM index option (NQ) with call strike 6500


(Not taking greeks into consideration yet)

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.

 

[IndyJonerJr]

problem with FOP is bid ask spread.. horrible, downright horrible.. as Matt said most maybe trade volatility, but then there is getting out.. which I cannot see being done as I trade far OTM options, I'm sure ATM or ITM is different story but seriously you gotta work as it's just a war to come to terms on price.. just go in between what the bid/ask is and usually you'll find a good momentum then start playing on the trend and FEAR, haha

I find I'll trade whatever gives me the most premium that week, plain and simple.. I also stagger my plays picking up more everyday.. I see where margin is at, where the index is sitting and what strike I do have, and go from there, just taking dollars in far OTM so if we have these crazy drops like we've had you still sleep...

whoever was asking, to get into, just pick up some OTM options that expire that day on open, people want to dump them, so try that maybe, as it's "free lunch".. hell this week, I was just scooping up far OTM options, with all the margin I had left, couple hours till close. it aint gonna make you rich but start seeing and playing with futures options, as I use to like NDX a lot, then started getting into NQ, as I find it pays a little better and you get to close out a little quicker then NDX

 

[dextor]

Hello IndyJonerJr,

What happens if the future index options goes against you just before expiry? Wouldn't your margins increase exponentially? Unless you have a lot in your trading account ....how would this strategy work in a black swan event?

problem with FOP is bid ask spread.. horrible, downright horrible.. as Matt said most maybe trade volatility, but then there is getting out.. which I cannot see being done as I trade far OTM options, I'm sure ATM or ITM is different story but seriously you gotta work as it's just a war to come to terms on price.. just go in between what the bid/ask is and usually you'll find a good momentum then start playing on the trend and FEAR, haha

I find I'll trade whatever gives me the most premium that week, plain and simple.. I also stagger my plays picking up more everyday.. I see where margin is at, where the index is sitting and what strike I do have, and go from there, just taking dollars in far OTM so if we have these crazy drops like we've had you still sleep...

whoever was asking, to get into, just pick up some OTM options that expire that day on open, people want to dump them, so try that maybe, as it's "free lunch".. hell this week, I was just scooping up far OTM options, with all the margin I had left, couple hours till close. it aint gonna make you rich but start seeing and playing with futures options, as I use to like NDX a lot, then started getting into NQ, as I find it pays a little better and you get to close out a little quicker then NDX

 

[caacapital]

I think its the liquidity more than the spreads if you have been trading $SPX options they arent that much different but getting out of an ITM option will be tricky at a favorable price. I have a hard enough time getting $SPY ITM options at the price I want. But if your swinging futures option makes alot of sense to cap your exposure. For long buy the future buy a put x points away.

 

[IndyJonerJr]

Hello IndyJonerJr,

What happens if the future index options goes against you just before expiry? Wouldn't your margins increase exponentially? Unless you have a lot in your trading account ....how would this strategy work in a black swan event?

before close, if it went against you , you didn't something wrong. second it doesn't increase margin that much, just buy one and watch your margin, it doesn't move that much if at all, the problem more is if you fork over money, or you just ended up a new owner of a shiny contract that's worth less then you paid for it..


I can't say this for sure, but also I believe Friday is an exception as I've had my account go negative but nothing got sold off ( old days.. ) I just got some huge A expense fees from good ole IB ( interactive brokers ). maybe their algorithm said I was no where near being ITM so it let it go??? ???? this I have no clue on, but I also don't plan on exploring it further.. haha

I hold a lot on the side, for example these last two huge drops didn't affect me any at all, as I stage my plays, per day also. I woke up these days and said, oh ok.... the problem is I don't collect as much as others do I'm sure, as for example a guy who just got wiped out was taking in 10% a month.. I would love to get 10% a month but my new system gets about 1- 1 1/2 percent a month I believe.. but also I am always changing my routine, as I moved more to ES/NQ as I have a lot more money coming in and have to find a mechanical system as I liked doing earning reports, which I would average about 1/2 -1% every week,

but don't listen to me, I'm new at all this...

to your question, most everyone would get hit hard in a 20% sudden drop.. plain and simple as I'm sure a handful go that far down or wouldn't get affected at all, as going that far out means even less premium.. you get seduced into making more, as the chance of that happening is nil. so your gonna plan your whole life on a once in a life event to take place... not me . just look at where all the action is, it's close to the money, why? because it offers more reward, with more risk and it's a gamble.. the brain likes the idea of a large reward ignoring the risk at hand, plain and simple.. I suggest anyone with a gambling mind read Jason Zweig book.. and I think we're all gamblers.. the "correct" way would never to sell premium and to buy some broad base ETF and walk way, but it's boring and that's why everyone is on this site, for a thrill the chemical reactions taking place in our brain with the potential for money looming out there this week cause..

I think it's best to have some realistic goals and a system you never fail to adhere to no matter what the premium looks like one or two strikes up.. but once again, maybe you are destined to make a billion on collecting premium, maybe you find some sort of pattern that is repeatable and you get your McMansion and Ferrari, then have at it..

I also believe your problem at this point is capital. which then I would go to a more reasonable broker who does actual margin SPAN requirements. interactive brokers requires more on the side, thus less to play with an they have bad expense fees if you get close to using up all margin, which would destroy all your profit and more, I think the only way around this is a realistic time frame, and increasing capital to account, as if you can sell one or two that would take an eternity to make enough after commissions to even purchase one more contract ( 10k ).. something is better then nothing for sure, but man I would be hurting if I had to take in a couple dollars vs. ten's of thousands..