That's an "and"
You have to be right on direction and volatility (in that order) if you are using options for delta.
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Trading Index or Stock Options Preference
- Thread starter Mitch89
- Start date
That's an "and"
You have to be right on direction and volatility (in that order) if you are using options for delta.
Quote from rfriend73:
KTM,
you have only traded index options for the last 10 years ? Have you seen significant changes due to HFT and decreased volumes over the last few years ?
There really isn't much HFT in options from what I've seen. Transaction costs and spreads are too onerous for that approach.
Volumes have grown slightly over the years as technology deployed by brokers enable more traders - both institutional and retail - to put on spreads and hedge equity positions. It's hard to measure the precise growth in interest as something like the S&P is spread over ES, SP, SPY plus all the funds and vehicles that track and hold them and proxy them.
They have no choice but to grow since a significant percentage of the public now has their retirement in 401Ks - which generally have exposure to the market via broad based indices. Thirty years ago, this stuff didn't even exist.
Quote from newwurldmn:
That's an "and"
You have to be right on direction and volatility (in that order) if you are using options for delta.
More for equities than indices? Thus far I see more IV spikes in equities rather than indices.
And no matter how I lay out the trade, if the underlying moves too much everything goes down the tubes.
Quote from newwurldmn:
That's an "and"
You have to be right on direction and volatility (in that order) if you are using options for delta.
Perhaps its nuance..... but if I decide to buy a slightly out of the money tight call spread on xyz I'm banking on a positive direction...not really caring about the volatility of xyz. Obviously if I'm right on both the upward direction and lower volatility I make more money. but my bet is primarily directional.
OTH if I sell a strangle/straddle on the ES with the vix at 14...the next day when the vix goes back down to 12.5 I've made money regardless of direction. My bet by selling the strangle/straddle is primarily vol bet
Quote from RichardRimes:
Perhaps its nuance..... but if I decide to buy a slightly out of the money tight call spread on xyz I'm banking on a positive direction...not really caring about the volatility of xyz. Obviously if I'm right on both the upward direction and lower volatility I make more money. but my bet is primarily directional.
OTH if I sell a strangle/straddle on the ES with the vix at 14...the next day when the vix goes back down to 12.5 I've made money regardless of direction. My bet by selling the strangle/straddle is primarily vol bet
Not just implied volatility but more importantly realize volatility.
Your otm call spread is useful if the stock rallies enough over the time frame.
Your short straddle is okay if the underlying moves less than is priced in over the timeframe.
Quote from IV_Trader:
I am long vola on SPY for a few months nowâ¦I truly donât understated how one can go short on instrument with vola of 11â¦Japan/Europe openings, heavy macro econ calendar daysâ¦plenty of opportunities for gamma adjustments to pay for decay
May was a very good month for me , especially last week
Here we goâ¦a stunning 2 points opening gap on such a low vola. Short straddle/strangle PnL probably showing a loss of 25%...in ONE day!
This is a very good question and in fact I am currently writing about this subject but in a different way than you would find in the traditional articles or books.
In general Options are more superior to trade than stocks, but options are not easy to trade even if you are simply buying calls and puts.
I have been trading options on equities, indices and forex, as well as spot Forex since 2006. Trading to me is like a chess game, all of us know the rules but we play differently and at different levels, from the newbie to the professional to the master.
Lets set some rules to answer your questions, and for this mater I will copy the first part of a recent article that I am about to publish. It say:
Letâs agree on certain facts and draw some conclusions to set our path forward:
1. If you know that 95% of options expire worthless, then selling options to collect premiums is the best strategy for trading; especially when you also add that most market makers trade this way as well.
2. If you know that selling naked options is only made for seven figures account, then for most traders a spread (vertical, time, or diagonal) will be the selected vehicle to trade out of the above strategy.
3. If you know that price of any security (e.g. stock, index, commodity, etc.) trends up or down about 40% of the time and sideway 60% of the time, then an Iron Condor, I.C. (spreads above and below the existing price) is the best combined positions you can have in the market; added to that is you will have margin on only one side and not both sides of the IC.
4. If you know that option prices are inflated when the volatility is high, then the best time to trade is selling an I.C. when the volatility is high (we will come to explore this point later).
5. If you know that you could be assigned for any security or index at any time when the extrinsic value diminished except for European style options (assigned only at expiration date), then you would prefer trading a European style options.
6. Added to that there are five European style options that are cash settled (i.e. there is no assignment but reconciliation of the trade through cash settlement) then you would prefer to trade these indices.
TESE INDECIS ARE:
a) SPX
b) DJX
c) NDX
d) RUT
e) OEX
Now there are two types of Iron Condors to trade: i) High Probability I.C. (low credit premium), and ii) Low Probability I.C. (high credit premium); which one of these to trade?
The master trader, in fact, trades both low and high probability I.C. but in a completely different way than mentioned in any book, system, forum, or anywhere else, except as cited below.
I will refer you at this point to Doc Severson for his comprehensive knowledge about IC.
The volatility of the current market is low; this is an environment of buying selective options. However, some I.C and spreads could also be sold but in more creative ways than that of the traditional.
Hope that helped.
Dr. A. Shafi.
In general Options are more superior to trade than stocks, but options are not easy to trade even if you are simply buying calls and puts.
I have been trading options on equities, indices and forex, as well as spot Forex since 2006. Trading to me is like a chess game, all of us know the rules but we play differently and at different levels, from the newbie to the professional to the master.
Lets set some rules to answer your questions, and for this mater I will copy the first part of a recent article that I am about to publish. It say:
Letâs agree on certain facts and draw some conclusions to set our path forward:
1. If you know that 95% of options expire worthless, then selling options to collect premiums is the best strategy for trading; especially when you also add that most market makers trade this way as well.
2. If you know that selling naked options is only made for seven figures account, then for most traders a spread (vertical, time, or diagonal) will be the selected vehicle to trade out of the above strategy.
3. If you know that price of any security (e.g. stock, index, commodity, etc.) trends up or down about 40% of the time and sideway 60% of the time, then an Iron Condor, I.C. (spreads above and below the existing price) is the best combined positions you can have in the market; added to that is you will have margin on only one side and not both sides of the IC.
4. If you know that option prices are inflated when the volatility is high, then the best time to trade is selling an I.C. when the volatility is high (we will come to explore this point later).
5. If you know that you could be assigned for any security or index at any time when the extrinsic value diminished except for European style options (assigned only at expiration date), then you would prefer trading a European style options.
6. Added to that there are five European style options that are cash settled (i.e. there is no assignment but reconciliation of the trade through cash settlement) then you would prefer to trade these indices.
TESE INDECIS ARE:
a) SPX
b) DJX
c) NDX
d) RUT
e) OEX
Now there are two types of Iron Condors to trade: i) High Probability I.C. (low credit premium), and ii) Low Probability I.C. (high credit premium); which one of these to trade?
The master trader, in fact, trades both low and high probability I.C. but in a completely different way than mentioned in any book, system, forum, or anywhere else, except as cited below.
I will refer you at this point to Doc Severson for his comprehensive knowledge about IC.
The volatility of the current market is low; this is an environment of buying selective options. However, some I.C and spreads could also be sold but in more creative ways than that of the traditional.
Hope that helped.
Dr. A. Shafi.