Trading options - How to have an edge?

crayon851 said:
do you have any recommended readings?
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Of course you can have edge! With hard work.
But IMO you must master futures before options...
Main difference between futures and options is that with futures, you "only" need the right direction while with options you need to get the right direction at the right time with the right strike.

One book : Options and option trading from Robert Ward.
 
Main difference between futures and options is that with futures, you "only" need the right direction while with options you need to get the right direction at the right time with the right strike.
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So why trade options when futures seems to be more forgiving...less thing to get right? Both are leveraged instruments.
 
Options traders who do well seem to often be betting on volatility rather than predicting on whether its gonna go up or down, and use all kinds of complicated options strategies to do so. I do t think I know of any profitable futures traders here, but there are a few options/volatility traders who are clearly making consistent money from what I've seen.
Most traders here use charts to try to predict direction and inevitably lose money.
I don't know what methods options trades use to predict volatility though, although I'd like to learn as they seem to be making all of the money and it seems less like luck/technical analysis voodoo that the rest are trying to make work
 
swingtrader123 said:
So why trade options when futures seems to be more forgiving...less thing to get right? Both are leveraged instruments.
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Futures and options are complementary.
Sure you will be right less often with options... But you better trade options in some particular cases, specially before a volatility breakout.
When you are an option buyer, you know exactly how much you will loose if you are wrong. With futures, you need to have stop loss, and you can easily loose a lot if you don't respect them. You can hedge a small part of your capital with futures, you can hedge 100% of your capital with options. Moreover, you can 100folds your investment with options. Impossible with futures.
So few risks, max reward, but you ll be wrong more times than with futures.
For example, Vic Sperandeo and Paul Tudor Jones made a fortune during 19th October 1987 crash thanks to puts. They just bought after a -4% day (Friday the 16th) so volatility was already high! So it was never too late.

Remember that the most important is not being right but maximize your gains when you are right.
 
I think with options, what you can do is get an understanding of how they move and how they work, which are the greeks etc and then I think its mainly all about picking a direction of the stock be it up down or sideways. So once you know where the instrument is going all you need to know is what strike/expiration to buy and sell. After the understanding its all about applying the concepts and practicing anyway. So I look to take a lot of courses, doesn't matter who they are as I think everyone has something to teach . Learn what those traders/educators know and then just apply and practice.

I also follow a lot of traders on stocktwits and then just see what options they are trading and why and try and find the reason for it and their results. This way of looking at things overtime I think it kinda sinks in..Also attending a free trading class about options tomorrow I heard a trader tweet out on stocktwits.

not sure if I am allowed to post link on here, so wont post link to the free class, but its on this guy's twitter second tweet from the start @DeltaNinety on Stocktwits
 
[quote="Aj2014, post: 4025322, member: 480956"
Most traders here use charts to try to predict direction and inevitably lose money.[/quote]

uh, if all you had to do was pick direction, you'd be right 50% of the time at random.

options not for the squeamish.
 
Chris Mac said:
Of course you can have edge! With hard work.
But IMO you must master futures before options...
Main difference between futures and options is that with futures, you "only" need the right direction while with options you need to get the right direction at the right time with the right strike.

One book : Options and option trading from Robert Ward.
More...
thanks for the recommendation i willlook into that!

one trading I'm doing right now is TZA. this market is too rich right now for me, and this seems to be the best bet atm.
 
Chris Mac said:
Of course you can have edge! With hard work.
But IMO you must master futures before options...
Main difference between futures and options is that with futures, you "only" need the right direction while with options you need to get the right direction at the right time with the right strike.

One book : Options and option trading from Robert Ward.
More...

Chris
I think that your example only covers the buying of options part. Lots of people make decent and steady returns selling options, which makes you the insurance company, and you get a premium to cover a predefined risk. I am not just talking about selling puts and hoping to collect 1%, those are great trades if you want to own the stock at a cheaper price. There is also spreads, which allow you to insure against the a fall of a big cap stock by more than 15% in a month. ( awesome as long as you avoid Earnings)
 
SmokingAces said:
Chris
I think that your example only covers the buying of options part. Lots of people make decent and steady returns selling options, which makes you the insurance company, and you get a premium to cover a predefined risk. I am not just talking about selling puts and hoping to collect 1%, those are great trades if you want to own the stock at a cheaper price. There is also spreads, which allow you to insure against the a fall of a big cap stock by more than 15% in a month. ( awesome as long as you avoid Earnings)
More...


Predefined risk?
 
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